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Profile of Key
Industries

Processed Fruits
Furniture

Packaging
Seaweeds
Fashion Accessories

Profile of Selected RP Industries
Foreign Trade
Statistics

Export
Import
Directory of
Exporters






DEFINITION OF THE INDUSTRY

Hailed as the furniture capital of the Philippines, Cebu lives up to its reputation as it steadily enjoys a substantial percentage share of the country's furniture export sales, which is over 60 percent of the total annual figures, yet Cebu manufacturers comprise only 20 percent of the entire Philippine furniture industry. Manifestations of considerable strength amidst soaring prices was evident, when despite the plummet of the peso, the Cebu furniture industry still registered a positive growth.

Most of the significant achievements in the industry were done in the last ten years. From a fledging start in rattan pole trading, the furniture industry has grown into one of the major contributors to Philippine economy, with furniture classified among the top five export commodities in the country.

Moreover, Cebu's furniture industry is now the forerunner of the province's thrust toward global competitiveness. Due to its rich tradition in furniture-making as well as its impressive track record both as a major export earner and net exporter, the Cebu furniture industry has long been considered as having one of the greatest potentials in the world market. True enough it has been included in the list of 15 export winners under the Medium Term Development Plan.

Already noted for very good designs and excellent craftsmanship, the industry gears towards the direction of product development to further keep its edge over its Asian neighbors. The scarcity of raw materials has anything but discouraged nor limited the very talented Cebuano furniture designers into creating beautiful furniture made from combinations of traditional and indigenous materials such as sea grass, abaca (Manila hemp), arorog, and butay (coconut twig) mixed with wood, bamboo, rattan, stone and wrought iron. These designs are expertly handcrafted by the finest craftsmen in the area, giving attention to the tiniest detail that make up the essence of each piece.

Cebu has all the potentials of becoming a major player in the international scene. At present it already serves the European, North American, the Middle East, and Asian markets, thus making it a furniture resource of great promise.

HS Codes, PSSC Codes and Descriptions for Export Products

Table 1

International Classification Codes
Furniture Industry

PSCC CODES

HS CODES

DESCRIPTION

821.13

9401.50

Seats of cane, osier, bamboo or similar materials

821.16

9401.60

9401.69

Seats, n.e.s., with wooden frames

821.17

9401.71

9401.79

Seats, n.e.s., with metal frames

821.31

9403.10

Furniture, n.e.s., of metal, of a kind used in offices

821.39

9403.20

Furniture, n.e.s., other metal furniture

821.51

9403.30

Furniture, n.e.s., of wood, of a kind used in offices

821.53

9403.40

Furniture, n.e.s., of wood, of a kind used in a kitchen

821.55

9403.50

Furniture, n.e.s., of wood, of a kind used in the bedroom

821.59

9403.60

Furniture, n.e.s., other wooden furniture

821.79

9403.80

Furniture of other materials (including bamboo)

PSCC      = Philippine Standard Commodity Clearance Code
HS Code = Harmonized System Code

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MAJOR COMPONENTS OF THE INDUSTRY CLUSTER

The key players of the said industry are the manufacturers, subcontractors, and traders whether direct or indirect exporters, or a combination of these natures of businesses.

Table II

Furniture Industry Key Players

Cluster

Percentage

Manufacturer(direct exporters )

37%

Manufacturer engage in the ff:

-sub-contracting, manufacturing, direct & indirect export trading

24%

Manufacturer engage in the ff:

-sub-contracting & direct exporting only

13%

Manufacturing with direct & indirect Exporting w\out sub-contracting

8%

Manufacturers dealing solely in direct exports

5%

 

Sub-contractors of traders (direct or indirect) & domestic markets

2.6% / grp.

Exporters engaging in trading only

2.6%

Others

7.8%

Total

100%


Some of its support industries are the wood and lumber industry, hardware’s and the metal industry. Its allied industry is the Cebu Gift, Toys and Housewares (GTH) which produces some of their furniture accessories.

