17 - 23 August 2000

General options open to the furniture industry

The Sectoral Analysis Report on the Maltese Furniture Industry classifies enterprises in the sector into four strategic groups, based upon the operational competence of the enterprise and the degree of specialisation.

The groups begin with the plankton, including small enterprises catering for a very local market which produce, in general, whatever the client requests.

Thus they are unspecialised, and low on operational competence not because the quality is poor, but because given the wide product range, efficient management practices cannot be applied.

The sharks are enterprises that are ready to export, or are doing so already. They have specialised by focusing on a specific market segment, and have developed a high degree of operational competence.

The whales are in general larger enterprises which have also developed a high degree of operational competence. However, they are still bogged down by a broad product range, thus they score low on specialisation.

Finally, the soles include the enterprises that appear to be most vulnerable in the industry. They have more limited operational competence than the sharks or the whales, and tend to have a more limited product range than the whales, while being less specialised than the sharks.

They are also often burdened by high financial costs and underutilised machinery.

The choice

Once an enterprise has determined which of the four groupings it fits best into, the report considers four main possibilities for an overall strategy.

1. Repositioning from traditional markets and products, and using core competencies to enter new markets like ship refurbishment international contract work, or niche high value added wood products;

2. Specialisation along the value chain. That is, concentrating on one or a few particular processes in the production sequence and excel at it, acting as sub-contractor to other enterprises in the industry;

3. Focus on the more promising product in the range and excel at its production and design;

4. Cease manufacturing and concentrate on distribution. Each strategic option is underpinned by one basic requirement, getting fit. Upgrading operations and skills is crucial to all enterprises in the industry, though the degree and the particular areas that require improvement depend on the state of the specific enterprise and the strategy chosen.

Key elements

The specific areas the report identified as requiring improvement are:

1. product design

2. productivity and operations and process management

3. human resources: specific skills

4. promotion and export marketing.

These refer to the industry as a whole. Each individual enterprise may find it has some of the competencies required, or may need to develop others to the ones listed in the report. Each enterprise is unique, with its own set of skills, problems, capabilities and opportunities and the business planning process is the best means to identify and exploit those characteristics.

The general options outlined in the report rest on two pillars, besides the basic improvement in management and operational skills. First, it is a call to focus. Specialisation allows the enterprise to concentrate on what it is good at, and thus to improve undistracted by a very wide range of activities.

It also allows the enterprise to benefit from economies of scale as it does more of one specific thing, rather than a little of many things.

The specialisation can be either by product type - high end bedrooms or children's furniture, for example - or along the value chain. The enterprise can concentrate on finishing the product of other enterprises, or on any of the other stages in the process that gets the product to the customer in the market.

With specialisation comes the second pillar - cooperation or clustering between enterprises. As in all division of labour, the idea is that each member in the cluster or network contributes what it does best, leaving other members to do the parts of the process that they do best.

Working together, each of the members of the cluster can specialise and thus can benefit from economies of scale and improved efficiency while providing a better product as a whole.

The operating environment

Success in the implementation of any of the strategies depends upon the enterprise itself, even though the operating environment has a significant impact. Thus an action plan for the furniture industry has been drawn up by a special, ad hoc Committee for the Furniture Sector set up under the Ministry for Economic Services.

The committee draws together the various public institutions which can have an impact on the furniture sector, coordinated by IPSE. The action plan coordinates the already existing support measures offered by the public institutions while laying out further measures targeted specifically at this sector.

The new initiatives include the establishment of an export promotion house to assist enterprises export, and a design studio for the furniture sector. Both these initiatives aim to tackle shortcomings the report has identified in the Maltese furniture sector.

Other measures the report suggests include the establishment of an effective Furniture Association. This depends upon the enterprises in the sector themselves, but IPSE is ready to assist and support the fledgling association.