Potential of Survival after entering

Furniture Industry
(Presentation in the subject of Managerial Economics)






Presented by-
Madhurima Gadre
Roll no. 1063
Synopsis

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

It is a framework to analyze level of competition within an
industry and business strategy development and serves as an
important tool to analyze the potential survival of an
individual firm.
It consists of those forces close to a company that affect its
ability to serve its customers and make a profit.
It relies on the basic principle that the overall industry
attractiveness does not imply that every firm in the industry
will return the same profitability.
Example: Consider the airline industry. 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 the propensity of
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 the firm under 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 the firm can 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:
Sustainable competitive advantage through innovation,
competition between online and offline companies, level
of advertising expense, powerful competitive strategy,
firm concentration 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 Industry
The Indian furniture industry is estimated at around Rs 35,000 crore (Rs
350 billion). Eighty-five per cent of this falls into the unorganized sector
Geographical distribution All the metropolitan cities
Output per annum
The market of wooden furniture solely owns the share of nearly Rs 60
crore
Percentage in world market
India was the biggest furniture importer in 2004-05, with a 17 % share in
furniture imports worldwide.
Indian Furniture Industry: A brief Overview
Year Imports of furniture in Euro Millions/
Year
2001-02 15.67
2002-03 24.66
2003-04 43.44
2004-05 69.49
2005-06 114.17
Market Structure


Organized Sector Unorganized Sector


Wholesalers Importers Manufacturers


Retailers Franchisees & 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.