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FLOW / PROCESS CHART OF THE FURNITURE INDUSTRY

Figure I

Furniture Industry Flow Chart

IRON & STEEL Industry
WOOD Industry
=Industrial
  tree   plantation
=Lumber
  Imports
=Plywood &   blockboard   MDF
STONE CUTTING Industry
CHEMICAL Industry
=Paints & 
  Laquers
=Adhesives
  & glue
=Wood
  treatment
ACCESSO-
RIES /
HARD-
WARES
UPHOLS-
TERY
Industry
FURNITURE INDUSTRY
 = Wooden Furniture
 = Wrought Iron Furniture
 = Metal Furniture
 = Stone in-laid Furniture
 = Other materials
SHIPPING & TRANSPORT
DOMESTIC MARKET
EXPORT MARKET

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INDUSTRY SIZE, LOCATION AND GROWTH

Number of Firms

There are 162 furniture establishments in Cebu, 123 (76%) of which are members of the Cebu Furniture Industries Foundation, Inc.(CFIF), the industry association. The other 24% are non-members of CFIF but listed with the DTI.

Size, Assets and Distribution of Firms

Majority of the firms (50%) are in the small-scale category. What used to be about 77% (micro, 24% and cottage, 53%) is now reduced to only 23% (8% micro and 15% cottage). At the same time, the medium and the large firms have grown in number from only 5% to at least 20% (10%, medium and 10% large).

Most companies have obviously prospered through the years. In this regard, the effect of experience cannot be disregarded, in view of the maturity of the industry.

Presently, majority of the firms in the Cebu furniture industry are still at the small-scale category. But the encouraging note is that most of them started only at the cottage and micro levels.

Value - added

Possessing the globally acclaimed strength in design, mixed media and other product innovation they were able to price it higher compared to other Asian Furniture producing countries; catering the medium and high end buyers and still remain to be highly competitive.

The value added chain was completed when companies started their own product development and design, manufacturing, assembly, and final furnishing.

The secret lies in the hands of their multi-skilled workers which readily adopts to the changing needs of the customers, offering incomparable variety in designs, function, color, texture, material and most of all excellent workmanship handcrafted by the finest craftsmen, giving attention to the tiniest detail that make up the essence of each piece.

Employment

This survey adopts the Table of the National Statistics Office (NSO), on the number of workers by classification of firms, in the following manner:


Table III

Number of Workers by Classification of Firms
National Statistics Office

      Classification

      No. of workers

      Micro

      1 - 9

      Cottage

      1 - 9

      Small

      10 - 99

      Medium

      100 - 199

      Large

      200 and above

Most establishments (53%) are clustered in the Small Enterprise classification (10-99) when the NSO table is used.

Seventy-six percent of the businesses have 9 or less managers, consisting of both genders in about equal numbers.

More than 50 percent of the businesses have 9 or less supervisors while 29% employ anywhere from 10-99. There are more male supervisors in the furniture industry, not because the male gender is favored, but because most supervisors are promoted from the ranks of multi-skilled and skilled labor. These classes have been traditionally male-dominated in the furniture industry.

Thirty-nine percent employ 9 or less specialist/support staff while 18% employ 10-99. In both cases, males and females are employed in more or less the same numbers.

Where multiple skills are required, establishments have up to the present been employing more men, mainly because there are not enough women with multiple skills. The same is true with skilled labor. This appears to be a carry-over of the old, hand-tool (as opposed to mechanized) operations of the furniture industry, which required men, more than women.

The requirements for jobs performed by semi-skilled and unskilled personnel are about equally served by the employment of either gender.

Location

Figure II

Location of the Cebu
Furniture Industry
Exporters & Manufacturers


Majority of the Furniture industry companies are located in Mandaue City. Others are found in the city proper and very few are found in the nearby provinces of Cebu.

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ECONOMIC IMPORTANCE OF INDUSTRY

To date, the furniture industry is one of the major source of livelihood for over a thousand workers of Cebu-based furniture manufacturers and exporters. Thousands of these workers employed directly and indirectly are benefited from these said exporters and manufacturers. There are also other indirect beneficiaries of this industry like shipping, storage, insurance, trade and banking.

