China Focus  

Product Clustering

By Dr CS Lim

My recent experience as a judge in Qingdao Furniture Exhibition and Nankang Furniture Exhibition has led me to consider a phenomenon: I noticed a several “blocks” at both exhibitions. For example in Gaomi, many factories are producing large and rough wooden frame sofas, this is one “block”; in Gaomi, there is another “block” that makes northern European designs; In Jiaodong, there are similarly designed bedroom furniture and pinewood child bunk bed “block”.

It is the same in Nankang, where a village or city creates only one category of product each and produces them in bulk. This makes deciphering the winner of furniture design a difficult task. Every design from each place looks the same, even down to the materials used, production technics, and the machinery. The only way to pick out a winner is by choosing one with the larger scale, and more meticulous in their work. Most furniture judges who took the stage spoke about how there should not be too many homogeneous products. Ferocious competition in the market would drive homogeneous product prices very low.

The common theories about success among business management discussions would Include the following:
— Lowering costs
— Stabilizing product quality
— Differentiation

Talk is easy, but to execute these strategies in reality is not. How do you keep your costs lower than everyone else when their cost is already low to begin with? Take Ikea for example, they expect to lower costs every year, which means lowering their suppliers’ prices. These suppliers suffer through it and some even end up collapsing under the pressure. It is not easy to keep costs low. Of course there are some who lower costs by cutting corners but we are not here to talk about that.

On stable product quality, we do not speak of highest quality, because it is “not worthwhile”. Every product has an expiration date in this industrialized era. Take for instance the car, it has the usual lifespan of around 10 years. It is the same with furniture. In the days of old, furniture was passed down from generation to generation. This was during the agricultural age, where the ideology of beauty did not change rapidly and people did not own many materialistic things. These days, European and American home furniture are treated as “fashion” accessories whereby they are replaced before reaching ten years of usage. The products from Ikea and such would be replaced within 3-4 years therefore the products would only need a durability of about 4 years.

Of course there are still a few furniture producers with the “craftman’s spirit”, who still pursue products that last 100 years. And there are “cultural scholars” who call for products that could be passed down to future generations, products that antique stores and scavengers would collect, to be sold to those who would put it on display at home to “show off”. I neither discourage nor encourage these practices because at the end of the day, these are small scaled markets.

The most difficult of all is creating product differentiation. In theory, differentiation comes from innovation. When your product is different from others, there are no ground for comparisons. Therefore, there will be less pressure to compete on pricing, creating a socalled blue ocean market.

But most furniture companies are unable to differentiate. Why is that?

* The lack of talents in design. There is a relatively low number of design talents in China. Designing a product that sells well and with market longevity, is few and far between.

* No confidence in the market. A design needs to be cultivated for a long time before achieving market recognition. If a design is not recognized by the market after a long time, medium and small companies might be discouraged, might even be forced to shut down. Some companies might never get the courage to try new designs in the future because of this.

* Regional collaborative production, like those found in Gaomi, Pingdu in Shandong, Muar in Malaysia, even in Italy and Japan. Every factory produces only one category of the final product. For example, one manufacturer produces only dining chairs, another produces another part, like a table top. These factories and the parts produced would then come together to be assembled into the final product. This collaboration makes production highly efficient but only for two or three designs. This type of production would not be able handle too many designs.

Productivity increases while costs are lowered but because there are no differentiation to the designs, prices are low and so are profits.

No one would compete with these designs, but from the business standpoint, those that only produce their own design (differentiation) might even yield a higher total profit. But it is not easy to differentiate from the crowd. There will constantly be uncertainties starting from the product design to production. This type of production is not for everyone.

That is why we always advocate for both regional collaborative production and differentiation, which are often contradictory.

And thus I often wonder, does our business cluster resemble the economic model as described by Michael Porter or product clusters? Products with the same style, same category, competing on homogeneity?

Industry clustering as described by Michael Porter is an advanced economic model with vertical and horizontal collaborations while product clustering is for mass market when one or two products are overproduced, lowering the market value.

However it is serious homogenization.

President, Council of Asian Furniture Associations Professor, Beijing forestry University , currently the Chairman of the Council of Asian Furniture Association (CAFA). He read at Nanyang University in Singapore and completed his PHD at Beijing University of Forestry. He holds a Post Doctorate from Michigan State University and is a visiting scholar there. Dr Lim has been active in the Singapore furniture industry, chairing both the Singapore Furniture Association and Furniture Association of Asia and Pacific previously.