Market Outlook  

Current Status Of Asia’s Furniture Production And Markets

by Michael Buckley, Turnstone Singapore

This analysis looks specifically at some core strengths and individual challenges of the furniture industry in Southeast Asia and China and at their markets, for the two are closely interlinked

American Tulipwood furniture made in Malaysia by STEP Furniture Photo: Turnstone, Singapore

Oak Bedroom furniture by IFS, Vietnam

The good news - world furniture production rose continuously over 5 years from 2010 to 2014, from about US$340 billion to US$415 billion. The bad news – it fell off in 2015. However it remained over US$400 billion; up 20% on 2010. Not all of that is wood furniture but it is safe to suggest in Asia at least 75% - 80% is based on wood Overall the general view is that production and markets will now grow but more slowly in the next few years.

Was 2015 a poor market or an adjustment of production? Or was it caused by the challenges of change that the industry faces, especially in Asia? Whatever it was, the result is probably increased competition and pressure on prices. The Asia Pacific region (including India, Korea and Japan) in 2015 accounted for 55% of global production, compared to 26% in Europe and 14% in the USA. This reflects the dynamic nature of Asia’s economy, its entrepreneurs, demographics and population growth.

Global Furniture Production 2015
Source: CSIL, Milan

International trade in furniture is estimated to be less than one third of total production, underlining the importance of domestic markets, which cannot be overemphasised; and places massive pressure on getting production and marketing right. In this respect one could make an interesting comparison between massive domestic market in China and relatively small home market in Malaysia, for example. Although the property markets in Asian cities have been driving domestic markets from Bali to Beijing.

International furniture trade, 2010-2017. Current US$ billion
Source: CSIL, Milan

International trade in furniture is estimated to be less than one third of total production, underlining the importance of domestic markets, which cannot be overemphasised; and places massive pressure on getting production and marketing right.

Current Status of Asia’s Furniture Production

Leafing back through the data of the last 10 years, it is easy to see that since 2007 - the last year when it was recorded an increase in turnover (from 23 to over 26 billion euros) - to 2014, the production of furniture in Italy has done nothing but decline, and with it, also the number of companies and number of employees decreased. Fortunately, export rose from 46% to 57% (now it stands at just above 50%), but this good growth was not enough to compensate for the drastic reduction of the domestic market. The apparent consumption of furniture in the domestic market has in fact shrinked by 40% - from more than 17 billion in 2007 to about 10 billion in 2015. And defaulting businesses have created a loss of more than 50,000 jobs, for a total of more than 5,000 companies. These numbers show us that it is reductive to speak of it only of a crisis: it is quite clear that this has been an epoch-making change.

To start it is useful to define and examine a number of key issues, in no particular order:

Production Capacity

Since most of Asia’s furniture production is in private enterprise, capacity is limited only by finance and that is determined by confidence of companies and their investors or bankers. That in turn is determined by profitability.

Growth in global furniture markets over the long term should give grounds for confidence, but in my view a lot of furniture is in danger of being offered too cheap and going the way of the clothing industry, limiting profitability.

The reduction of production in 2015 may indicate a temporary over-capacity as well as reduced demand, which also threatens profitability.

Material Supply

Material supply is crucial and complex, especially in wood. Wood is like oil; some countries have it and some don’t, but all use it. The problem is that few countries have all the right kind of wood they need. Most Southeast Asian countries fall into the category of not having all the right wood for the furniture markets they serve, which is why smooth trade in wood imports may be crucial. But suffice it to say that the USA is probably in the best position with proven long term sustainable supplies of hardwood for furniture, whereas China is chronically short; and likely to be so for decades, despite huge planting programmes.

National Skills Base

As everyone knows, the skills base varies enormously with some countries self-sufficient in labour (Indonesia) and others dependent on foreign workers (Malaysia and Thailand), which can be a very limiting factor for production. Population size alone does not necessarily indicate the health of skills. India would be worth examining in that respect. Improvements in technology and efficiency to lower costs often just increases competition.

Government Involvement

Government involvement is also very varied in Asia. I would pick out two that are exemplary in their support and encouragement of furniture manufacturers – Singapore and Vietnam, but I make no further comment.

American White Oak table by KOBEKS, Indonesia

American Walnut & Glass geometric table from OM Furniture, Singapore

Design issues

Here is an issue that is now changing. For the last decade the question of design has been a hot topic throughout Asian furniture industries with constant calls, especially from government officials, to improve the design capability of their furniture industries as a way of improving exports and gaining market share.

Of course designers can be employed from overseas, as one Malaysian programme is doing, but the right target has to be a healthy home-grown supply of Asian designers. This is a long term process which starts with education and enlightened training, but often falters over one specific aspect; which is the failure of many industry players to engage. Young designers can design and produce concepts but may never move forward if they cannot find the facilities to produce and refine prototypes, to prove and improve their designs in practice. Designing furniture is not just about concepts. Too often we see in competitions poor prototypes for lack of production facilities and mentoring by industry, although there are some very rewarding exceptions.

One of the key benefits for Asian manufacturers by using homegrown designers is to satisfy an increasing need for furniture to retain some Asian flavour rather than just mimicking western designs. But more importantly as Asian intra-trade develops further, such as Malaysia exporting to China, the need for Asian designers will increase.