Taking into consideration the contribution of the furniture industry to the socio-economic condition of Cebu, it has been able to improve the quality of life of Cebuanos particularly their workers who are at the same time breadwinners of their respective families.

INDUSTRY GROWTH ( 1993 - 1997 )

Table IV
Growth Rate of Cebu's Furniture Exports
By Commodity

Value in U$ Dollars
Cebu Port & MEPZ

[ see table from other page ]

Markets of the Industry

Domestic vs. Export

A great majority (82%) of the establishments export their products (53% solely exporting and another 29% exporting and another 29% exporting 90% of their products). Thirteen percent have anywhere from 10-90% of their outputs bound for abroad, while only 5% produce solely for the local market.

This trend may be taken as an indication that the products of the Cebu furniture industry are, to a confident level, globally competitive. This can be a valid conclusion because there are much more firms that cater to the more competitive foreign market than to the domestic buyers.

The fact that this is achieved by an industry with firms dominantly wholly owned by Filipinos should be taken as a positive signal by other industries in the Philippines.

Countries of Destination

Most of the products go to the Americas (44%), with 40% to the USA. Europe is a far second (21%), followed by the Asian market (12%). Other market including the local market is 23% of all outputs.

Figure III
Geographic Dispersion of Cebu's Furniture Export
1998

The trend on countries of destination may not really serve as a clear indication for marketing, except that the distribution of sales figures may reflect the traditional market shares of imports from the Philippines by these countries. Other than the usual demand proportions of these regions, the other possibility is that the US market has the best profit potential.

Business of Major Foreign Customers

The biggest customers of the industry abroad are Distributor-Wholesalers (63%) with Retailers a far second (16%). Some 13% are Manufacturer or Assemblers, meaning that their suppliers here are subcontractors.

The trend in this item confirms the notion that the easiest segment of the market to sell to are the distributors. This sector, in a sense, are composed of the equivalent of middle-men or brokers who make the link between producers and retailers for a profit.

It may then be implied that, if our manufacturers are able to go directly to retailers, they would generate more profits through by-passing of the distributors. Much more if our exporters become the retailers of their products in the country of destination.

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INFRASTRUCTURE

With the creation of the second Mactan Bridge; a lot of Cebuanos will be benefited in terms of accessibility especially the exporters and manufacturers who are now located in Lapu-Lapu City, they need this in the transportation of their goods to the pier, and for companies located at Mandaue and in other parts of the City who like to load their shipments to Mactan International Airport and to its other Mactan destination.

Communication wise, there has also been an improvement in this area. Islacom (Island Communication) for one, a new telephone company offered new telephone lines to Cebuanos. If before getting a telephone line entails a very long process, now it is made faster and easier by this telephone company. So this really helped our exporters and manufacturers who found it very difficult to transact their businesses because of the absence of a telephone which is one very important means of communication.

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BUSINESS CLIMATE

Relevant Policies/Laws/ Procedures reviewed to identify roadblocks to industry growth and potentials for advocacy

Being branded as one of the "export winners", the furniture industry exports have been identified as one with a strong potential for growth, therefore whatever relevant laws and policies that would hinder this industrys' growth and development should be reviewed accordingly.

One of this is the opposed rate increase of the Transpacific Stabilization Agreement (TSA) for all cargoes bound from Asia to the US. The move to raise the freight rates poses a big problem for the survival of the industry, which is still reeling from the blow of the Asian economic crisis. Besides, the TSA has not given any justification for its implementation and also no reason why they are putting a surcharge during peak season.

Furthermore, the increase will greatly affect the Cebu furniture industry, specifically lessening its competitiveness. The repercussions is not limited to this as this creates a possible imbalance in the country's economy, furniture being one of the thriving industries, ranking third among the Philippines' export commodities and consequently second in Cebu.

