UNIVERSITI PUTRA MALAYSIA

AN ANALYSIS OF GLOBAL MARKETING STRATEGY FOR THE MALAYSIAN WOODEN FURNITURE INDUSTRY

YEAP TEIK BU

FEP 1999 6

AN ANALYSIS OF GLOBAL MARKETING STRATEGY FOR THE MALAYSIAN

WOODEN FURNITURE INDUSTRY

YEAP TEIKBU

MASTER OF SCIENCE UNIVERSITI P UTRA MALAYSIA

1999

AN ANALYSIS OF GLOBAL MARKETING STRATEGY FOR THE MALAYSIAN

WOODEN FURNITURE INDUSTRY

By

YEAP TEIKBU

Thesis Submitted in Partial Fulfilment of Requirements for the Degree of Master of Science in

the Faculty of Economics and Management Universiti Putra Malaysia

April 1999

ACKNOWLEDGEMENTS

I am deeply indebted to my supervisors Professor Madya Dr. Mohd.

Shahwahid Haji Othman, Dr. Jamil Bojei and Encik Alias Radam for their

invaluable advice, guidance and encouragement throughout my thesis writing.

They helped me greatly by giving suggestions for my analytical framework,

creating the model and offering provocative and insightful comments which

greatly improved the thesis.

My heartfelt thanks to my colleagues and friends, Miss Elaine Tan Lae

Imm, Miss Syarisa Yanti Abubakar, Miss Ong Gaik Ean, Mr. Bernard Tai Khiun

Mein, Mr. Nesathurai Arunagiri and Puan Musalmah lohan who provided editorial

and assistance and valuable suggestions and information.

My thanks to the staff of the Malaysian Furniture Industry Council,

(MFIC) especially to the Honorary Secretary General, Mr. Paul Wang Kia 100, for

his assistance in providing me with members' contact and insightful comments.

Thanks to my parents, my brothers and sister, my wife, Lim Chew Suan,

and my ex-landlord whose constant love and encouragement inspired me over the

past three years of my studies.

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TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS .... ........................................................ ..................... ii LIST OF TABLES ..... ................................ ..... ................................................... vii LIST OF FIGURES . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix LIST OF ABBREVIATIONS ...... ........................... . ............................................ xi ABSTRACT ....................................................................................................... xiii ABSTRAK ........................................................................................................... xvi

CHAPTER

I A REVIEW OF THE WOODEN FURNITURE INDUSTRY ............... 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Current Industrial Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Common Industrial Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 2 States' Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Exporting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . 5

Export Profile of The Wooden Furniture Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The International Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Wooden Furniture Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Types of Wooden Furniture Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Factors Leading to the Outstanding Performance of the Wooden Furniture Sector ............................ ................................. .......... 8

Government's Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The Contributions of Foreign Direct Investments (FDls) . . . . . . . . . . . . . . 12 Local Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Comparative Advantages of the Wooden Furniture Industry . 1 8

Opportunities, Threats and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 Objectives of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 The Framework of the Study ....... . ......... . .... ....... . ........................................ 22

II LITERATURE REVIEW .................................................................... . ... 24

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 The Global Marketing Concept of A Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

What is Global Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . ... 25 Reasons for A Firm's Involvement in the Global Markets . . . . . . . . . . . . 25 The Importance of a Global Marketing Strategy . . . . . . .. . . . ... . . . . . . . . . . . . . . 26

The Studies and Modelling Related to a Firm's in Decision on Exporting26 The Choices in Global Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Low-Price Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Product-Differentiation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

iii

Market-Focusing Strategy .............................................................. 36 The Concepts of OEM, ODM and OBN Strategies ................................... 37

How A Latecomer Firm Overcomes Human Resource, Technology and Marketing Constraints .......................................... 38 The OEM Strategy ................................. ........................ ................. 40 The OOM Strategy ......................................................................... 41 The OBN Strategy ............ ...... .... ............................................. ..... .. 42

The Industrial Master Plan ( 1996-2005) Value-added Chain Concept. .... .43 Summary .................................................................................................... 44

III MODELLING AND RESEARCH DESIGN ...... ................................... 46

Introduction ................................................................................................ 46 Key Factors for Objective One .............................................. ..................... 46

External Factors ..................... .................................................... ..... 47 Internal Factors .............. ................................................................. 48

