Mortimer McPherson, Contributor
This is the second of a three-part series on the state of the furniture and woodworking industries in Jamaica.
Jamaica is not the only developing country feeling the effects of rapid globalisation in the furniture and woodworking industries. I thought it would be of interest to share the challenges of the Jamaican industry - including the issue of globalisation - and what companies here are doing to fight back. While much of this and next month's topic will centre on the furniture industry, other woodworking manufacturers and suppliers have a lot in common and are ultimately affected by the same issues.
Jamaica's land mass is relatively small, but with a population of just over three million. Most manufacturing is located around the major population centres in the areas of Kingston, St Catherine, St James, St Ann, and Manchester.
It is necessary here to frame Jamaica within the parameters of other developing countries of CARICOM and to make the comparison and observe the similarities while recognising that Jamaica's problems are not entirely unique.
The furniture industry in CARICOM has tremendous opportunity, based on the high levels of, and dynamism in, import expenditure observed between 2001 and 2008. In 2008, CARICOM furniture exporters generated US$9.1m in international sales, while CARICOM economies spent US$216m to import furniture. CARICOM member states' expenditure on furniture expanded by more than double the growth in furniture export sales between 2001 and 2008. This implied that the region lost competitiveness which was reflected in an expansion of of the furniture trade deficit.
Between 2001 and 2008, CARICOM's furniture-export sales grew by four percent annually, which was a much slower growth rate than the global rate of furniture-import spending growth between 2001 and 2008. This shows that the region lost global market share as well as regional trade share in the furniture industry.In other words, relativelely less CARICOM furniture is being sold on the world and regional markets, even though furniture sales are expanding.
The most dynamic CARICOM importers of furniture between 2001 and 2008 were Dominica (16 per cent annual growth rate in import expenditure), Trinidad & Tobago (18 per cent), Suriname (22 per cent) and Jamaica (15 per cent).
Trinidad & Tobago was the top furniture-exporting member state in 2008, with manufacturers generating 64 per cent of the regional total furniture-export revenue. Other top exporters were Guyana, Barbados, Jamaica, The Bahamas and St Vincent & the Grenadines which jointly accounted for the rest of regional furniture-export sales. Barbados was the most dynamic exporter of furniture between 2001 and 2008, growing export sales by 19 per cent annually. Guyana was the second most dynamic CARICOM exporter between 2001 and 2008.
A cursory glance shows clearly that Jamaica does not figure in the top-exporter category and shared the remaining 36 per cent of exports with four other countries. This is, no doubt, a rather dismal showing for a country which once boasted a vibrant and profitable furniture trade. Here the question arises, what has gone wrong?
There is a surprisingly large number of small manufacturers of wood and upholstered furniture in this market. This means the average annual volume is very low per manufacturer. The average total employment is about three employees per manufacturer resulting in a low productivity value for the industry. As expected, the larger plants have much better productivity; and greater levels of efficiencies because of their larger economies of scale.
In the 1990s, a number of the larger furniture manufacturers went out of business. This resulted in the emergence of small entrepreneurs to fill the demand left by these companies. This, for them, is an impossible task since many of them lack the requisite skills and knowledge necessary. Neither do they possess the capital necessary for tooling and modernisation. The requirements for marketing and product development and product improvement are lacking, leaving the retailers to dominate the market with cheap imports and cheap ready-to-assemble furniture.
The reason these larger companies are no longer in business is because of the gradual erosion of margins necessary to maintain a healthy profit. Imports contributed, but it was the insistence by retail customers for lower prices that was the cause of their demise. Slowly but surely, the manufacturers backed themselves in a corner by not raising margins through productivity improvements.
Today, retail-furniture sales in Jamaica are dominated by two major and large retail furniture stores - much like in the United States. For the past 15 to 20 years, these retailers have specified their own designs unique to their stores. If a manufacturer developed a new product, it would not be able to offer it to more than one retailer. Major modifications would be necessary for any new design in order to provide differentiation between the product sold to Retailer A and that sold to Retailer B.
An alarming marketing scheme has evolved in the distribution channel. Since the retailer is selling products unique to its store, it 'brands' the furniture as its own. If a customer shops at Courts for bedroom furniture, the only brand on the floor is Courts. On the contrary, this position is not adopted by the same stores for furniture imported from overseas entities. You can walk into any of these retail stores and identify an Ashley or a Sauder by their tags, but you cannot tell where the Jamaica-made furniture was manufactured.
I went sleuthing at one of our larger furniture stores. There was an obvious absence of any hang tags or point-of-purchase materials promoting the brand of the local manufacturer. To make matters worse, these large retailers are demanding a 'supply-before-payment' from the manufacturer without paying any deposit for goods ordered. This would not be so off-putting or debilitating if tags were placed on the locally manufactured items to promote the individual manufacturer's products and its brand. But this is not the case. The money which could have been used to promote local manufacturers is used for store, newspaper and television advertising that may be focused on promoting products that are not even made in Jamaica.
Thus, the furniture industry can correctly be described as being made up of many small to medium nameless providers of custom furniture to retailers. It can also be described as an industry that is subsidising the retail advertising of generic products, including imports. Without brand identity, there is no way for a manufacturer to appeal to the consumer through the media or through referrals. This has greatly increased the exposure of an already vulnerable industry to the threat posed by imports.
It should come as no surprise that importing furniture is a major issue in Jamaica. The trend towards imports has increased over the past eight years and now accounts for a full 75 per cent of the demand for wood and upholstered furniture.
The fact that the Jamaican market is small compared to the United States (US), has not kept developing countries in CARICOM from looking at their closest neighbours for export opportunities. In fact, the proximity of Jamaica to these producers makes the industry more susceptible to imports.
The challenges facing the Jamaican woodworking industry are many. Among them is the issue of employee recruitment and retention. Young Jamaicans, like those in the US, are looking more at 'high-tech' industries to provide them with a career. Everybody is doing management, and those who are not qualified for tertiary education are looking to 'buss' in the music industry. Many of our secondary schools, which once offered woodwork classes, have withdrawn the course and are now looking at building technology. The woodworking industry is perceived as a low-tech, low-income industry that does not offer bright prospects.
Many of Jamaica's furniture-manufacturing companies will go out of business in the next 12 months and, many jobs will be lost unless a radical solution is found and short-term 'fix-it' measures are implemented. The overriding issue is: how do we survive? What can we do to slow or stop the decline under way in the industry? How can the industry combat imports and the price pressures from retailers?
Some of the answers to these questions will be the focus of the third and final instalment of this series on the furniture industry in Jamaica.
Mortimer McPherson is president of Jamaica Wood Products & Furniture Association. Email feedback to email@example.com and firstname.lastname@example.org.