Technology

One of the key strategies to cope with increased competition is an increased penetration of the market. This is possible through mass production. Introduction to new technology to speed up production and quality enhancement as well as meet demands of the buyers is a necessary factor to survive in a competitive world market. Products that are produced from mass production are prices lower than those from manual production.

The Cebu furniture industry is slowly updating and upgrading its technology know-how either by exposing themselves to foreign technology transfer or by attending seminars and technology upgrading programs conducted by expert trainors. Some companies are also beginning to mechanize other parts of their production process to speed up its production.

Economies of scale then, is reached through this form of mechanism. Others which are somewhat "expensive" still remain to be competitive for they possess the art of creativity as manifested in the intricacy of its design and craftmanship.

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Education and Training

  • Basic Skills Training

Some of the companies believe that basic skills (e.g. woodworking, carpentry, etc.) training is "not necessary". This group may be implying that, either they do not need new skilled workers, or there are workers easily available in the employment market who possess basic skills.

What may be unfortunate is when they will just hire helpers (unskilled) who will be left on their own to learn the basic skills on their own, observing work procedures, asking questions from skilled workers, or undergoing unsupervised OJT.

Companies in this case will need to look at such things as shortage of manpower in certain specific skills, assess the trainability of certain workers along specific trade skills-probably, even with the possibility of the worker leaving for another company after training.

  • Skills Upgrading

Companies in the furniture industry are more inclined to spend for skills upgrading than basic skills training. Generally, they intent to keep their present pool of skilled workers and are willing to use their cash resources to upgrade their existing employees.

  • Multiple-skills training

Furniture companies are almost as eager to multi-skill their employees as they are in making them upgrade their existing skills. For workers with multiple-skills are likely candidates for higher vacancies. Management normally requires this for shop-floor supervisory positions, and workers are aware of this. If the companies would successfully multi-skill their workers/employees, especially across functional boundaries, it will be one of the key factors in making the Cebu furniture industry more competitive.

  • Waste Management

Companies are "attempting" to properly dispose of all their waste, but the result can still be improved if all the workers are educated to waste disposal. It may mean that they have the waste management structures, but practices are not yet in accordance with the structures.

Another very important factor of waste management is the control of dust, a very important concern because of its effects not only on employees but also on the environment. Dust comes from a variety of sources in a furniture manufacturing facility. Sanding and polishing operations generate a lot of dust especially in the manufacture of wood and stone furniture. Wet sanding technology used in grinding stone significantly minimizes dust but produces another waste-slurry.

The problem of dust pollution is not addressed to all furniture manufacturers because some of them belong to the category of trading only and those in iron/steel who generate minimal quantities of dust.

With some companies, they isolate dust-producing operations in semi-enclosed areas where workers are provided with dust masks. Others have an aspiration system installed in dust producing areas.

On this basis, majority of the furniture companies have addressed the dust pollution effects to the environment, and probably to a certain extent protect their workers.

Generally, the furniture industry appears to be responsibly disposing their waste materials properly; may it be domestic waste, chemical waste, scrap waste and wastewater. Some of these waste when not disposed are then recycled. However, there still others who don't know how to get rid of these waste.

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Labor

Most firms pay their male and female managers over P10,000 while others pay between P6,001 and P10,000. This makes that majority of their managers higher than P6,000 per month.

The pay rates supervisors, the ranges somewhat gives an indication of the gap with managers' pay. Majority of the employers pay their supervisors between P6,001 and P10,000 while others pay between P4,001 and P6,000. Very few employers pay their supervisors over P10,000.

Specialist and support staff, multi-skilled labor, skilled labor and a few semi-skilled labor are paid between P4,001 to P6,000. Some specialists/support staff and multi-skilled labor get salaries between P6,001 and P10,000 with very few getting less than P4,000.

Skilled laborers are in the same pay range as most multi-skilled labor. A higher percentage of skilled labor compared with multi-skilled labor get less than P4,000. A few skilled laborers get anywhere between P6,002 and P10,000.

