CHAPTER 4

Industry Organization and Competition

The furniture industry is highly competitive within and among major manufacturing countries. The top four large firms generate a quarter of the total profits, but the rest are small to medium companies whose numbers have diminished slightly due to recessionary pressures, mergers, and acquisitions. Overseas manufacturing thus was popular as a way to remain competitive, depending on the niche market and price point targeted, with average profit from revenue of around 2%. Some firms are single company giants (Ashley, Klaussner) while others are multibrand outcomes of mergers and acquisitions both domestic (Furniture Brands) and foreign (Samson, Ethan Allen). Each tries to make a statement with its style and matching price range. Some, such as Stickley and Samson, use a variety of acquired companies to present a wide range of both; others diversified themselves for a broader, more sustainable base (Klaussner). Marketing costs increased commensurate with the range of products and markets, averaging 2.6% of revenue.

This chapter takes a close look at several major U.S. furniture related firms. Examples represent different industry sectors (household case goods, office furniture, and an upholstery textile mill) as well as a range of firms from “Made in America” to owned overseas and imported. All demonstrated best practice features as seen in their rankings from the leading industry publication Furniture Today’s 2012 Top Ten list sample in Table 4.1¹ Of the top 20 national furniture stores (with units in all four major geographic regions) by the end of 2012, #1 Ashley was U.S. headquartered with furniture largely made overseas, #2 Ikea was foreign-owned with one manufacturing site in southern Virginia, and #3–5 were U.S. headquartered import conglomerates, followed by three mattress companies. Numbers 11–13 are U.S. made firms (Bassett of Virginia, Room & Board in Minneapolis, North Carolina’s Thomasville). The list includes two department stores (#16 Macy’s and #19 JCPenney) and two upscale design importers (#17 Arhaus of Ohio, #18 Design Within Reach of Stamford, CN).

Table 4.1. Top U.S. Furniture Corporations, 2010–2011

Case Studies of Major U.S. Firms

The Darwinian winnowing of U.S. furniture firms at the turn of the 21st century rewarded adopters of new process technology more than product innovations. Much as Ford created an example of mass manufacturing in the automobile industry, adaptations of lean manufacturing (also known as “The Toyota Way”²) enabled the viability of American furniture manufacturers in contrast to the low-cost movers to Asia. Key characteristics, demonstrated by the following company case studies,³ include:

Ashley

If there is an “elephant in the room” among domestic U.S. furniture makers, it would be this company. Ashley grew from its founding the year after World War II ended, catching the “nesting” instincts of returning GIs, to become the largest furniture company in the United States by 2013, commanding 38% of the domestic market. Wisconsin-headquartered Ashley Furniture combines both U.S. made and overseas sourced products, the latter increasingly suitable for its low end price point market. The company purportedly does not exist by selling commodities, but rather distinguishes itself through customer service—its key selling point. A major operating innovation lies in its licensee agreements with Ashley Furniture Home Store owners. Retail outlets have exclusive rights to carry Ashley products and must meet centrally set standards, but otherwise act as franchise operators. Producing primarily for the low-end market, Ashley responded to the recession by shedding several hundred factory jobs in Mississippi, but recently opened a large new facility in North Carolina. This well-heralded move added more capacity to an area that already featured Ashley’s suppliers of foam and fabricators, such as in the Mississippi delta region where other low end furniture firms recently expanded their facilities. Ashley’s expansion facilities include warehousing, an upholstery line, possibly case goods, and utilization of specialized furniture carriers already in the furniture-heavy Piedmont Triad location.

Ashley also outsources for competitive pricing with other low cost mass marketers. Their two-pronged expansion involved both the relocation/expansion to add a facility in North Carolina while at the same time opening an outlet in Shanghai. This was designed as the first of 100 stores in China featuring mid-level and commodity class furniture for the Chinese market. Ashley’s risk-averse strategy seeks to balance advantages and risks in diverse locations, using nonunion Southern factories to offset potential strikes in a Pennsylvania facility. This type of geographic bet hedging operates in other industries, such as Boeing’s move of its headquarters to Chicago and a Dreamliner assembly plant to strike-safe South Carolina, while maintaining its main operation north of Seattle, Washington.

