BARRIERS TO ENTRY IN THE INDONESIA FURNITURE MARKET.

Indonesia is one of the Asian countries that are well known for its forest natural resources. It has one of the good quality wood and other materials from which house hold funitures could be made of.There are many countries in the world that are involved in the furniture industry in Indonessia because of its cheap products as a result of the abondant raw materials as well as the low cost of production. There are also other factors which influence the low cost of the prodcuts such as the illegal obtaining of the raw materials and the existence of illegal furniture operating busiensses due to the ineffective information and currupt system of the government. But this is moving on to a different face as the government is been urged by the international community in general and the European Union and the United state in particular to set up an effective legal infrasture in place that will legalise all activities that have to do with the forest industry and other department for the good of the environment and for maintaining good business relationships among nations. This move is intended to protect those with official licenses operating in the industry from the effect of those engaging in illegal trading both in and out of the country. Due to the currupt system, many people are able to operate illegally and escape paying government taxes and the fees to obtain legalization. This has a great disadvantage to those who cannot or do not have the means to do business in this manner thereby being the victims of price fluctations and inprofitable business. This will not be in the interest of beginners as it will increase their costs to enter and survive in the business while also reducing their profits if they are able to make one. On the economic side, the success of the enforcement of this legal infrastructure will raise the government revunes because they will then have most of the participants fully registered and will ease the collection of their dues as well as preventing price fluctations. It will also increase the confidence of the international investors to enter the country. The forest owners will also benefit greatly from this policy as they will have full control over their plantations and there will be price stability for their raw materials. Further, it will also promote the chances of level playing field in the industry wherein perfect competition will be allowed to funtion. On the evironmental side, due to the lack of proper law enforcement to the accquisition of the raw materials, the forest is been ripped of its timbers and other furniture materials illegaly for both national markets and for smullguling to the neigbouring countries. Due to these uncontrollable activities, the chances of erosion and climatechanges are on the rise. It also greatly affects the wild life which is forced to move to other locations in search of shelter. Wild life is very important for a counry because it is one of the reasons that tourist visit certain countries that are a source of revenue both for the government, the business and the locals. http://www.indonesia.go.id/en/index.php?option=search&Itemid=5&searchword=furniture+industry +&image2.x=25&image2.y=5 http://www.iffina-indonesia.com/2009/content.php?go=media-news&show=1&news_id=1041 Despite all the odds over the raw materials, Indonessia is determining to take the leadership from China as the world leading furniture producer. Even with the economic crisis, Indoenesia did very well in 2008 with growth of revenue in the handcraft and furniture business. This is due to the vast availability of the raw material in the country. The leading competitors in the handcraft and furniture business are America which imports almost 30% of the total handcrafts and furnitures. The second biggest importer is Japan with a 11%, followed by The Netherlands and France with a market share of 9 and 6 percents respectively. Due to the government ambition to expand in the furniture industry,

is focusing on developing their market in Easterm Europe and with specail attention for the Middle East and also to Africa. In other to speed up their international market share which is an advantage for the new entrants because of the saturation of the market, they are giving great attention to their trade fairs which are drawing the attention of businessmen around the world. http://www.indonesia.go.id/en/index.php?option=com_content&task=view&id=7705&Itemid=701 The other problem worth noting is that of the government trying to implement the new company law forcing all compannies doing business in the natural resources sector to donate part of their profit to the cooperate social responsibility programme in a way to improve the infstracture whereby investors will be attracted in the country. There is no specific amount at the moment and the penalities that will follow for any refusal to the law since the alteration of the 5% required earlier. This is a move that brought frustration to the companies concerned of which the furniture industry is part of them. http://www.eurocham.or.id/en/laws-and-regulations/company-law

