The furniture industry in Malta
To produce the Sectoral Analysis Report on the Maltese Furniture Industry, information on furniture manufacturing was gathered through visits to 38 companies in the sector, a survey questionnaire sent to 1,060 establishments and individuals in the industry and a review of published statistics. A total of 171 answers were received to the survey, a very good response rate of 16.1 per cent.
The report found that the local furniture market has been static for the past five years, with little, if any, real growth. Total sales in 1997 were Lm23.9m.
In 1998 imports made up 11 per cent of that, or Lm2.9m.
One reason for the relatively low import fraction is the protective levies, which effectively raise the price of imported furniture by up to 120 per cent. Imports are likely to account for a larger part of sales as levies are progressively removed up to 2003, exposing local manufacturers to intense foreign competition.
The local scene
There are almost 900 enterprises in the Maltese furniture industry, characterised by a large number of small, domestically oriented, vertically integrated and unspecialised
enterprises.
Micro-enterprises employing fewer than five employees accounting for 90 per cent of all establishments in the industry in 1997.
Employment in the sector stands at around 2,500 people, a figure which could grow to 3,000 if small garage enterprises which escape official statistics are taken into account.
The industry has a low propensity to export: only 8.1 per cent of total production in 1998 went abroad, with 82 per cent of enterprises exporting nothing for the past three years.
Furthermore, 85 per cent of the enterprises in the industry have seen turnover decrease or remain stable over the past three years, with only 39 per cent reporting profits. Investment is also low, with 69 per cent of firms not investing or actually downsizing.
Core competencies
The concept of core competencies rests on the assumption that each individual, organisation, industry and country has a different set of skills, expertise, aptitudes, characteristics, and so on, which allow it to excel in performing a given set of activities. These are the basis for the development of competitive advantage.
The report identified three core competencies across the industry as a whole:
1. a strong woodworking tradition;
2. good solid woodworking skills;
3. fit to measure furniture manufacturing.
Each individual enterprise will have to look at its own specific competencies.
The core competencies are, however, accompanied by a set of core incompetencies which adversely affect the international competitiveness of the industry:
1. poor design and product engineering;
2. low level of panel-working skills;
3. poor manufacturing process management; and
4. weak export-related skills and culture.
Competitive factors
The report found only one competitive factor currently favouring Maltese manufacturers. Labour rates are still relatively low compared to other developed countries. This is only temporary, however, and cannot form the basis of a competitive strategy. There are many other countries with lower labour rates than Malta.
Internal competitive obstacles
These are characteristics of the industry that inhibit competitiveness. These include:
1. a high degree of vertical integration and a lack of role definition and specialisation among the enterprises in the industry;
2. a poor propensity of firms to cooperate, even in sub-contracting relationships;
3. obsolete manufacturing equipment; and
4. a general lack of internal information systems.
External competitive obstacles
These are characteristics of the operating environment which are not within the control of the entrepreneur.
However, they negatively impact the enterprises' competitiveness.
They include:
1. high transport costs;
2. lack of training/education in new technology and automation;
3. difficulty in accessing credit from financial institutions;
4. geographical limitations on export credit insurance, which exclude areas like the Balkans, Libya and certain Eastern European countries;
5. the lack of a unifying furniture association; and
6. general underutilisation of the support provided by public institutions.
The competencies and incompetencies identified in the report are general, referring to the industry as a whole.
Individual enterprises in the sector may - in fact, probably will - have a different list, with more competencies specific to itself, or fewer gaps in the core competencies required for success. Thus each individual enterprise needs to look closely at its own skills and competencies, to determine for itself what it does best.
This can then feed into the business planning process and the strategic choices the enterprise will make.
Any strategy should take the competencies available to the enterprise into account, and any competencies required and as yet unavailable should be identified in the business plan. The action plan should
also include steps to acquire the necessary skills.
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