Hickory Chair, Division of Furniture Brands International

Furniture Brands International (FBN), the largest furniture corporation in the world, operates nine upholstery facilities, three case goods facilities, one component manufacturing facility, and one multifunctional facility in the United States—Hickory Chair (HC)—which accounts for an outsized portion of FBN’s sales. An integrated case goods and upholstery firm in Hickory, North Carolina, Hickory Chair is a case study of information diffusion. It is a successful combination of leadership and innovative application of LM—an early adapter within the furniture industry seeking a transformation to relieve outsourcing pressures from globalization that pose a clear threat to survival of this industry in the United States. In the year of its 100th anniversary (2011), HC added 200 employees to its 500 worker base.

Started as the Surry Chair Company with the motto of “Chairs Made Better Than Seems Necessary,” the firm became the first residential upholstery manufacturer based in Hickory, soon to be a center of furniture manufacture. Mergers with other companies carried the renamed Hickory Chair Manufacturing Company through downtimes in the early 20th century, particularly when it turned to the new business of making reproduction furniture which it started turning out in 1943. The “James River Plantation” pieces are now the “oldest collection of 18th Century mahogany reproductions and adaptations in America,” and profited from a spurt of popularity when the Kennedy White House featured its restoration collection. Acquired by Lane Company in the 1960s, Hickory Chair started a wood products facility to manufacture case goods including, and going beyond, restoration work. Its products now include European to country American styles and designer collections.

Long a leading member of western North Carolina’s furniture cluster in the Appalachian foothills, Hickory Chair’s ascendancy to exemplary status began inauspiciously with the sudden demise of its Chairman on the eve of preparations for the all-important semiannual High Point Furniture Market. Jay Reardon, then head of the sales division, was suddenly promoted to head the company and began making the rounds asking workers what they did and how he could help them do their jobs better. As part of his search for management tools, he met Toyota’s regional head and was accepted as one of three companies trained annually in different industries in how to practice “The Toyota Way,” similar to the Japanese-pioneered ACCELERATE model. This form of lean manufacturing was soon adapted by Hickory as EDGE, its own “employee empowerment.” The company’s safety record of over 7 million safe hours worked without a loss-time injury toppled the National Safety Board’s record that had stood for over 20 years. Employees Dedicated to Growth and Excellence (EDGE) is Hickory Chair’s strength. This EDGE has allowed Hickory Chair to reduce cycle time, eliminate waste, improve quality, and ship all products quicker. Practices related to lean manufacturing, both intra-firm and extended to the supply chain, have yielded anomalously successful results.

The company forged a relationship with Toyota through Hickory’s managing director, Mr. Jay Reardon, and the Toyota Supplier Support Center director, and sought to diffuse lean manufacturing through a series of nearly monthly workshops involving firms from a range of industries as well as Hickory’s own customers, regional furniture manufacturers, and recently its own suppliers. Varieties of lean manufacturing are in various stages of adoption and implementation in small and medium firms throughout western North Carolina. Hickory Chair uses and seeks to propagate its own version of the Toyota Production System (TPS) which it calls EDGE (Employees Dedicated to Growth and Excellence), a version of lean manufacturing they evolved. Terms that frequently occur for characterizing the process are culture, people, improvement, respect. Lean manufacturing process strategies promote a program of morale-boosting recognition incentives and efficiencies through consultation.⁴

Hickory became the only profitable, employee hiring component in the Furniture Brands conglomerate during the downtown, and lean manufacturing became the consultant-led model for the companies in the group. Detroit’s Masco company moved from specializing in screws to faucets to furniture, in 2000 becoming Missouri headquartered Furniture Brand International. That company in turn acquired well-known brand lines Broyhill, Lane, Thomasville, Pearson, Drexel Heritage, Henredon, and Maitland-Smith, whose products are now largely manufactured in various parts of Asia.