Status of Furniture Markets for Asian Manufacturers

Any view today on the status of furniture markets is inevitably subjective and very speculative. We are living in a fragile world with many uncertainties – war in the Middle East – an extraordinary U.S. Presidential election campaign – forthcoming elections in France and Germany – Brexit troubles for EU leaders – Disputes in the South China Sea – Nuclear tension on the Korean Peninsula - Russia flexing its muscles in Eastern Europe - Recession in Brazil – and huge uncertainties with interest rates and financial manoeuvres by central banks and fiscal policy issues. No wonder consumers are cautious. So are governments; and remember they can be huge movers as buyers in institutional furniture markets and infrastructure projects - schools, hospitals etc. Think of cutbacks in oil-producing countries since the collapse of oil prices.

Nevertheless there are some market strengths, particularly in China and the USA. The long term growth of consumerism and urbanisation in China remains positive, despite what the media tell us about its economic slowdown. Most countries would dearly like to have the growth that still drives the market in China with its massive home market to underpin its own production. Meanwhile in the USA all the economic indicators during the current Obama administration showed the worst is over – in both housing starts and renovations, all of which requires furniture.

Source: Hardwood Market Report

Markets are, of course, complicated falling into many categories with regard to sector (residential, corporate, leisure, institutional, contract etc) and quality (low, middle and high end, rather like clothing). The solution to success in finding the market, or perhaps the niche, is in the issue of understanding trends - and even branding. For example, understanding the increasing need for space saving and small furniture in condominiums and apartments, or the benefits of ‘smart’ furniture in certain sectors, may be crucial. But equally important is to recognise when furniture becomes passé (when its time is up), unless selling only on price. After all, much of the furniture business is a fashion business – at least at the middle and high end. There are good examples of European manufacturers who failed to move their products on and lost out. Currently this may be happening in Jepara, Indonesia where the demand for traditional Teak carving is apparently declining, for example.

One market that has shown a significant downward trend for wood in recent years is the external, garden and patio sector, caused by changes in materials, design and fashion. This has adversely affected some of the Indonesian Teak manufacturers and those in Central Vietnam producing traditional wooden outdoor furniture. This is unlikely to reverse.

The solution to success in finding the market, or perhaps the niche, is in the issue of understanding trends - and even branding.

Trends from the circuit of 2016 shows in Southeast Asia could be summarised:
  1. There is evidence of a general return to wood in its rawlooking clear form, especially in Oak with lighter finishes and treatments
  2. There appear to remain mass markets for low cost, darkstained furniture at cheap prices
  3. Grey is the new black, even Teak stained grey, as well as in grey soft furnishings which could be short term
  4. There was almost no evidence of environmental promotion by most of Asia’s furniture exhibitors, except in Indonesia
  5. Plantation species, other than Rubberwood, are taking increased share with Acacia becoming more prevalent
  6. Chinese veneer slicers continue to dominate business in Southeast Asia supplying laid up (MDF) panels
  7. Design is taken much more seriously in all producing countries in the region with companies moving from OEM to ODM
  8. he use of high-value decorative solid hardwoods such as walnut, often combined with low-cost plantation non-show wood is increasing
There are other quite different market challenges issues facing the industry, such as new legislation (legality and sustainability) and new technical standards (toxin and VOC emissions) new safety regulations (flammability) and environmental.

There is a perception that production is shifting around Asia – partly true – but this may be overemphasised as there are limited options. Finally, in both SE Asia and China there are thought to be too many furniture exhibitions in the region - an apparently insolvable issue for many buyers.

Opportunities for Asia’s furniture industries going forward – for possible discussion

It is always dangerous to make predictions, but here are some observations:

New cement-look table top by Latitude Tree

Design Stakassouf with his geometric Walnut table at IFFS
China holds the key for much of Asia’s furniture manufacturers. Locality and language are helpful assets, but the sheer size of the market and growing standards and aspirations are major drivers. Perceived lack of concern over environmental issues in material supply may well be temporary as China moves forward with its own forest legislation and import regulations. But much of Asia now looks to intra-Asian trade.

The USA will certainly remain a very important market for Asianmade furniture and the strength of the US dollar against Asian currencies will help drive that.

India is unlikely to become a mass producer of middle and highend furniture, so its growing middle class continues to offer market opportunities to other Asian suppliers.

Europe will inevitably be patchy in the next couple of years, but countries which have effectively ceased their own furniture production, such as UK, will still offer opportunities to Asian suppliers. At the lower end of the market, current high levels of immigration throughout Europe may stimulate some additional buying.

The Middle East and North African markets will vary hugely - from war-torn zones to oil-rich countries such as the Kingdom of Saudi Arabia. But the reduction in tourism after atrocities in Tunisia and Egypt, for example, will affect the buying by resort developers and local consumers suffering from the resulting economic downturn.

Australian markets will need an improvement in commodity prices before prosperity and buying returns there.

China holds the key for much of Asia’s furniture manufacturers. Locality and language are helpful assets, but the sheer size of the market and growing standards and aspirations are major drivers

In conclusion it must be said that the current status of Asia’s furniture production and markets seems better than any other region in the world.