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Dimensions of Globalization

The furniture industry is a vital component to the state of North Carolina. Engaging roughly ten percent of the state’s manufacturing employment and expending more than $2 billion in annual wages, the furniture industry is the focal point for many of North Carolina’s citizens. (Nwagbara, p.12) Unfortunately for North Carolina, the furniture industry has taken a tremendous hit in recent years. Between the years of 1997 and 2002, North Carolina lost more than 26,000 jobs in furniture manufacturing. (Buehlmann, p.3) Globalization is the primary reason for the dilemma currently faced by the furniture industry.

This segment helps the reader obtain an understanding of the severe effects globalization has had on the North Carolina furniture industry in addition to gaining an outlook into what can possibly be done to help the industry rebound We have divided the past 24 years into three separate sections, enabling the reader to comprehend how rapidly the furniture industry is deteriorating.

1980-1990

During the 1980’s, the furniture industry was still flourishing in North Carolina. Some considered the region to be the "furniture capital of the world." (Nwagbara, p.12 ) The title was appropriate since North Carolina produced "more than half of all home furniture used in the United States," (Nwagbara, p.12 ) one of the largest markets in the world. Between 1980 and 1990, total furniture employment grew by 3,163, nearly 4 percent. During these same years, North Carolina also experienced a net gain of 192 furniture companies. In 1988, the furniture industry’s total employment peaked at slightly more than 90,000 jobs. However, after 1998, a steady downfall in overall employment began.

1990-2000

The 1990’s brought tremendous frustration to the North Carolina furniture industry. As free trade became more widely accepted, the effects of globalization became extremely prominent. In an effort to compete with foreign corporations who were importing cheaper furniture products into the United States, many North Carolina furniture companies adopted cost-cutting measures to counter the high domestic production costs. Among the primary methods of reducing costs was to offshore and outsource services to lower wage Latin American and Asian countries.

As a consequence of these actions, between 1990 and 2000 North Carolina furniture employment decreased by 2,664 jobs or 3.4 percent when compared to the previous decade. The tremendous loss in employment was coupled with a net loss of 47 furniture companies. (Nwagbara, p.20)

2000-Present

The contemporary North Carolina furniture industry is in the worst condition it has ever encountered. In 2002, more than two thirds of domestic production was being imported and market competition from offshore furniture companies was roughly at 50 percent. Today, those numbers are even greater, with no signs of how high they will go. The increased competition from foreign furniture companies and consequent outsourcing of manufacturing services by U.S. companies caused North Carolina to lose 3,474 jobs in furniture plants closing with 50 or more job losses in 2001 alone. In 2002, an additional 2,191 jobs were lost within the first eight months. (Nwagbara, p.22 )

As the figures indicate, the furniture industry is surrounded with serious concerns over the condition of its future. With an escalating number of jobs being outsourced and rising pressures from foreign competition, furniture employment will likely continue on its downward spiral. For a better illustration of the degree to which employment has fallen throughout the past 15 years refer to the Maps and Tables section.

The Threat from China

China is fast asserting itself as the biggest threat to the North Carolina furniture industry. Increasingly, Chinese companies are producing high-quality goods at lower prices for sale in the U.S. Advances in production and distribution technology, coupled with transportation improvements, have allowed China to profitably enter the U.S. furniture market. With quality comparable to most domestically-made offerings, Chinese firms are compete effectively on cost. Less efficient North Carolina firms are forced to charge more for their products to cover higher expenses.

Despite the cost of shipping furniture to across the Pacific, Chinese firms can still underprice established producers in North Carolina. The cost of roughly $2800 per crate to transport furniture from China to a warehouse in North Carolina is offset by savings in both wages and captial. Hourly wages for furniture workers in China are between $0.50 and $0.75, as much as ten times lower than what is legal in the U.S. Additionally, it costs as little as $3.00 per square foot to increase factory size in China. In the U.S., expansion costs run about $15.00 per square foot.

The U.S. Department of Commerce is considering anti-dumping regulations and imposing tariffs on Chinese imports. While this offers temporary protection to North Carolina manufacturers, it is not the ultimate solutions to revitalize an industry on the downturn. Competition with China in the furniture industry may prove detrimental to other sectors as well. It threatens to spark a trade war with China that could lead to restrictions on U.S. exports.

There are opportunities for North Carolina's furniture producers in the midst of these challenges. Some companies in the state have been importing partially made items from China for finishing in domestically. This allows them to reap some of the cost savings abroad, while using the expertise of North Carolinians to finish the furniture and market it. This strategy cannot prevent all job losses, but it can help mitigate the effects of Chinese competition.

Affects on the Supply Chain

Although the large number of furniture jobs being lost is devastating in itself, the adverse affects go well beyond the furniture industry in North Carolina. Many other businesses, such as hardware, packaging, transportation, and retail companies, depend heavily of the furniture industry for their success. The lumber and wood suppliers, for instance, greatly rely on the furniture industry as a major consumer of their products. In 2000, a significant part of the $4.9 billion in value added by the lumber and wood suppliers was consumed by North Carolina’s furniture companies. (Buehlmann, p.3) A deteriorating furniture industry will create less demand for wood products, consequently forcing wood suppliers out of business.

As can be expected, the adverse affects created by the furniture industry trickle further down the supply chain than just the lumber and wood suppliers. The decreased demand for wood products will also hurt the loggers, who will have a reduced incentive to harvest trees. This in turn will negatively affect the pallet industry that depends on the low grade logs which are harvested each year. Below is a typical segment of the supply chain within the furniture industry.

Pallet Industry <-- Loggers --> Lumber Sellers --> Furniture industry

Possible Solutions

Although the North Carolina furniture industry is in a harsh downward spiral, many experts believe that there are still tremendous opportunities for furniture manufacturing. The primary argument is that with a strong housing market, increasingly larger homes, favorable demographics, and growing affluence, North Carolina is still in prime position for a successful furniture industry. (Nwagbara , p.5) The challenge domestic manufacturers face is how to remain competitive with lower cost foreign companies.

Schuler and Buehlmann argue that the "industry needs strategic renewal in the form of a new and more appropriate business model." (Nwagbara , p.6) The modernized business model must focus on innovation and include new manufacturing strategies, re-invented furniture products, and newly organized distribution channels. If this is to occur, the government and educational institutions must first acknowledge that there is a major problem in the furniture industry. After such an agreement is reached, they can proceed to developing a strategy that allows for the changes needed to create a rejuvenated furniture industry.

"An industry that delivers innovative, customized, high quality furniture with short delivery time at reasonable prices combined with a set of accompanying services (design, fashion, set-up, financial, etc.) does have sustainable competitive advantages that offshore producers cannot match." (Nwagbara, p.6 )

 

 



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