Knock on wood

MALAYSIA HAS MANY THINGS to be proud of. Among them is definitely furniture. Over the past two decades, Malaysian-made furniture has successfully established a strong reputation of stability in product quality and good value.

The Malaysian furniture industry is export-oriented, with close to 80% of production exported. Export has been growing between 10%- 15% year-on- year over the past 15 years, with the exception of 2001, when depressed global sentiments caused a drop in export value. Furniture export was almost RM7.5 billion in 2006, and over RM8.5 billion in 2007 (see Table 2). Malaysia's export of furniture is expected to grow by 5%-10% annually to hit RM10 billion by 2010 in tandem with global growth.

According to CSIL Milano - Furniture Industry Research Institute based in Italy, the global furniture industry is expected to expand further and the world furniture trade is estimated to grow by 8.2% from US$ 97 billion in 2007 to US$ 105 billion in 2008.

It is estimated that more than 80% of wood-based (including furniture) product companies are SMEs. The industry is predominantly Malaysian-owned, and to date, more than 4,100 wood-processing mills are in operation.

There are about 2,300 Malaysian furniture companies mainly located in the West Coast of Peninsular Malaysia, with Muar, Johor, dubbed the furniture hub. According to the Malaysian Furniture Entrepreneur Association (MFEA), Muar is producing approximately 40% of the nation's total furniture export. The upholstery and leather furniture industry is strong in Selangor, while Penang is also known for its rubberwood furniture and sofa, says MFEA president Desmond Tan.

With a total membership of over 2,000 nationwide, ranging from furniture retailers, distributors, wholesalers, accessories, manufacturers and exporters, MFEA is the largest representation for the local furniture industry.

In 2006, the furniture industry was the 2nd largest exporter in the wood-based industry (after plywood) and Malaysia is among the top-ten of the world's furniture-exporting countries. In terms of export/production figures, Malaysia ranked second among the world's top-ten furniture exporters, with 77% of its production exported.

Malaysia has diversified its export markets for furniture and currently exports to more than 160 countries. The US, Japan, Australia and the UK remain the main export destinations due to the popularity of light- coloured rubberwood among developed countries (see Table 3). Besides these traditional markets, Malaysian furniture has also gained access to the markets in New Zealand, South America, Middle East, Africa and Russia.

Raw materials

Currently, about 85% of wooden furniture is made from rubberwood, while the remaining 15% is made from a combination of other wood and reconstituted panel products such as medium density fibreboard (MDF) and particleboard. Garden/outdoor furniture from tropical hardwood is mainly for the European and Australian markets.

As such, the increase of rubberwood prices is a cause for concern. Rubberwood now costs RM1,500 a tonne compared to RM400 some years back. The price hike is due to the increase of rubber trees kept for latex production in view of the present high price of natural rubber.

To ensure adequate supply of rubberwood, the export of rubberwood sawntimber was banned effective June 8, 2005 but some rules were subsequently relaxed. To encourage reforestration, the Forest Plantation Development Sdn Bhd has to date approved soft loans worth RM80.5 million to five companies to undertake forest plantation activities with a total area of 11,600 hectares. Under the Forest Plantation Programme, the government plans to develop 375,000 hectares of forest plantation with the planting of 25,000 hectares a year. The programme, implemented since 2006, will be ready for harvesting in 2021. While there are a total of eight species identified to be planted under this programme, focus will be given to two, namely, rubberwood latex timber clone for Peninsular Malaysia and Acacia Mangium for Sarawak.

The Malaysia Timber Industry Board (MTIB) is currently finalising the National Timber Policy to strengthen the development of wood- based industry especially for the furniture sector.
Meanwhile, hardwood import for furniture production is increasing, especially American hardwood.

`It's good. We're encouraging it because it conserves our forests. We sell the finished product back to America at a higher premium anyway,' says Malaysian Furniture Promotion Council (MFPC) Chairman Datuk Merlyn Kasimir.

Efforts are being made to rebrand furniture-making as a respectable career to pursue. MTIB has set up a Timber Innovation Centre in collaboration with Limkokwing University College of Creative Technology to promote the use of timber as a raw material for furniture where other materials such as oil palm trunks can be used.

