Canadian Office Furniture Industry Analysis - Research Paper Example

Canadian Office Furniture Industry Analysis Canadian Office Furniture Industry Analysis Introduction Office furniture manufacturing is an industry that has expanded significantly over the years. The growth has been facilitated by increased expansion of corporations as they adopt globalization strategies. Canada is the second manufacturer of office furniture in the world and the best manufacturer and supplier in the US markets. This paper discusses the Canadian office furniture industry. The paper gives a description of the industry, the value chain of the industry and key success factors critical in office furniture manufacturing in Canada. 1.0 Context for the paper The purpose of this paper is to demonstrate how industry structure and environmental forces affect the competitiveness, profitability, investment opportunities and choice of strategies for the office furniture industry. Major processes and products of the industry are also covered in the paper, its NAICS code, and the value chain starting from the major inputs to the end user. The key success factors (KSFs) are also discussed and their relevance to the growth of the industry. 1.1 The Industry The Canadian office furniture manufacturing industry deals with a wide range of products ranging from cabinets, bookcases, desks, chairs, filing cabinets and desks. The industry also manufactures store and office fixtures, including cafeteria countertops (except bathroom and kitchen), partitions and furniture parts (IBIS World, 2015). Customers may order furniture that is customized or predesigned. The furniture may also be sold assembled or unassembled depending on the destination market and the customer demands. Major activities in the industry include manufacture of office furniture, manufacturing showcases, lockers, shelving, and partitions. Additionally, the industry deals with custom architecture woodwork and special wood fixtures. Manufacturing is done in line with the North American Industry Classification System (NAICS). Canada is the second largest marketer of office furniture in the world and the leading exporter in the United States. The domestic production of furniture in Canadian markets has expanded over the years. The industry has greatly contributed to increased employment rates and is one of the factors helping to bridge the economic gap in the Canadian markets. The Canadian Office Furniture industry is classified under NAICS code 33721CA. Other related NAIC codes include 337110 for wood kitchen cabinet and countertops, 33712 for household and institutional furniture, and 337121 for household upholstered furniture. However, this paper deals specifically with office furniture under NAICS code 33721CA (Carlson, 2014). The furniture and related products industry in Canada under the 3372 NAICS code has registered employee increment from 44,350 employees in 1992 to 89,000 employees in 2001 (IBIS World, 2015). This demonstrates a significant growth in the industry. The growth has been facilitated by increased demand for office space as many businesses expand their premises to go global. There is a rising penetration of imports from nations with low costs of labor, such as China. In addition, volatile costs of raw materials have hampered the growth of Canadian office furniture industry. However, the improving economic conditions in Canada and other global markets are expected to boost the growth of the industry in coming years. This is notwithstanding the pressure mounted by the domestic and global players in the industry. 1.2 The Value Chain of the Industry The materials used in office furniture manufacturing include glass, wood, plastic, metal, and rattan. However, wood is the primary product used in the Canadian office furniture industry. As a result, the value chain in this paper focuses entirely on wood as the chief raw material for furniture production. It should be noted that; based on the NAIC system of industry classification, the furniture is classified based on its type and its application and not the material used. The value chain of the industry gives the entire process of office furniture production starting from the primary raw materials, processing, the final product, and the distribution of the product to the customers in domestic and global markets. The value chain starts in the forestry sector. The later requires provision of chemicals, inputs, water, and equipment. The cut logs are taken to the sawmill that obtains its input from the machinery industry. The sawn timber then moves to the office furniture manufacturers. The industry also depends on the input from the machinery sector, paint, and adhesive industries. Other outsourced services include branding and design skills from the service sector. The furniture then passes through intermediary stages before it gets to the customer. After use, the customer then consigns the furniture for refuse and recycling. The Canadian office furniture value chain is as shown in Figure 1. Figure 1: Canadian office furniture value chain. Outsourcing in the value chain is obtained from other sectors such as forestry, machinery, chemicals, paints, adhesives, seeds, and water. The designs sectors are also outsourced to design the furniture in line with customer demands. Despite the complexity of the value chain of this industry, the entry of wood furniture into the final markets is facilitated majorly by three primary agents: the multiple store dealers, the small-scale retailers, and specialized buyers. The multi-store buyers have major outlets in many countries and have not less than 300 outlets globally. The small-scale retailers purchase directly from a small number of suppliers in the United States. The specialized dealers, on the other hand, source from many states and sell in a single regional retail outlet. The customers may have more than 1,500 suppliers in different countries. At the downstream end of the office furniture value chain is the high-value activities as shown in Figure 2. The high-value activities include retailing, customer support, distribution in the target markets, product design, marketing, international transport, purchasing, and final furniture production. Buyers in each of these categories have a different presence in the value chain. It can be noted that the buying activity is the only activity that is common in the three types of buyers. The multi-store retailers have the least outsourcing activities and have a range of production activities in the value chain (Drayse, 2011). The specialized buyers in the value chain outsource most with buying and marketing being their core competencies. They also, however, play a significant role in office furniture design. The one-store retailers, on the other hand, have a range of activities in the value chain, such as logistics and distribution. 