Key Factors for Objective Two .......................................... ..... ................... 50 The Development of The Hypothesis ........................................ ................ 52

The Hypothesis for Objective One . ... ....................... .................. .... 52 The Hypothesis for Objective Two ................................................ 53

Research Design ......................................................................................... 54 Design of Questionnaire ................................. ..................... ........... 54 Pilot Test ................. .................... .... ............................................... 57 Population and Sample Size ........................................................... 58 Analysis of Testing - Factor Analysis ................ ....... ............. ........ 59

IV DATA ANALYSIS AND RESEARCH FINDINGS .............................. 60

Introduction ................................................................................................ 60 Questionnaire Received ..................................... .... ........ ............................ 60 Company Profiles ....................................................................................... 62

Ownership Structure ............................. ...... .................................... 62 !.-egal Entity of Firms ...................................................................... 62 Employment Structure . . .. .......... ................ ...................................... 63 Capital Structure ............................................................................. 63 Annual Production ................................................. ........ .......... ....... 64 Export Experience of Firms ............. .............................................. 65 Number of countries Firms Export ................................................. 66 Export Contribution to Total Sales Revenue ................................. 66 Global Marketing Strategy Used by Firms ........ .......................... ... 67

Decision-Makers' Perception Toward Global Marketing Strategy ............. 68 Firms' Competitiveness Against Their Local Rivals .............. . ....... 69 Firms' Competitiveness Against Their Foreign Rivals ................... 70 Barriers to Entry ......................................................................... .... 7 1 Incentive for firms to Engage in Export Activities ................. ....... 72 The Importance of Government Incentive Package ....... ..... ........... 73

iv

The Activities that Could Improve Firms Global Marketing Strategy . .. . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . . ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 External Domestic Factor Could Improve Firms' Global Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 75

The Mathematical Concept of the Factor Analysis Technique . . . . . . . . . . . . . . . . . . 76 Principal Components Analysis ..... ... ...................... .... . ...... ........... . 77 Varimax Normalise ..... . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . 78

Research Findings for Hypothesis One ...... . . . .......... . .... . ...... . . . ..... ....... . . ... ... 78 External Factors .................. ........... ... ....... ....... ..... .... .... . ........... .... ... 8 1 Internal Factor .. . .. . .. . . . . ... . . . . . . . . . . . . . . . . ... . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Research Findings for Hypothesis Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Firm's Selection of The OEM Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Finn's Selection of The ODM Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Firm's Selection of The OBN Strategy ..................... ................... .. 88

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . 89

V CONCLUSION . .. . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Introduction ................................. ............... . ................... . . .. ........................ 90 The Importance of Customer Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1 The Global Competitions and Industry Positioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 The Outlooks and The Global Marketing Strategy of The Wooden Furniture Industry ........................................ . .. ... ... ................... ...... .. ... ....... . 95 Recommendation 1 : Finn's Preparations for Global Marketing Strategies .................................................................................................... 96

Identify the Firm's Strength . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Strategy Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 The Choices of Global Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Recommendation 2: The Role of the Government.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Research and Development (R&D) ...... .............. ...... .......... . . ........ 100 Human Resource Development.. .................. ......... . ......... .. . ... .. ... .. 100 Marketing and Information Gathering ............................ .......... ... . 10 1 Infrastructural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 1 Raw Material Procurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

BIBLIOGRAPHy . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Appendix A Types of Subcontracting Activities in the

Furniture Industry .... ... . .. . . ........ . .. . . .. . . . . . ......... ....... ... .. . .... . . . 1 10 Appendix B Questionnaire Survey for Wooden Furniture

Manufacturer Who Involve In Exports . . . . . . . . . . . . . . ... . . . . . . . . . . . 1 14 Appendix C The Results of Analysis for Hypothesis One-

What Factors Stimulate A Wooden Furniture Manufacturer to Adopt A Global Marketing Strategy . . . . . . 1 23

Appendix D The Results of Analysis for Hypothesis two - firm's selection of the OEM Strategy ........... .... . . ...... . .... ... ......... 1 28

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Appendix E The Results of Analysis for Hypothesis two - firm's selection of the ObM Strategy ........................................ 131

Appendix F The Results of Analysis for Hypothesis two - firm's selection of the anN Strategy ......................................... 134

BIOGRAPHICAL SKETCH ............................................................................ 1 37

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LIST OF TABLES

Table

Table 1.1: Number of Establishment, Gross Output, Value-added, Employment and Fixed Asset Value of the Wood-based