Meanwhile, American Hickory retooled to survive and eventually prosper. Middle managers who resisted their new role of listening to and assisting rather than directing found other employment. Employees were recognized and rewarded for their suggestions for improvement that were approved and adopted by a joint assessment committee. Lagging work teams were featured at open morning meetings and improvement recommendations were openly solicited. Suppliers were also treated as team members and consulted on how to make the best product to meet customer specifications. Hickory holds two day workshops for salespeople and other industry representatives, featuring a plant tour of how its products are made and testimonials by workers at their workstations as to how the process works. Distinguishing features at the plant included large windows for natural light, lockers for employee goods and a common eating room, work tables that suck up chips, computerized cutters, pegboards so tools are visible and close by, and a nurse’s station where employees can stop in before proceeding to work. The President practices “management by walking around” rather than residing in a separate office, frequently chatting with workers. Hickory produces and finishes both case goods and upholstered furniture at its factory, locally sourcing as much as possible.

Klaussner

Klaussner Home Furnishings was established in 1963 to make furniture for mobile homes at an affordable price with the competitive advantage of speedy delivery within 1–2 weeks. In 1979 it was purchased by Mr. Klaussner, a German furniture maker who owned another company in his home country. The German firm was recently sold to several American managers of the U.S. firm. Its distinction remains providing value for price furniture at high speed, including U.S.-made customized pieces deliverable in 3 weeks or less. To achieve these ends, like Ethan Allen, the company strives for vertical integration (in-house control of all stages) and numerous national and international cooperative arrangements. Ten allied manufacturing facilities (including their foam manufacturer for upholstery and mattresses), a warehouse and distribution center, and company headquarters are in Asheboro, North Carolina next door to High Point. Cutting of leather, fabric coverings, and wood pieces takes place in another facility several miles away, connected by a major highway. In order to offer a full product line, Klaussner imports leather, upholstery, bedroom, dining room, occasional, and memory foam bedding, to supplement its local foam facility and offer a wide range of fabrics and other material choices spanning a large range of price points. Its North Carolina headquarters coordinates production, warehouse, distribution, and service functions, along with maintaining a showroom in the two major furniture market centers of east coast High Point and west coast Las Vegas. As part of its global expansion, Klaussner will soon open a showroom in Shanghai, joining U.S. furniture companies such as Baker, Ethan Allen, Century, and Stanley to exhibit in China.

The variety of diversified price level products was a survival response from the Recession collapse of almost half of Klaussner’s customers. Clearly, a broader range and number of purchasers was needed, as suppliers also disappeared and Chinese plants diminished. Offerings now include an “Essentials” line that competes with Ashley, a mid-range Klaussner line, the higher price “Distinctions” line, a range of motion furniture in different price levels for different customers, and a “Comfort Design” line that competes with companies such as Bernhardt and Lexington (high end North Carolina case goods firms). At the less expensive end, Klaussner calculates that it can make and ship as far as the Midwestern states at a price comparable to and speed better than shipments from China. The highest growth mid-level sector sells for several hundred dollars less than their competition, according to Klaussner, principally due to their supply chain control and ongoing lean manufacturing transition.

Three years ago as part of its recovery from the recession, Klaussner contracted with a lean manufacturing consulting group to study their business system inventory flow and begin a leaner process, implemented with the assistance of a production specialist over the past year and continuing. A focus of the process was to look at relationships among suppliers, feeders, producers, wholesalers, distribution centers, and connections abroad to chart more efficiencies Running a model flow line made it possible to see the “TACT” time (from the German word for [drum]beat) and design better time flow focused on customer demand. A customer “pull” drives production, while inventory “push” predominates within the plant. A value-added (changing the product in some way) mapping exercise determined that approximately 2% of production time was spent in this way, or two hours in the standard six days devoted solely to production; average time is 0.5%, with 5–10% considered “world class.” Lean goals target raising value-creating activities, thus eliminating noncontributory waste in the manufacturing process, whether of time or material, at any stage of production from order to delivery.