MTIB and MFPC continue to seek greater market access for Malaysian furniture through FTA negotiations with its trade partners where lower import duties will make it more competitive in the partner's market.

According to Kasimir, tariffs in some countries were a crippling 30%-40% or higher.

Kasimir says the council is also stepping up promotional activities this year, including plans to start bringing local manufacturers along on its overseas trade missions. Meanwhile, it continues to support the development of the industry and help cultivate a design culture among industry players.

Moving forward

The rapid growth of the Malaysian furniture industry since 1990 can be attributed to the development of the original equipment manufacturing (OEM) market. But moving forward, especially in view of stiff competition from low-cost producers such as China and Vietnam, it has to move further up the value chain.

Malaysian furniture makers recognise the importance of value- adding, especially in the area of quality enhancement and design development. They have moved away from mass-production at low prices to more upmarket and niche products while maintaining competitive pricing.

`New directions must be taken to elevate our position in world rankings. We must now progress in a structured manner from OEM to original design manufacturing (ODM) and then achieving original brand name (OBN) status,' quips EFE Organising Chairman Quek Kheng Leng.

`Generic items have a fixed pricing - it all boils down to who's cheaper. But with ODM and OBN, the manufacturer determines the price,' Malaysian International Furniture Fair or MIFF Managing Director Datuk Tan Chin Huat says.

MIFF and Export Furniture Exhibition (EFE), two competing yet complementary furniture exhibition organisers, have been instrumental in promoting Malaysian furniture to international buyers. MIFF and EFE both held their fairs earlier this month.

Increased competition from low-cost producing countries notwithstanding, many local furniture makers are hardly fazed. The Malaysian furniture industry, backed by over 20 years of history, is well established and resilient. It will rise to the challenge, they reason. Some companies, such as Poh Huat Resources Holdings Bhd, have taken advantage of the lower costs in Vietnam by setting up factories there.

Manufacturers, consistently seeking cheaper production costs, tend to move around. China was the choice the past few years and now the focus is Vietnam, notes SJI Industries Sdn Bhd Managing Director Benny Poh. He attributes Vietnam's sudden surge in world furniture export rankings to the removal of the 13% VAT rebate in China, which caused a mass exodus of manufacturers in Vietnam The `moving around' will continue, he reasons, `next, maybe to Thailand, then Cambodia etc.'

However, Malaysia has the natural resources to fall back upon, something the regional competing furniture-producing countries have in limited quantities or none at all, he adds.

According to Poh, the cost of production in China is increasing, resulting in the narrowing of the price-gap between Chinese furniture and Malaysian furniture.

`Some seven to eight years ago, the price difference between them was about 25%. In two years, the gap is expected to drop to as low as 5%,' he says.

Another challenge facing the local furniture industry is manpower. The industry is still labour-intensive and currently, at least 25% is foreign labour. Policy changes on foreign labour policies, thus, will affect the industry directly.

`We hope the government can establish an effective and consistent labour policy to reduce uncertainties faced in furniture manufacturing,' says MFEA's Desmond Tan.

By improving technology and efficiency, local manufacturers hope to lower their dependence on foreign labour.

`Many of our factories are already well mechanised but we can still improve on efficiency by employing up-to-date technology,' SJI's Poh says.

Oursourcing is another option the industry is looking into to keep costs low. It makes more sense to import furniture components from low-cost producing countries than produce our own, notes MEICO Chipboard Bhd Managing Director Datuk Yong Seng Yeow. `The trend is now to import lots of components, keeping only higher-end production here,' he says.

However, Tan notes that while the import duty for complete furniture has been abolished, import duty on furniture parts, accessories and mechanisms still applies. `This reduces the competitiveness of supporting industries such as the furniture raw material and hardware suppliers, thus affecting manufacturers for the export market as well,' he says.