THE POWER OF THE SUPPLIER The worlds focus in Asia for business because of their cheap labor, their educational background and the availlability of raw materials in some industry is leading up to a greater disadvantage in the other way round. Taking the forest industry for example, the demand for furniture is contributing highly to the issue of climate changes. In the world forum of Copanhagen last december, it was discussed heavily on how to curtail climate changes. It is an upcoming policy that, countries with significant forest resources will be compensated with huge sums to preserve their forests. Also, some Asians and African countries have had a meeting on how to have a collective management system in place that will result to a reduction on climate changes as well as providing the means for the local communities to benefit from the forest especailly those whose survival greately depend on it. With all these efforts in place, a fall in the supply of wood and other forest related raw materials for furniture is obvious and this will give power to the suppliers. Because, where there is less availlability or strictly controllabe quotas of raw materials in a world thirsty of furniture is enforced, the supplier will definitely have a chance to dictate the price. http://www.indonesia.go.id/en/index.php?option=com_content&task=view&id=249&Itemid=753 With the current step of the EU and the United State to have a legal system of timber and other forest furniture production with Asian countries, is a move to stop illegal activities in the industry. This will drive all suppliers who entered the market for short run profit. The remaining suppliers will have more chances to invest and grow in other to meet the demands of their growing clients both in quality production and availlability as well as meeting the standards of the international market in terms of the rules of engagement. Already, a group of timber trade representatives led by the United Kingdom met with representatives of the Indonesian timber industry met in Jarkata to discuss these movies. Among those who attended were the Indonesian Furniture Association (ASMINDO) and well over hundered producers of timber and furnitures. The move was welcomed by all participants which is a good direction not only to increase the revenues of the supplier but also to increase their control over supply because they will be concentrated.

http://www.docstoc.com/docs/16830286/Indonesian-Furniture-Association-(ASMINDO)-and-UKTimber-Trade POWER OF THE BUYER Indonesia is a country with lot of loopholes for illegal trading in timber and forest related raw materials for furniture as a result of the currupt system. With these illegal transactions, the buyer stands at a chance to buy to his advantage. Also, the countrys fortune in forest resources increases the buyers negeotiating power. Indonesia has the worlds second larges tropical forest after US which makes it capable of mass raw materials production from which the buyer has a chance to bargain the price. http://www.state.gov/r/pa/ei/bgn/2748.htm Another problem that gives the buyer more power is the quality and the on time delivery issue. The industry is not producing to the standard that the market is asking for due to the lack of the needed technological infrastructure in place. This is also a delay in the later delivery of orders. Also, due to the awareness of the cost of production in the region as a result of cheap labor and the mass availlability of raw materials, the buyer takes this as an advantage to dictate the price to the produceer and supplier. The fact that the neighbouring countries like Malasia, Phillipines, Singapore, Thiland etc. are also fiercely competing in the furniture market, gives the buyer more chances to bargain the price because of the threat to buy from the neighbouring counties.Because of its famous tourist attractiveness, Bali has been a home to a lot of business activities like oil and gas, silver, coal, tin, gold, bauxite, copper,rubber, palm oil, coffee including furniture etc making it a good place for business . The saturation of the sellers is an advantage for the buyers as they can choose from a variety of offerings. ftp://ftp.fao.org/docrep/fao/005/AC921E/AC921E05.pdf On the other hand, the buyers power will be weaken due to the anticipated shortage of raw materials as a result of the international community decision on the need to preserve the forests. As a result of the rapid climate changes in the world and especially the flooding that has been happening in Indonesia, there is a great need for a rapid move towards this direction. Indonesia must take control of the deforestration activities in the country in other to help reduce the natural diasters that are taking place as a result of the activities of man. The international community is putting menasures in place to subsides countries with large forest resources to preseve them for the good of the environment. The government of indonesia is responding to the demands of the international body and as a result, it has taken a different approach to see that all stakeholders in the forest activities go through legal chanels prior to their activities. This means, buyers will no longer celebrate the old days of buying from illegal sources which offer them less prices to their demands. Also, the rate at which the forest is harvested of its resources must be according to the specified amount per year (in the above source). Such a move, will definitely hamper the production and availability of raw materials which as a result will lessen the power of the buyer to dictate price. http://www.traveldocs.com/id/economy.htm