Valdese Mills

While numerous other fabric mills were shutting down or subject to mergers and acquisitions (M&A), the head of this western North Carolina company in the small town of Valdese was an early adopter of lean manufacturing and quick purchaser of high-end machine technology to produce upholstery and decorative fabrics for residential furniture manufacturers. Cost savings from the former enabled the retention of skilled workers and training in operating the machinery that enabled a variety of batch sizes for high quality customized work. Valdese moved quickly to absorb customers of other failed fabric mills throughout North America, profiting from their problems by cherry-picking skilled workers and unfilled contracts before orders migrated to Chinese mills more accustomed to large standardized work. The success of Valdese, an ISO 9001 certified firm, supports the region’s upholstery furniture business, keeping that cluster competitive statewide and beyond. The range and quality of types of fabric handled by Valdese and the highly sophisticated level of machinery employed make it competitive for what U.S. companies in this industry do best: high quality and highly varied custom work that combines precision, reliability, and timely delivery due to effective and efficiently computer aided conscientiously streamlined organization. Valdese thus exemplifies qualities that hold promise for keeping domestic U.S. production competitive—technology, quality, creativity, niche market targeting, and drawing on embedded regional resources of trained labor.

Steelcase

Steelcase is a century old Grand Rapids, Michigan office furniture and furnishing company that moved out of wood furniture for the sake of fire safety when smoking was widespread, specializing at first in steel wastebaskets. Now the world’s largest office furniture manufacturer, Steelcase was one of the first American companies to adopt lean manufacturing throughout its plants. The company spread the practice from its Michigan headquarters to completely redesign the High Point, North Carolina affiliate. Executives of other furniture companies tour the High Point plant as a best practice model. One of its main designers of the transition to lean processes now works for another high end High Point company and conducts tours of that firm’s redesigned work flow operations. Steelcase exercises close and careful control of inventory, and designs product in several locations including a San Francisco, California affiliate.

Stickley

The Stickley brothers began constructing Mission Oak style furniture in the early 20th century as the “American Craftsmen” part of the British Arts and Crafts wave. Emphasis was placed on solid wood and simple but well-designed and long-lasting furniture, theoretically something the average skilled person could construct but actually too expensive for them to buy. The company lapsed for several decades following the passing of the founders and the advent of new fashions in furniture. It was acquired by the Audi family during the spate of industry turnovers in the 1980s. Buoyed by celebrity purchases and fickle fashion’s new notice, the company acquired Nickles and Stone (a less expensive solid wood and upholstered furniture firm) and Widdicomb (fancier, more upscale, and now divested as too far from the target market). They transformed the Nickels and Stone facility in High Point, North Carolina into a lean manufacturing center to test the new process model with an eye to renovating the New York state home facility, and opened a furniture showroom/retail center there. One style in particular is largely manufactured overseas, but little publicized, which is typical in the furniture industry. In these ways Stickley demonstrates the importance and impact of an innovative manager, and the role of nimble adaptations in the survival of an American classic.

The Samson Group

Samson Holdings is a large Chinese furniture wholesaler that owns a number of U.S. brand furniture stores. Many are headquartered in central North Carolina, including Universal, Legacy, Legend, Lacquer Craft, Craft Master, and Pennsylvania House, which formerly sold through a chain of its own brand name retail outlets. Samson continues to expand globally through purchase of U.K. brand Willis Gambier for entry into the European market. They opened a manufacturing facility in Bangladesh as well as two in the Pearl River Delta (PRD) and Shanghai along with one in North Carolina. As part of their vaunted “vertically integrated” system managed by a proprietary software system, Samson integrates furniture shipped from their Chinese factories through the port of Hong Kong in their own containers, to their own U.S. warehouses for distributing to targeted retail stores. In acknowledgement that globalization means catering to different markets, they also operate design centers on four continents: the United States, the United Kingdom, Hong Kong, and Brazil.

