Case 11

Dahlia Furniture Private Limited

On August 1984, Mr. Chua Boon Kang and Mr. Leong Sim Lam bought over Peter Lim's forty-six percent stake at Dahlia Furniture Pte Ltd. Although co-owners at one time, Mr. Chua and Mr. Leong have found Mr. Lim's management of the company to be unsatisfactory. Some re-organization took place as most of the production workers who were doing subcontracting orders solely for Dahlia had resigned due to poor company performance in 1982. Dahlia also sold off seventy-five thousand dollars worth of machinery used for mass producing furniture which was previously purchased by a former Managing Director, who has since left the company. Now at the helm, both are uncertain about the long-term direction of the company. Meanwhile, they are both concerned over maintaining sales growth in a highly competitive industry.

The furniture industry

Furniture making in Singapore began as a natural extension of one of its oldest industries — sawmilling. But what began as supporting industry eventually turned into a leading local industry with a home market estimated at $300 million. Since 1979, domestic demand for furniture has risen by about twelve percent annually and residents in HDB flats atone account for more than seventy percent of this local furniture market. Using this as a base for forecast, some retailers expect a good market for furniture at least until 1992 when HDB's expansion is expected to end. This case was written by Mr. Ch'ng Hak Kee and Miss Jeannie Teah, School of Management, National University of Singapore, as a basis for class discussion rather than to illustrate effective handling °ran administrative problem. Copyright 0 1985, School of Management, National University of Singapore, Kent Ridge, Smgame 0511.

402 BUSINESS POLICY N AN ASIAN CONTEXT The ►zwwill of the local furniture industry has been industry. The erinked.vto the growth of the country's construction and building inda boon tothose in before. the success stones public housing programs in the sixties was esPec the furniture trade and it was a matter of time of furniture retailers drew many MOM others into the industry. There are now more than '00 establishments manufacturing furniture and of these, fifty-nine are both manufacturers and exporters of wooden knock-down (35), rattan (12), or steel furniture (12). Exporters have mere itlan doubled within the last three years largely due to the increase in the export of wooden knock-down furniture. Singapore experts to the United States, Australia, Canada, Western Europe and the Middle Although the American market is accounting for a large percentage of these exports, exporters in Singapore face keen competition from domestic U.S. manufacturers. Although furniture manufactured in Singapofe can be categorized under wooden. metal, and carte, the trade is mainly wood-based. Under wooden furniture WC have wooden knock-down and wooden assembled. The former is mainly an export item which is enjoying a healthy growth rate while the latter is primanly for domestic consumption. As far as the attitude towards the purchase of furniture is concerned Urn has been a change. Before the last decade, would-be buyers of furniture would want to blow how strong and how durable furniture was but now aeghetic qualities are becoming an increasingly important consideration. Fashions in furniture can be fickle. In 1977, imported chipboard furniture became popular, especially those with polyester finishing. But the expansion of chipboard upon contact with water made it impractical for item Iitchen cabinets. By 1992, furniture with wood veneers had replaced these in popularity. Consumer taste was again to change in 1984. The "in-thing" then was furniture with smooth and sophisticated lacquer finish. Ten years ago, furniture makers used to turn out standard products and

consumers would buy these for their functional use. But consumers today prefer designs and colors in furniture that will match their homes. The younger generation especially go for a fashionable design and they may change for a new set atier two to five years. It ap that furniture is maga- a “ once-in-a-lifetime" buy and with growing affluence, Singapore-ans have become more willing to spend money to decorate their homes-Some retailers also feel that Singaporeans prefer imported furnitucre to locally made furniture especially if the prices axe corn bie.

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Dahlia's move into retailing Dahlia Furniture made its entrance into the furniture industry in 1972 as subcontractors to two large furniture concerns, Ching Lin and Diethelm. It supplied mainly wall units and kitchen cabinets while bedrooms sets and dining sets were subcontracted out or obtained from local suppliers. Business went well and the company decided to branch into retailing. The first showroom was set up in a housing estate but this location was later found to be unsuitable. While Dahlia's furniture line was of a higher quality and price than those of other retailers around that area, the people residing there were mainly from the lower income group. In 1978, Dahlia moved the showroom to a department store in the Orchard area. At $4 per square foot, the rent was more expensive than before but management had no regrets. Orders began to come in very quickly through this outlet and turnover soon reached $5 million per annum. Between 1979 and 1981, Dahlia acquired two factories at Ang Mo Kio and Upper Thomson at a cost of $400,000 and $300,000, respectively. The factory at Ang Mo Kio was rented out on a monthly basis to furniture makers (mainly making dining sets and custom-made kitchen cabinets) who were also subcontractors to Dahlia. The company also acquired two more showrooms in° the Bukit Timah and Upper Thomson area in 1978 and 1982, respectively.