Most of the semi-skilled workers are in the range of P4,001 to P6,000, the others receive less than P4,000. Majority of the unskilled laborers are in the less than P4,000 pay range. Very few get upwards of P4,001.

It is to be noted that these monthly pay rates do not include the benefits and bonuses which some employers provide.

Some trends that may be deduced from these data are:

  • The typical basic pay for managers is around P10,000 per month.
  • Supervisors are generally getting between P6,000 to P10,000 per month.
  • Skilled specialists and support staff are generally clustered within the P4,000 to P6,000 range, although many of the former get higher than P6,000.
  • Multi-skilled workers are usually given higher pay than skilled specialists; not discounting the possibility that most of the multi-skilled are the first ones promoted to supervisory level.
  • There is little distinction between the pay of semi-skilled and skilled workers. This may stem from the fact that, in the first place, it is difficult to distinguish these categories from one another.
  • Unskilled laborers usually get a monthly take home pay of around P4,000.
  • There are no distinctions between the pay rates of men and women

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Mode of Payment

One mode of payment is on a daily basis and piece-work. There are those which have a combination of both daily and monthly, although it is presumed that the former is for rank-and-file, while the latter pay mode is for supervisors and above and the clerical staff.

Some use piece-work and daily modes, presumably for rank-and-file.

Subcontracting arrangements however, are highly predominant in the export sector. Particularly in industries where much labor is required, exporters are utilizing subcontractors' resources to produce either a product component or the whole product, as it has been proven to be an effective cost-saving arrangement. Cebu's thriving export sector, the backbone of Cebu's economy, is considered "semi-formal" because it is mixture of formal and informal transactions. The chief agents of Cebu's semi-formal export sector are the exporter (contractor) and the informal (subcontractor).

Informal subcontracting is popularly practiced in Cebu, as manifested by the average ratio of contractors. Depending on industry demand, a typical contractor can have 5 - 30 subcontractors. This situation may be due to the following reasons:

  • subcontracting spreads the risk of the contractor
  • transfer of technology offers the subcontractor a chance to be a contractor himself
  • subcontractors are the fast learners, flexible producers and offer low-cost labor
  • subcontracting cuts down on government bureaucracy (e.g. minimum wage)

Most of the surveyed firms are at subcontracting, others act as domestic supplier or a combination of both. To date there are about 74 subcontractors documented by DTI, there could be more however.

Financing

Owners' Cash Resources

The dominant sources of working capital are the owners' cash resources. Some of the companies "always" use the owner's money for capital. Another "often" use the owner's cash resources', others "seldom" do so; and a few "never" do. This shows that most companies in the furniture industry are liquid enough to sustain their operating capital requirements without aid from others.

Financing from Banks

Some companies use bank financing facilities to finance capital; others "often" and a few "seldom" do. This seems to mean that bank facilities are usually the second option of financing when the owners' resources are insufficient.

Financing through Private Lending Institutions

Some of the companies "always" depend on this form of financing to finance working capital; others "often" avail of bank facilities, some "seldom" do; and a very few "never". This seems to mean that bank facilities are the usually second option of financing when the owners' resources are insufficient.

Financing through Private Lending Institutions

Some companies "always" depend on this form of financing; a very few "often" resort to it and others "occasionally (seldom)" do so, and others "never". This seems to mean that bank facilities are the usually second option of financing when the owners' resources are insufficient.

Loan Sharks

Only a few of the companies are depending on loan sharks; others "seldom" but majority of them "never" get their working capital from loan sharks. Again, this reflects the overall liquidity of most of the firms in the industry.

Advance Payment of Customers

Companies although not all are asking advance payment from their customers. Because not only does it give them capital for the production of their orders but also gives them a sense of "commitment"(to finish their production) from their buyers and also vice versa.

Borrowing against Letter of Credit

A very small percentage, less than 3%, borrows against the Letter of Credit. This used to be a straight-forward transaction, but due to a weak peso, vis-a-vis the dollar collateral is required by lenders as well.

Terms from Hardware Suppliers

A very small percentage, also less than 3%, use credit line form hardware suppliers to extend their cash resources for other purposes.