RIVALRY It is reproted that the furniture industry in Indonesia has over 3,500 companies employing over two million workers. http://www.worldfurnitureonline.com/showPage.php?template=reports&id=73#top The four biggest importers of Indonesian furniture are: America with a total of 30% of the produciton, the second biggest importer is Japan with a total of 11% followed by The Netherlands and France with 9% and 6% respectively. This has shown that there is a fierce competition between the last three countries as seen by the differeces of market shares. Four countries alone have taken more than half of the furniture production of indonesia. http://www.indonesia.go.id/en/index.php?option=com_content&task=view&id=7705&Itemid=701 The international focus on Indonesias furniture is so great that the amount of countries importing furniture from there since 2005 is upto 220. Although the table below is not current, but it gives at least an idea of the trend of the furniture market in the top ten countries. Indonesia has a lot of other materials from which household furniture could be made for example, table could be made from various materials. However, wooden furniture is the most used.

Indonesia export of furniture by main countries of destination No Country Export Value (in US$ 000) Jan-Sept 2006 2005 . 1 2 3 4 5 6 7 8 9 Total United States Japan Netherland 1,357,228 423,867 136,669 85,392 2004 2003

1,835,106 1,652,204 1,561,307 547,181 183,389 115,808 114,870 102,604 101,692 91,485 77,617 71,286 482,529 181,031 110,032 101,346 93,243 95,694 57,589 75,824 61,731 440,317 174,374 112,369 87,051 100,001 91,262 47,259 74,900 63,132

United Kingdom 79,360 France Germany Italy Belgium Spain 66,888 73,498 47,073 59,112 55,833

10 Australia . Others

43,123 286,413

62,832 366,342

66,859 326,326

64,335 306,307

http://www.nafed.go.id/sourcing.php?ctrl=info&idsourcing=18 looking at the world in respect to the production of furniture, Germany has the largest market share with a 27% of all the furniture production of the total european union, Italy 21.6%, France 13.5%, UK with a 10.4%. Canada is the worlds fifth largest exporter of furniture. In Asia, Indonesia is not the only country with natural resources for furniture. In the south eastern region of Asia, Phillippines, Indonesia, Malasia, Singapore, Thailand, Korea, Taiwan and India are active producers of furniture and furniture and owners of furniture raw materials. China is both a production center, a center for circulation and an exhibition center for furniture in the world. http://www.furnituremanufacturers.net/world-furniture-industry.html THE SUBSTITUTES Indonesia is a coutry with many raw materials to make furniture from. Tables could be made from different other materials besides wood. Although wood tends to have the biggest market share in the furniture industry but other materials like, rattan, rattan pole, wicker, mahogany wicker, mahogany wood, banana leaf natural, plastic, glass, silver etc. Most of these materials could be combined with wood in different forms which trims down the independent on wood tables.Below are examples of tables made from wicker and rattan pole-wicker, rattan pole and peel ,rattan frame, rattan peel respectively. There are many tables that are made from plastic. With so much alternatives for wood as a furniture material, the unavaillability of wood would not be greately felt.

http://www.rattanland.com/rtl_products/158.html

Japan, Europe and the United states are the three biggest market for indonesia rattan furniture.Indonesia is the worlds largest supplier of rattan materials with a market share of 85%. The determination of the furniture industry association(ASMINDO) is to reduce the dependent of furniture on the wood. It is asparing to make the rattan furniture as the leader in the furniture industry and for the locals to depend on its for their survival than on wood as a natural resource. To booster this move, the associtation is strongly embarking on organising international rattan furniture trade fairs to display the various designs in this material. The association is also confident on achieving this goal due to the fact that countries like: Germany, Japan, The Netherlands, Italy and Spain which used to be their competitors in the production of this material are no longer one. http://www.iffina-indonesia.com/2009/content.php?go=media-news&show=1&news_id=1019