4.1 Factors that Determine Success in the Industry 4.1.1. Quality As businesses go global, the need for office space has increased. This has created a demand for office furniture. The increase in demand has influenced many investors to enter the office furniture industry in Canada. The later has implied more manufacturers. Buyers have many manufacturers to choose from both locally and globally. Canadian office furniture manufacturers face stiff competition from Chinese manufacturers. In 2001, Canada was surpassed by China as the leading source of office furniture in the US (Luppold, & Bumgardner, 2011). For this reason, many office manufacturers in Canada have embarked on product quality as a way of compromising the competitive pressure from global furniture suppliers. The diverse nature of the industry has made the high-quality manufacturers shine in the market while those not focusing on quality have had their production decline over the years. Quality is also a key success factor that has made Canada emerge second in global supply of office furniture. The measures of quality include the type of wood used in the manufacturer of office furniture, the design used, and compliance with NAIC standards and customer preferences. Among the success factors, quality is the major determinant for customer attraction and retention in both the domestic and the global markets. Quality also determines the cost of the finished product. For many customers in this industry, price is not a major factor of consideration as long as the quality of the product is worth the price. However, price also plays a significant role based on the diversity nature of the suppliers in the domestic and global markets. 4.1.2. Price The pricing factor has been a major competitive force in the Canadian office furniture industry. It is the major factor that has made Canada import more furniture from China that is of low prices and higher quality. However, the imports obtained from China have not gone to a level that impacts on the Canadian domestic office furniture market. The reason for the latter is that there is no free tariff governing the trade between China and Canada. Canada can make use of governmental regulations and tariffs to limit the office furniture imported from China. However, price is also a critical success factor among the Canadian manufacturers. Consumers have a broader choice of the domestic manufacturers because the companies use price and quality as the major competitive weapons against one another. Price is measured in terms of the quality of materials used in office furniture manufacturing and the costs incurred in the logistics and supply chain to ensure that the product gets to the target market/customer. 4.1.3. Distribution Relationships and Supplier Networks In order for a corporation to outshine the competition in this industry, it must be able to establish strong distribution networks in the domestic and global markets. These are the networks that help to link operators, manufacturers, and suppliers. The relationship also enables manufacturers and suppliers secure high-quality stock of favorable prices (Drayse, 2011). Purchasing low-priced materials ensures that manufacturers remain price competitive. Moreover, deals that may lock some enterprises into restricted supply contracts with the existing players in the market act as barriers to existing and new entrants in the industry. The disruption of supply could also be a hindrance to success in the industry. The distribution relationship success factor is measured by the ability of the company to reach out to the domestic and global customers. 4.1.4. Delivery The need for office furniture is urgent in some cases and requires manufacturers and suppliers who are able to meet order deadlines. The Canadian manufacturers have faced stiff competition in the global markets from China due to the high level of logistics and supply networks in China. However, the quality of Canadian furniture has enabled the country dominate the market even on the global scale. Corporations require a supplier that is able to supply furniture with immediate effect after placement of the order (Rosen, & Kishawy, 2012). However, the delivery success factor is not a major factor since most of the customers in the industry look for quality and considerable prices. Conclusion The Canadian office furniture manufacturing industry has registered a positive growth over the years. The growth has been facilitated by the availability of raw materials for office furniture production and a focus on quality. The latter has been enhanced by the diversity nature of the industry where all the companies in the industry target increased sales and profit margins by acquiring more customers. The industry has also performed well in the global markets where it is rated second. References Carlson, C. (2014). The Jamestown furniture industry: History in wood, 1816-1920. Drayse, M. H. (2011). Globalization and innovation in a mature industry: furniture manufacturing in Canada. Regional Studies, 45(3), 299-318. IBIS World (2015). Office Furniture Manufacturing in the US: Market Research Report. Luppold, W. G., & Bumgardner, M. S. (2011). Thirty-nine years of US wood furniture importing: Sources and products. BioResources, 6(4), 4895-4908. Rosen, M. A., & Kishawy, H. A. (2012). Sustainable manufacturing and design: Concepts, practices and needs. Sustainability, 4(2), 154-174. 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