FURNITURE FAIRS GALORE

MARCH seems to be the furniture exhibition month. Besides our own Malaysian International Furniture Fair (MIFF) and the Export Furniture Exhibition Malaysia (EFE), held on March 4-8 and March 6- 10, respectively, there were no less than four other fairs in the region - one in Singapore and the rest in China. The International Furniture Fair Singapore (IFFS) was held on March 9-12; the International Famous Furniture Fair (IFFF) Guangdong, China, on March 16-20; the 21st China International Furniture Fair (Guangzhou) (CIFF) on March 18-21; and the 22nd Shenzhen International Furniture Exhibition (SIFE) on March 19-22.

Buyers were spoilt for choice as they surveyed what each fair had to offer. On the local front, MIFF and EFE consistently attract a large number of international visitors, many of them long-time supporters, faithfully returning each year.

MIFF 2008, the 14th instalment of the annual event, spanned over 80,000 sq m, with more than 500 exhibitors from 16 countries showcasing their products. Due to the large exhibition space needed, MIFF was split into two venues - Putra World Trade Centre (PWTC) and the Matrade Exhibition & Convention Centre.

According to MIFF Sdn Bhd Managing Director Datuk Tan Chin Huat, MIFF 2007 generated US$ 667 million in deals `and we hope to see a growth of at least 2%-5%'.

Tan says 25% of the exhibitors were foreign companies and MIFF aims to increase that to 50% in the future. MIFF strongly believes the presence of international exhibitors would help spur the local industry.

EFE 2008 is much smaller, slightly more than half the size of MIFF. The fourth EFE occupied 42,000 sq m of space over seven exhibition halls in the National Stadium at Bukit Jalil, with more than 150 participating exhibitors.

According to EFE Organising Chairman Quek Kheng Leong, EFE 2007 attracted international buyers from 152 countries and generated sales of RM1.8 billion. `About 30% of our previous exhibitors expanded their booth space this year, proof that they are confidant in EFE and satisfied with the results,' Quek quips.

Both organisers lament on the lack of a single exhibition area to accommodate the whole fair. Splitting the fair into two or more venues is hardly conducive, free shuttles ferrying visitors between venues notwithstanding.

`We need a venue with an exhibition space of at least 100,000 sq m,' echoes Datuk Seri Dr Lim Keng Yaik who officiated MIFF. Lim, the- then Minister of Primary Industries, was instrumental in the setting up of MIFF in 1995 and the development of the furniture industry.

`Despite having all the timber resources, Malaysia was only exporting RM40 million worth of furniture in 1986, while importing RM70 million. "What is wrong with you?" I asked the industry,' says Lim in his usual candour.

`We started by encouraging people involved in furniture manufacturing overseas to come back and build the nation's furniture industry. In 1995, we decided it was time to start our own exhibition,' he reminisces, adding proudly that furniture exports had in 2007 exceeded RM8 billion.

MIFF is today one of the ten leading furniture trade shows in the world and has won several accolades from the Ministry of Tourism and the Asia Pacific Brands Foundation. The younger EFE, likewise, has high ambitions. It aims to be the most important exhibition in Southeast Asia for international buyers to visit in next five years.

How attractive is Malaysian-made furniture to international buyers?

Malaysian Business spoke to several international buyers at the fairs and concludes that the appeal of Malaysian furniture is likely to last for a while yet. Despite Vietnam and China offering cheaper products, Malaysian furniture stands out in terms of quality.

`I would rather pay a slight premium for what I know is quality thantake a chance. Our reputation to our clients is at stake,' says Ray Rebecchi of Australia's Full House Furniture, who makes frequent trips all over the region sourcing furniture for his company's wholesale and retail operations. He has been coming to Malaysia every year for 14 years, and makes purchases each trip.

Fen Mohammed of Trinidad & Tobago is also a fan of the quality of Malaysian furniture and as such has been buying from here since eight years ago.

A couple from Kazakhstan has also made frequent buying trips to Malaysia. According to them, Kazakhstan, which only has a population of 15 million, has more than 10 companies that import furniture from Malaysia `and the number increases every year'.

International buyers tend to visit both the fairs and make comparisons. According to them, EFE has a cheaper pricing mechanism while MIFF caters more to a higher-end market.

Yvonne Chong "Knock on wood". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.