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Fiscal Incentives

The grant of much needed fiscal incentives to exporters, most of which were patterned after, but not as extensive as those in the fast-exporting Asian Tigers and the ASEAN newly industrializing economies are as follows:

  • Income Tax Holiday

- six (6) years to pioneer firms
-
four (4) years to non-pioneer firms

  • Duty of 3% on imported capital equipment and its accompanying spare parts
  • Tax credit on domestic capital equipment
  • Tax and duty-free importation of breeding stocks of genetic
  • Additional deductions for labor expenses
  • Tax credit for taxes & duties on raw materials
  • Exemption from wharfage duties and any export tax, duty import fees
  • Exemption from contractor's tax
  • Tax duty exemption on imported spare parts

Non-fiscal Incentives

Non-fiscal incentives are also provided as follows:

  • Simplification of customs procedures for the importation of equipment, spare parts, raw materials and supplies and exports of processed products.
  • Employment of foreign nationals. This may be allowed in supervisory, technical or advisory positions for five (5) years from registration. The president, general manager and treasurer of foreign-owned registered enterprises or their equivalent shall not be subject to the foregoing limitations.
  • Access to bonded manufacturing/trading warehouse system. Registered export-oriented enterprises may have access to bonded warehousing systems.

Non-Government Services

Cebu Furniture Industries Foundation, Inc. (CFIF)

Marketing and Promotions

  • Organizes and promotes the annual Furniture Fair in Cebu.
  • Publishes and distributes annual marketing and promotional materials - locally and internationally
  • Organizes the participation of CFIF member companies in local and international trade fairs and missions.

Training

  • Commissions technical and market development seminars/workshops
  • Provides technical and management consultancy services

Information

  • Disseminates information to its members and corresponds with government and non-government agencies, institutions and organizations through its quarterly newsletters, bimonthly communications and internet homepage
  • Acts as the industry's information center by providing library services

Policy Advocate & Industry Representation

  • Lobbies on major issues affecting the furniture industry
  • Design and Product Development
  • Coordinates design and product development programs and activities with its Cebu Furniture Designer Guild

Ethics

  • Espouses the maintenance of ethical practices within the furniture industry through its Ethics Committee.

Wood Producers Association of Cebu (WOPAC)

Training and Service Center

Vision Statement

Envisions itself to become a world class training and service center committed to serve the micro cottage, small and medium enterprises (MC-SME) and wooden furniture industry to become efficient and competitive partners for domestic and foreign customers.

Mission Statement

Training and Service Center is being established with the following mission:

To develop human resources to be efficient and productive in the field of wood abased products manufacturing especially on furniture and cabinet making;

To provide seminars to the member companies like sharpening of tools and furniture part production in order to raise the quality standard of their products; and

To support the wood base MC-SME wooden furniture industry by providing management and technical consultancy, those increasing the productivity of the company.

Goal

In line with its vision and mission WOPAC Training and Service Center has the following goals:

To train wood industry workers to become competent and socially responsible craftsmen in the production of wood based products especially in the field of furniture and cabinet making;

To equipped the craftsmen with knowledge of SEQEMS (Safety, Environmental Friendly, Quality, Economy, Methods and Safety) and the skills required to be capable wood workers of the MC-MSE and wooden furniture industries;

To continually develop the WOPAC staff with technical and management skills to be effective in delivering services to MC-MSE and the wooden Furniture Industry.

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INTERNATIONAL TRADE AND INVESTMENTS

Exports

Furniture exports are divided into the following sub-groups: rattan, wood, bamboo, buri, stone, metal, parts of furniture and other materials and furnishings.

Rattan although has been dominating the industry for the past years is now overtaken by wood. Cebu's furniture industry has shifted from rattan-based to wood due to the high demand of global market although the sector is known as the leading exporter of rattan-made furniture.

Statistics show that for the period of 1998, overall sales were down by 33 percent for the 1st half but picked up towards the end of the 2nd half of the semester, the Cebu Furniture Industries Foundation, Inc. (CFIF) statement revealed.