Markor, Key City, and Ethan Allen

Markor of Manchuria became a furniture manufacturer in 1990, drawing on neighbor Russia’s ample wood stock to make its products in what became a very successful enterprise. Sino-Russian birch with the proper stain passed for cherry wood at a discount. Ten years later Markor expanded to the U.S. market by acquiring Ethan Allen (founded in 1932), a brand name that conjures a classic image of New England Americana around the world. The company is indeed a global one, featured in four Markor-connected showroom retail outlets from remote Urumchi to bustling Shanghai. Shortly after its acquisition by Markor, Ethan Allen closed three U.S. plants, from home state Connecticut to furniture capital North Carolina, and production expanded in the Chinese parent company. Their U.S. manufacturing dropped from 85%–65% as a consequence. Careful to try to maintain its distinctive “colonial” style and coordinated furnishings, Ethan Allen runs its own wholesale operation and over 100 retail outlets. Like La-Z-Boy, the recliner giant and another Top Four firm, it largely out-sources upholstery productions to Mexico as do several firms affiliated with Furniture Brands International. Markor also owns a suite of U.S. located companies such as Schnadig, similar to the Samson Holding Group’s collection of furniture firms with both new and established names from several different countries. When a Chinese consumer wants to buy an American made piece of furniture, Ethan Allen (with lines made in southeast as well as east Asia) is often mentioned, though Mexico is also a frequently used location for manufacturing.

Wilkesboro, North Carolina’s “Key City” remains a family-owned furniture store since 1927, specializing in mid-high end custom upholstered pieces. It employs a sizable percentage of the small town’s workers. Key City survived and has thrived through the recession, using the down time to convert to lean manufacturing production processes pushed by its management that reduced production time from 6–8 weeks to a typical 2–3 weeks. In a typical “creative destruction” winnowing outcome, Key City acquired a nearby manufacturer of “country classic” furniture in 2011 and the following year entered into a partnership with Markor. The Chinese global furniture giant sought to greatly increase its upholstery fabric options from the usual cut-and-sew kit to enter an American custom market demanding choices, short turnaround time, responsive service, and willing to pay a 10% premium price. Key City’s retooled efficiency and experience fit the bill, so luxury line Ralph Lauren is now produced under joint Chinese-American auspices.

Major Competitors

The primary source for U.S. imports in 1972 was Europe (60%), especially Yugoslavia, followed by Canada, Denmark, Japan, Italy, and Taiwan. Six years later Taiwan was the top exporter, utilizing designs and experience from years of U.S. military and business expatriates ordering inexpensive furniture copies to be made there and arranging for parts assembly in the United States. Inexpensive Taiwanese labor and wood such as teak defrayed shipping costs, with bulk minimized from flat parts shipping similar to what Ikea would later popularize in their own name-brand overseas chain stores. By 1987 Asia replaced Europe as the top source of U.S. imports until depreciation of the Canadian dollar brought that country to the fore from 1994–2000, when China moved into the ascendancy. The latter was triggered by the movement of Taiwanese furniture manufacturers to the Mainland, taking advantage of China’s new openness to its neighbor for assistance in its modernization and global economic entry. Taking advantage of the new source of less expensive labor, Taiwanese manufacturers supplied funds and designs for new facilities, managerial, and export expertise. By 2006 furniture exports to the United States peaked, with China supplying 46% and its soon-to-be successor Vietnam breaking into third place, benefitting from the successful anti-dumping suit against Chinese wood bedroom furniture manufacturers.⁵

The countries vying for furniture industry business and their relative proportion of that market continues to shift. The overall picture is indicated in Table 4.2. Although Canada continues to be a significant source of lumber for U.S. furniture, the recession-fueled collapse of its furniture industry created an increasing demand for U.S. made furniture products. Petroleum-fueled profits in Middle Eastern Gulf countries created a market for prestigious brand name furniture, customized in light colors and styles preferred in desert countries. Oil-rich Venezuela represents a South American OPEC market. Japan’s recovering economy also released latent demand for furniture built for small spaces. Geographically isolated Australia has recovered its prerecession appetite for U.S. furniture as well. Canada, an early exporter of furniture to the United States, continues to be a major trade partner and wood exporter to this market. It has, however, become a large importer of furniture made by its southern neighbor and has seen the demise of many Canadian firms. Some of these now use U.S. firms as original equipment manufacturer (OEM) suppliers.

