Furniture is a need for daily life and it is not possible to sustain at household and offices without furniture products. There are many companies at the international level all over the world providing different and highly valued furniture products to the users. The revenue collected by the furniture industry is 2018 at the global level is 545.46 billion USD which shows the strength of the industry (Statista, 2019). To analyze the furniture industry from different perspectives, Porter’s five forces analysis is conducted.
Competitive Rivalry
The number of international and local companies and manufacturers in the furniture market all over the world is uncountable. The industry is highly penetrated due to the presence, acceptance, and success of local small level furniture manufacture in different countries of the world. Talking about the major companies at the international level dealing in the manufacturing and supply of the furniture products, Ikea, Wayfair, American Wood mark, Tesco, and Amazon are intensifying the competition. The value of the Ikea brand is 18.95 billion USD in 2018 with a revenue collection of 113.7 billion USD in the year 2018 (Statista, 2019). The other international brands have also collected the revenues in billions which shows the competition in the industry. The local small level manufacturers are also intensifying the competition because they provide high-quality furniture products at cost-effective prices which creates difficulties for the international companies to manage their pricing and overhead expenses of running such large business.
Bargaining Power of Buyers
Keeping in view the number of international and local small level buyers, the bargaining power of the buyers is high. One of the major factors that are contributing to the high bargaining power of the buyers is the lack of radical and highly valued innovation in the product offerings of different companies. This lack of radical innovation reduces the switching cost of the buyers and they do not hesitate to switch from one brand to another (Kermer, 2019). The presence of many companies allows the buyers to compare different product offerings and then make a decision after identifying the products and company with the highest level of value. Ikea’s self-service and self-assembly were the innovation once but it is not taken as innovation anymore but a burden which is the reason Ikea had to change the strategy in Australia. This shows the strength of the bargaining power of the buyers in the furniture industry that an international company changed the policy to meet the demands.
Bargaining Power of Suppliers
The timber is the major product used in the pure wooden furniture products while there are some other forms of artificial woods and materials that are used in the development of the furniture products. The suppliers of the raw materials especially the pure timber are not in as excess that reduces their bargaining power with the companies. The companies do understand the importance of maintaining the supplier relationship in this industry to acquire the best quality wood which is a highly scarce resource (Ivarsson and Alvstam, 2010). Therefore, the bargaining power of suppliers is low in the furniture industry.
Threat of New Entrants
The threat of new entrants is high because of the nature of the industry which does not put a large number of hurdles to the new entrants. It is possible to start the furniture manufacturing at a small level with minimum capital and human resources. Many small level companies are successful across the globe in the furniture market becoming a problem for giant companies. The exceptional growth and size of the company also invite the new entrants towards the industry to make a positive return on investments (Nag et al., 2014).
Threat of Substitutes
The threat of substitutes is a cause of concern when the products are obsoleting quickly but the furniture products are not going to be obsoleted. Going 500 years back, the need for furniture products was there and it will remain there for the coming 500 years as well. There have been innovations in the product but the need for a bed has been there for centuries. Therefore, there is no close substitute for furniture products in the near or even long future which reduces the threat of substitutes for the furniture industry.
References
Ivarsson, I. and Alvstam, C.G., (2010). Supplier upgrading in the home-furnishing value chain: an empirical study of IKEA’s sourcing in China and South East Asia. World Development, 38(11), pp.1575-1587.
Kremer, K. (2019). Operations Strategy: Literature review and case study of Ikea. ISSN 2671-132X Vol. 1 No. 1 pp. 1-876 June 2019, Zagreb, p.606.
Nag, B., Han, C. and Yao, D.Q., (2014). Mapping supply chain strategy: an industry analysis. Journal of Manufacturing Technology Management, 25(3), pp.351-370.
Statista. (2019). Furniture. Available at: https://www.statista.com/outlook/17000000/100/furniture/worldwide
Statista. (2019). Ikea – Statistics & Facts. Available at: https://www.statista.com/topics/1961/ikea/