In a comparative study of Cebu furniture export sales for the 1st quarter 1996 to 1998, sales for wooden furniture increased by 459.88 percent in 1997 and 36.70 percent in 1998.

Still other materials such as metal and mixed materials furniture posted an increase in demand. Metal furniture posted growth at 316.31 percent in 1997 and 183.67 percent in 1998; mixed furniture grew by 35.04 percent in 1998 while its 1997 performance registered a negative 46.51 percent.

Inspite of this "Cebu still prides itself as the furniture capital of the Philippines where we contribute over 60 percent of the total annual figures for the industry as a whole".

See attached (Annex 1,2 & 3)

Imports

Table IV

Importation of Furnitures
January - September 1999

 

Codes

Description

Volume
(in kilos)

FOB Value
(In US $)

821.71

Furniture of Plastics

380

$ 1,562.00

821.79

Furniture of stone/marble

22,648

41,896.00

821.80

Parts of furniture

182,888

15,250.00

699.17

Of moldings and fittings

47,008

84,020.00

893.95

Fittings for furniture’s

131

716.00

821.55

Beds, of wood

37,194

41,400.00

821.29

Cushions & pillows

1,929

12,811.00

Export Performance Targets (1999 to 2001)

The furniture export target for the year 1999 to 2001 is a 10% increase in every year of the current years' export sales.

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OPPORTUNITIES DRIVING THE INDUSTRY

External Drivers

Due to the political instability of Indonesia which is one of our great competitor; our market share in the furniture market has therefore increased. As seen in the recent Philippine International Furniture Show held at Cebu Waterfront Hotel attended by different buyers all over the world, which earned around twenty one (U$21,000,000) dollars. This would also imply that there is still a very huge demand for Philippine made products, especially Cebuano crafted furnitures in the world market.

Access to the world market is made easy through the participation of International shows like this.

Technology wise, the Cebu furniture industry is slowly updating and upgrading its technology know-how either by exposing themselves to foreign technology transfer or by attending seminars and technology upgrading programs conducted by expert trainors. Some companies are also beginning to mechanize other parts of their production process to speed up its production.

The continued economic stability of the United States is a also a great opportunity for the furniture industry to grow since this is their biggest market.

Internal Drivers

Because of the implementation of 5S (a Japanese legacy on productivity) of some companies (introduced and taught by the DTI 5S Team) their management system has greatly improved. Thus, there has been cost control reductions, eliminating unnecessary costs found in the production as well as in the management process thereby improving the productivity of the company.

Moreover, the furniture industry still posses the globally acclaimed strength in design, using mixed media and other product innovations. Maintaining its craftmanship, acquiring flexibility in terms of using diverse materials and being able to adopt the needs of the customers is a major strategy used by the people in the industry to have an edge over their competitors.

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REQUIREMENTS FOR GROWTH

The furniture subcontractors which, being mostly micro-cottage enterprises and considered to be an informal enterprise must be the area of focus since they are actually dealing with first-hand production. Problems that can be identified in this area are: Unavailability of raw materials, failure of workers to meet production deadline, quality control problems and mixed up production scheduling.

Unavailability of raw material

Unavailability of raw materials is a problem being shared by the subcontractors with the contractors. Relatively scarce materials like wood, rattan and stones are constantly hampering the production of furniture.

Quality control

Quality control Is also another big problem for this sector. With the contractors' strict material and workmanship specifications, furniture makers find it hard to meet them. In fact, most of the subcontractors say that quality control is present in their operations usually at the finished product inspection stage. With the presence of quality control during this last stage is a disadvantage for them since some furnitures have to be redone again and others are redone from the start if rejected by the exporters. Which costs a lot of money and time on the part of the subcontractors.