Table 4.2. Balance of U.S. Furniture Import-Export Destinations, 2008–2012, YTD Sept., $ mill

Values in table are U.S. dollar in millions, year-to-date (YTD).

China remains the huge trade balance loss leader, but Vietnam is best poised to absorb increasing business as companies move out of China to the nearest similar low cost location. Other issues may trim its attractiveness, as discussed in the individual country sections below. Mexico is the nearest neighbor to the large U.S. market. As roads and trucking practices improve it may lead to hemispherization movements some predict in the future. Taiwan is the source of higher quality and nonwooden furniture. Malaysia and Indonesia, with their traditional craft skills and ethnic Chinese networks, are already hosting former U.S. furniture manufacturers and vie to attract businesses exiting mainland Asia. Table 4.3⁶ details the extent of furniture business flows in 2010, the latest period of available statistics. According to U.S. international trade commission statistics, in 2012 U.S. exports largely went to Canada (54%), Mexico (8%), China (3%), and Saudi Arabia (2%). A more telling figure is the increase in exports to the latter two destinations since the prerecession year of 2007: an increase of 22% to China, and 6.7% to Saudi Arabia. Major import destinations in 2012 were from China (59%), Vietnam (10%), Canada (5%), and Mexico (also 5%). The relative value of exports to imports in 2012, however, was U.S. $2.3 billion in exports, compared to U.S. $21.2 billion in imports.

Table 4.3. Destination of Furniture Exports and Imports by Country, 2010

China

The “Asian Invasion” began in Hong Kong in 1959 when the University of Pennsylvania’s Wharton Business School graduate Larry Moh started Universal Furniture to make wood flooring and simple designs. He pioneered using Asia as a source of bedroom and dining room furniture styled to appeal to U.S. tastes, drawing on his cross-cultural U.S. experience and global Hong Kong ties. Moh sold Universal to furniture conglomerate Masco in 1989, after establishing ties to furniture centers in other Asian locations including Indonesia and the Philippines. His 2.6 million square foot plant near Shanghai was designed to make high end case goods and flooring under the brand name of the Fine Furniture Group. High Point-headquartered Universal currently owns plants in Morristown, Tennessee and Goldsboro, North Carolina along with five U.S. assembly facilities.

China became a major factor on the furniture scene in the late 1980s when quality of production matched the low cost of production including wage, overhead, and shipping costs. Political-economic changes in Taiwan, an earlier Asian furniture manufacturer, led Taiwan-based management to move to mainland Chinese manufacturing and bring their business expertise there. By the end of 2012 Taiwan was still the fifth largest importer of furniture to the United States. China furnished government support for construction of major factories in the special economic zone (SEZ) of the Pearl River Delta (PRD) between Guangzhou, the capital of southeastern Guangdong province, and formerly British Hong Kong, the shipping port. Designated cities within the PRD Special Economic Zone are linked with a particular type of furniture and a particular educational institution that trains workers for the industry. Chinese furniture factories, particularly in the PRD, tend to be much larger than their foreign counterparts and highly automated. As furniture industry expert Dugan observed, although “low labor costs are a huge factor in China’s expansion into the furniture industry…it is more than that. Modern factories, technology, machinery, low front-office cost, and relentless energy helped fuel this fabled growth.”⁷

Furniture clusters in specialized satellite suburbs outside other major cities such as Shanghai consists of smaller, craft-oriented factories as well that which cater to differentiated markets and price points for domestic, ascending middle class along with export trade. The latter furnish OEM parts to large name brand furniture makers (Henredon, Baker, etc.) along with selling under their own and associated brands. The total of Chinese global furniture exports from 2009–2012 increased even more than the increase to the United States alone (Figure 4.1).⁸

Figure 4.1. Proportion of U.S. shipment value to Chinese annual furniture export value, 2009–2012, by U.S. $ billion.