Search for a general manager

All three owners had commitments to their own custom-made furniture business. Mr. Chua and Mr. Leong,were involved in woodwork and metalwork, and Mr. Lim, in upholstery. Hence, a Production Manager from another furniture company was employed to run Dahlia. He was later made Managing Director and offered a chance to have a thirty-five percent stake in the company. However, Dahlia failed to keep him. After three years, he resigned and started his own furniture company. The Marketing Manager was promoted to General Manager but he too left a year later. Peter Lim, a co-owner and major shareholder then, took over the full-time management of Dahlia in 1982. He left his upholstery concern, under the care of his son. As time passed, the other co-owners began to privately feel that Mr. Lim was using his contacts in Dahlia to benefit his upholstery business possibly at the expense of Dahlia. These misgivings and other personal

404 BUSINESS POLICY IN AN ASIAN CON"l'EXT differences culminated in the take over of the control of the company by Mr. Chua and Mr. Leong in 1984. A relative, Chua Soo Lee, was brought in to handle general admini-stration work while Robert Lam who was attached to the design unit also assisted in production and general management of the place. Major decisions Other staff included were still being made by Mr. Chua and Mr. Leong. eleven salespeople, four clerical workers, and six production workers at the Thomson factory.

Sales

Furniture makers at the Ang Mo Kio factory did- both standard and custom-made furniture and operated on a piece-rate basis. Dahlia was its only client and when it failed to generate regular and sizeable orders, many of the workers resigned. Faced with the dilemma of filling their showrooms with saleable furniture without relying too much on local suppliers, Dahlia turned towards imported furniture. Initially, furniture was gradually imported from France, Japan, and Belgium but their popularity has prompted it to look upon imports as playing an important role in achieving higher profits. Currently, it is working towards importing furniture from Italy. In addition to its own production, imports, and furniture from subcon-tractors, Dahlia also has local suppliers. Some of them are mainly furniture manufacturers while there are a few who have retail outlets and can be considered to be Dahlia's competitors except that their retail outlets may be in a different locality such as East Coast Parkway. These competitors-cum-suppliers provide furniture to Dahlia at a cheaper rate. Settees are the top money earners accounting for fifty percent of sales. But in the last few months of 1984, wall units have proved to be very popular and within that period, accounted for 47% of dollar sales. Mr. Chua and Mr. Leong, with the help of Robert Lam, are trying to revamp operations to improve the company's position. They perceived Dahlia's clientele to be middle and upper income families who are generally westernized in taste. The majority of them are in private housing or five-7001I1 HDB flats. With this in mind, it has only advertised in the Straits Times but, even then, on very few occasions. The owners expressed satisfaction over the highquality and fairly expensive image of Dahlia's furniture. They felt there wood market or them judging by the growing demand for im as a gported furniture and the

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growing number of families who could afford and were willing to pay for such furniture. At this juncture, both owners are considering whether they should increase the role of imports. With imported furniture, one does not have to worry about overhead costs. But it could turn out costly if these took two months or more to sell. Alternatively, the company could expand its production unit. This may involve hiring more labor whic'h could prove to be expensive and difficult in view of the government's policy .to dis-courage such use of foreign labor.

Competition

Recent furniture advertisements, fairs, and price slashes show that the industry is very competitive. This has given rise to some erratic pricing. A case in point was when a coffee set was sold for $800 and within a week, another retailer was able to sell a similar set for $600. Some retailers have even been reported to sell below cost. There are those who have imported more furniture than they can sell and hence have clearing sales. Local furniture firms not only have to contend with locals but with branches of foreign manufacturers and retailers like Ikea, Fly, and Home-stead. As one retailer puts it: Another Scandinavian company is coming, the Italians are coming, the Japanese are coming, the Americans are coming..., all in a big way. Dahlia does not see itself as being in direct competition with these large foreign furniture retailers. It claims that while such companies cater to the mass market, its furniture line is more for those who want exclusivity. Retail outlets are now carrying a wider range of furniture and some have accessories like curtains and bedspreads. One retailer in Singapore is also selling household appliances.