Inability to meet deadlines

This is a big disadvantage on the part of the subcontractors as well as with the exporters, because this problem causes a chain of effects. If the subcontractor cannot deliver on the specified date by the exporter, the finishing which is usually done on the exporters premises can also be affected, thus delivery to the buyer will also be delayed. Especially if the order is covered by a letter of credit wherein it has to abide by its conditions and that includes the deadline of shipment. The worst scenario in this is the cancellation of order by the buyer.

Limited capital

Subcontractors are paid either on a Cash on Delivery (COD) basis or by terms by the exporters; depending upon the value of the amount involve. With this situation when they are paid in terms some subcontractors are having a hard time managing their finances. Especially in the procurement of raw materials when they have to pay their suppliers in cash.

Access to credit also is difficult. The subcontractors can only depend on their earnings and cash advances from contractors for their working capital requirements. Due to informality and smallness of the enterprise, they have no option but to borrow from informal lenders at usurious rates. Banks or other formal sources of credit only lend to registered firms and some require collateral and/or rigid application requirements for unsecured loans to subcontractors (if any) which is impossible for the informal firm to comply.

Being an informal enterprise brings with it costs which limits the firm to do business transactions in a professional and oftentimes, legal way. The lack of a legal personality deprives furniture subcontractors of the benefits and protection of the contract system. For instance, these firms cannot make long-term commitments, enjoy price or delivery protection, or have flexibility in transferring assets. Much less can they have access to the courts when their agreement with other parties are violated.

Inorder for the industry to grow subcontractors must be given the necessary training in production and financial matters. They must be able to attend seminars and workshops for them to increase their knowledge and skills as well adopt new technology know-how to increase and improve the quality and quantity of production.

Adequate administration and control is also considered a vital need of the industry. Management skills have been determined to be lacking which leaves the business in an always precarious situation. If only the subcontractors will learn how to develop basic skills in financial management, problems in cash management, cost estimating procedures, and sourcing of funds, administration and control problems will be solved by the subcontractors themselves.

Exporters must also assist the subcontractors especially in financial matters for this serves as a "fuel" in the production process, without it nothing can ever move.

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RECOMMENDATIONS/COURSES OF ACTION

Having known the current problems faced by the furniture industry, active efforts are required to establish a common agenda for the subsector's development. Thus, cooperation among government line agencies, non-government organizations, and the business sector as a whole is absolutely a pre-requisite to address such problems. Indeed, throughout the process of development, it is necessary for the entire industry to collaborate on the improvement from the grassroots of the industry to the upper hierarchy.

To achieve the unity in the industry which will be required for such activities, it is essential to organize a governing body that will oversee the situation of the subcontractors. This governing body should also act as a coordinative body between and among contractors, subcontractors' associations, government line agencies, and business sector.

There is also a need to organize into cooperatives or associations the subcontractors for better representation.

And for proper evaluation of the program should be put in place. Constant monitoring such as in-plant visits and review of programs should be done. Plans and strategies for the improvement of the sector must be done like:

Assurance of quality raw materials at globally competitive prices, linkage with other government agencies, e.g. DENR, DA, etc. should be pursued to avoid detrimental government policies like the recent plan to export lumber but which was withdrawn by the president after protests from the public.

Improvement of product quality through improved productivity and production methods, and availability of a world class workforce at all levels of employment. 5S implementation at firm level should be continued.

Development and implementation of a strategic marketing and promotions plan to expand markets (participation in international fairs, studying/venturing into newly emerging markets)

Continue support to the association. Provide pro-active assistance to the subcontractors so that they can eventually graduate into exporting and they will have more negotiating power with buyers.

Continue efforts on policy advocacy beneficial to the sector.

And lastly, the government must see through the problems of the industry and work hand-in-hand with the key players in order for them to come up with appropriate solutions for the industry to grow thus, reaching their targeted goals for the years to come.

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References:

World Class: Made in the Philippines. Furniture Industry ProfileCIDA-ESP-MCBLP Survey Report on the Cebu Furniture Industries Foundation, Inc.
A Benchmark Survey on the Micro-Cottage & Small Enterprises in Cebu
National Statistics Office
Cebu Furniture Industries Foundation, Inc.

 


   
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