During the first three quarters of 2012 Chinese furniture exports to the United States maintained their market dominance at $9.17 billion, followed at a distance by Vietnam with $1.48 billion in furniture exports to the United States (primarily mid-level quality), and Malaysia with $515 million of exports, primarily leather upholstery.⁹ Continuing the pattern since the Industrial Revolution of geographic shifts in manufacturing following the creation of a middle class with rising wages driving low cost factories from Europe to the United States and then Asia, Chinese furniture manufacturing facilities now eye other places as their next move.¹⁰ More educated youth avoid the low paying harsh factory conditions, demanding more benefits and wages while the cohort of single children of working age diminishes along with the currency exchange differential of the dollar with a revaluating yuan. The next sections consider other non-U.S. options.

Vietnam

Already absorbing furniture business leaving China, Vietnam is considered a convenient next-stop alternative to its large northern neighbor. The government encourages and supports this effort with various incentives, and advertises the excellent port facilities (post-Vietnam War). Furniture and other manufacturing facilities cluster in industrial park areas around the capital city of Hanoi in the north (also populated by a relatively large number of ethnic Chinese Vietnamese) and in the Na Trang area around Ho Chi Minh City (formerly Saigon, capital of South Vietnam). Early movers note several drawbacks, however. These include less well developed infrastructure than in China, a smaller labor pool, and a different work ethic than prevails in China. Vietnam may well be part of the post-China boom, but not the substitute site, as its wage rate is also rising under the same pressure of success experienced in China.

Indonesia

Several places in the Indonesian archipelago, principally Semarang on the island of Java, are traditional locations for local textile and furniture work (especially carved pieces and finishing work) that are now sites of major U.S. name brand furniture factory expansions. Large conglomerates such as Furniture Brands International and Maitland-Smith contract out work to Javanese factories that are co-located with textile factories. While gradually increasing market demand for furniture has led to some hiring in the hundreds of U.S. workers, employment in the thousands occurs in these offshore locations to populate facilities in a location that has produced upper-mid to high-end, highly carved furniture for decades.¹⁰ Port facilities in Indonesia’s largest island provide adequate shipping and infrastructure connections—useful since components need to be imported as well as finished goods exported. As in Vietnam, a young demographic provides workers at lower cost than other Asian competitors. Furniture workers there earn an average of roughly $150 per month, compared with $430 in China and $200 in Vietnam, according to an industry source. Plantation trees like mahogany and teak are in ready supply, as is government infrastructure support for roads and airports in the three major Javanese furniture clusters of Jakarta (Indonesia’s capital), Surabaya, and Semarang.

Country-specific challenges resemble those faced in Vietnam, including the connection to ethnic Chinese that in Indonesia’s case occasionally sparks destructive riots affecting a successful minority’s businesses. This instability does not augur well in the long run, but the math makes it an attractive alternative for the moment. Furniture factory investments in both Southeast Asian countries are spearheaded by Taiwanese, fueled by previous experience when Taiwan was the first major Asian exporter to the United States and then from managing factories in mainland China during the heyday of that location. The main furniture products made in Indonesia and their U.S. dollars million value in the year 2011 were (a) miscellaneous wood furniture ($136.1), (b) wood bedroom furniture ($133.6), (c) wood beds ($58.8), (d) wood dining tables ($22.1), and (e) nonupholstered teak chairs ($21.5).

Brazil

Although thanks to NAFTA and its proximate location Mexico leads Brazil in 4th place for exports to the United States, this South American giant was the largest importer of furniture to the United States from Latin America in the third quarter of 2012, at 18th overall, placing it between the Philippines and Japan for exports to the United States. At the end of 2011, Brazil was the main Latin American producer of furniture representing 2% of world furniture production and 1% of global furniture exports.¹¹ While the volume is not large, Brazil is seen as having a large manufacturing potential. Many automobile companies in particular opened new factories there during the previous decade and the government continues business-friendly policies. Brazilian furniture manufacturers are sensitive to global concerns about climate change impacts due to the Amazonian forest depletion, so they tend to advertise their “green” sustainability devotion and claim that much furniture construction material comes from recycled wood rather than fresh forest harvesting. A major impediment to more interaction with Brazilian furniture lies in the large protection walls built by the Brazilian government to protect its own “infant industries” from foreign competition.

