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Potential of Survival after entering Furniture Industry(Presentation in the subject of Managerial Economics)

Presented by-Madhurima GadreRoll no. 1063Synopsis

First, the term potential of survival is analyzed with the help of concepts like Porters Five Forces Analysis after which important aspects of furniture industry are discussed. Here, the concentration is on the Indian Furniture Industry and its history and development, Tariff and Import Policy and statistics relating to these topics are mentioned. Lastly, the potential of survival of a firm in furniture industry is analyzed in detail with the help of ideal Buyer & Seller Strategies.

Porters Five Forces Analysis

Itis a framework to analyze level of competition within an industry andbusiness strategy development and serves as an important tool to analyze the potential survival of an individual firm. It consists of those forces close to acompanythat affect its ability to serve its customers and make aprofit. It relies on the basic principle that the overall industry attractiveness does not imply that everyfirmin the industry will return the same profitability. Example: Consider the airlineindustry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average.

Threat of Entrants

Existing firms have a threat of new firms entering the industry. Profitable markets that are yielding high returns will attract entry of new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Following methods are used to avert the threat of new firms: Patents/Rights, high capital cost, Product differentiation, Customer loyalty, discount, schemes and offers.Threat of Substitutes

The existence of products outside of the realm of the common product boundaries increases thepropensityof customers to switch to alternatives. Factors affecting the threat of substitutes are: buyer propensity to switch to alternatives, relative price performance of substitute, number of alternative substitutes available in the industry, cost of switching, relative quality of substitute products.Buyer Power

The bargaining power of customers is also described as the market of outputs. It is the ability of customers to put thefirmunder pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives. Potential methods to reduce buyer program are: loyalty programs, implementing various schemes to retain the existing customer base.Supplier Power

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to thefirmcan be a source of power over the firm when there are few substitutes. Example: If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.Industry Rivalry

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Potential factors affecting Industry Rivalry are: Sustainablecompetitive advantagethroughinnovation, competition between online and offline companies, level ofadvertisingexpense, powerful competitive strategy, firmconcentration ratio, degree of transparency.

Furniture Industry

The furniture industry in India is estimated to be worth Euro 5 Billion. Interior design for homes is no longer the preserve of the rich and wealthy. The concept of good living is catching up with the middle class Indians. They do not mind spending an extra buck in decorating their new homes. This has resulted in a boom in the dcor market. Imported and designer furniture seem to be the key words when it comes to buying furniture at home. Exposure coupled with easy availability of funds have made more and more urban middle class couples to look for interior decorators while doing up their houses. Thus, more and more foreign furniture manufacturers and traders have been finding their way into the country of late.

Size of the IndustryThe Indian furniture industry is estimated at around Rs 35,000 crore (Rs 350 billion). Eighty-five per cent of this falls into the unorganized sectorGeographical distributionAll the metropolitan citiesOutput per annumThe market of wooden furniture solely owns the share of nearly Rs 60 crorePercentage in world marketIndia was the biggest furniture importer in 2004-05, with a 17 % share in furniture imports worldwide.Indian Furniture Industry: A brief Overview11YearImports of furniture in Euro Millions/ Year2001-0215.672002-0324.662003-0443.442004-0569.492005-06114.17Market Structure

Organized SectorUnorganized Sector

Wholesalers Importers Manufacturers

RetailersFranchisees & Exclusive Dealers Retailers Tariffs & Import Policy in Indian Furniture Industry

In recognition of the significance of the continued supply of imported logs to its wood-processing industry and following court-ordered restrictions on domestic logging in 1994-95, the Government of India began liberalizing wood product imports in 1995. Since then, there has been a gradual decrease in import duties on wood and wood products. The duties were reduced further in February/March 2004 and further cuts are planned, as part of an on-going commitment to WTO. Latest Developments

Indian share of the wooden furniture market is around Rs 60 crore (Rs 600 million). The world home furniture market is worth Rs 20,000 crore (Rs 200 billion). During the past three years, it grew by 20 % a year. According to a World Bank study, the organised furniture industry is expected to grow by 20 % a year and India, Russia and Brazil will witness a boom. Indian range of indigenous furniture includes both residential and contract system furniture, with an increased concentration in office and kitchen furniture.

Indian manufacturers generally use a three-tier selling and distribution structure, comprising the distributor, wholesaler and retailer. India was the biggest furniture importer in 2004-05, with a 17 % share in furniture imports worldwide. A total of 10,476 importers shipped furniture to India during this period. The current imports are mainly from Italy, Germany, Spain, China, Korea, Malaysia, Indonesia, the Philippines and Japan. The furniture market in India is mainly concentrated in A, B and C cities. It has been estimated that the top 784 urban centers contribute 41% to the total consumer furniture market. A and B type cities together contribute 33% of the total market.Buyer & Seller Strategies

Buyer decision making strategy is generally as follows:1) While decorating a NEW residence: Buying Decision is left to a Builder/Architect/Interior Decorator or the owner. 2) While RENOVATING a residence: Buying Decision is made by an Interior Designer or by the owner. 3) While furnishing a commercial complex: Buying Decision is made by the Builder/Architect/Interior Designer. The major reason that has propelled the growth of the imported furniture market is the exposure that the Indian people have received thanks to globalization and the media. In conclusion, it is important for the sellers to target: Architects, Builders, Interior Designers and also Participation in Furniture / Interiors Trade Fairs for increasing sales.