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
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.
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.
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.
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
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 )