Competitive Strategies

How is an American furniture industry firm to fare on the global playing field in the face of challenging times? A few time-honored strategies have emerged to help, in addition to lean manufacturing processes that are now largely adopted in some form and implemented in successful companies. Several major strategies are discussed in the following sections that showcase some survival mechanisms of firms highlighted earlier.

Niche Products and Customization

The strategy of customization, designed to attract customer loyalty at the high-end market, enables the creation of products to fill a particular customer-specified design or meet demand for a particular style that will have a relatively small market. The cost of customization for these lean-manufacturing related markets can be lessened by the premium price such customers are willing to pay, and which is often suggested by (and shared with) their designer. It has proven to be an effective strategy and competitive advantage for developed country furniture manufacturers.

Branding

Name brands are used to attract customers to a particular segment of the market, associating an intangible aura with a physical manifestation of the purchasers taste, budget, style, era, national identification, and other positive aspirational identification images. When price is less an issue than image, the brand assumes elevated importance for designating an affiliation, for example, upscale colonial America with “Ethan Allen,” or “Baker” for customers wanting upper mid-level U.S. made furnishings to establish their ascent into a globally sophisticated and well-to-do class. “IKEA” projects Scandinavian clean-lined simplicity and do it yourself (DIY) sufficiency. Branding tends to transcend price as a mark of distinction related to a desired image projection, and “Made in America” is a positive sell in most overseas markets.¹² Customers who seek quality, safety assurance, longevity of their purchase, and recognition of the nature of their choice can be most easily aligned with a well-advertised brand. In countries where their own domestic production is somewhat suspect, whether in food or furniture, brand safety is a good sell.

Off-Shore Manufacturing

Discussed in detail by country of manufacture earlier in this chapter, off-shore (meaning outside the United States) manufacturing became a popular cost-cutting strategy for furniture manufacturers in the early 1990s. Timing was triggered by several factors, including transition of U.S. furniture firms from the generation of founders to outside family owner/managers, meeting the enhanced ability of Chinese manufacturers to match cost of production involving large factories and inexpensive, hard-working migrant labor with the level of quality acceptable to purchasers in a global (particularly American) market.¹³

Policy Strategies: Lobbying and Trade Protection

Efforts to influence furniture industry legislation are led by several large industry organizations that continue to consolidate over time like many of their clients. In early 2013 the National Home Furnishings Association (NHFA), Western Home Furnishings Association (WHFA), and Home Furnishings Independents Association (HFIA) merged to become the North American Home Furnishings Association (NAHFA). The new organization represents more than 2,000 corporations, and will operate with three regional headquarters representing its former organizations. Its main headquarters is in California where the majority of American furniture stores are located, but headquarter locations of merged associations in Texas and North Carolina also share retail focused functions. The new organization will operate jointly with the North Carolina American Home Furnishing Association (itself a product of the 2003 merger of two large lobbying bodies) which will retain its High Point office while deferring management to the Los Angeles based parent association. AHFA focuses on lobbying for wholesale and supplier members on issues from trade to environmental restrictions. The increased membership numbers and unified message is designed to enhance their lobbying clout on furniture industry issues. The American Home Furnishings Alliance maintains a useful website (http://www.ahfa.us/) with many searchable links relating to furniture industry issues and activities.

A major success of furniture lobbying efforts lay with the antidumping (a term for selling goods below the price of production, used to increase market share and put competitors out of business) suit against 198 Chinese manufacturers of wooden bedroom furniture. This legal action was originally filed in 2003. Extra duties were applied in 2004 and renewed in 2010, led by furniture companies Bassett and La-Z-Boy, to apply an additional tariff rate of from 7.25%–9% or 30%–200% on firms found to be in violation. A total of 184 factories received the 7% rate. The Byrd Amendment’s Anti-Dumping Act of 2000 provided that fines collected from non-U.S. firms judged to have sold their products below their cost of production are distributed to U.S. firms that filed the successful complaint—an extra reward for taking this legal step. The Chinese (possibly in retribution) currently impose a value added tax (VAT) of 17% on furniture sold to the United States, of which 17% was returned to Chinese companies by the government as an additional profit margin after selling to the United States for cost.¹⁴