Page

Sector for the Year 1993 ................................... . . .................................. 2

Table 1.2: Productivity and Capital Intensity of the Wood-based ClUster For the Year of 1993 ............................................................................. 3

Table 1.3: Number of Establishments, Output, Value-added, Employment, and Fixed Assets of the Furniture and Fixture Manufacturers According to States in 1993 .................................................................. 4

Table 1.4: Number of Export-Oriented Wooden Furniture Factories in Peninsular Malaysia ................................................................................................ 5

Table 1.5: The Ten Major Net-Export# Countries of Furniture (US$ million) ...... 6

Table 1.6: Malaysia's Wooden Furniture Export By Destination in 1995 ............. 7

Table 1.7: Malaysia's Exports of Wooden Furniture in 1995 (RM million) according to HS Codes ......................................................................... 8

Table 1.8: Export and Import of Furniture and Wooden Furniture ...................... 1 0

Table 1.9: Approved Projects with Local and Foreign Participation in Furniture and Fixtures Industry ...................................................... 12

Table 1.10; The Stages of Evolving of Local Firms in Subcontracting Systems ... 15

Table 1.11: The Major Furniture Importers of the United States .......................... 16

Table 1.12: The Major Furniture Importers of Japan (billion yen) ........................ 16

Table 1.13: Production of Sawlog and Rubberlog in Malaysia (mil m3) .............. 19

Table 2.1; Stages and Factors Influencing A Firm's to Export .......................... 28

Table 3.1: Outlines of the Subvariables to Represent the Key Factors Provided in the Hypothesis 1 ............................................................ 55

Table 3.2: Outlines of the Sub-variables to Represent the Key Factors Provided in the Hypothesis 2 ............................................................ 56

Table 3.3: Number of Samples Sent According to State ..................................... 58

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Table 4.1: Number of Valid Samples and Rejected Samples Received According to States ............................................................................. 61

Table 4.2: Results of the Hypothesis One � What Factors Stimulate a Wooden Furniture Manufacturer to Adopt a Global Marketing Strategy ......................................... ..................... 80

Table 4.3: Results of Hypothesis Two - "What Factors Induce a Firm to Opt for the OEM Strategy" .... ..... ..................................... ............... 87

Table 4.4: Results of Hypothesis Two - "What Factors Induce a Finn to Opt for the ODM Strategy" ....... .... ............... .................................. 88

Table 4.5 : Results of Hypothesis Two - "What Factors Induce a Finn to Opt for the OBN Strategy" ........ .............. ...................................... . 89

viii

LIST OF FIGURES

Figure Page

Figure 1.1: The Technology Transferred from Foreign Firms to Local Finns ....... 13

Figure 1.2 The Product Life Cycle of the Wooden Furniture Industry . ... . . . . . . . . . . . . . . 20

Figure 1.3 Summarises of the Research Framework of the Study . . . ... ..... .. . .. ... . . ... . 23

Figure 2. 1 : Model of the Finn's Export Behaviour by Wiedershiem-Paul, Olson and Welch ( 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . ... . . ... . . . . 29

Figure 2.2: A Model of the Incremental Intemationalisation Processes of a Firm ............................................................................................... 3 1

Figure 2.3: Theoretical Model of Export Decision Developed by Jatusripitak ...... 32

Figure 2.4: Goodnow's Model of Gauge for International Market Strategies ........ 33

Figure 2.5: The Value-added Chain of A Firm ......... . . ...... .... ......................... ........ 37

Figure 2.6: The Value Chain of the Industrial Master Plan ( 1 996-2005) .. ........... . 44

Figure 4. 1 : Percentage and Number of Finns Responded to the Questionnaire According to States ........ .................... .. ............ ..... ... .... ......... ............. .. 6 1

Figure 4.2: Ownership Structure of Respondents .. ........... . .......................... .. ........ 62

Figure 4.3: Legal Entity of Respondents ........... ........... .... ...... ..... ........ ................. .. 62

Figure 4.4: Employment Structure of Respondents ............. ......... ... ..... ... ......... ... .. 63

Figure 4.5: The Size of Paid-up Capital of Respondents ..... ............. .......... ........... 64

Figure 4.6: Annual Production of Finns According to Size ...... ................ ... . . ........ 65

Figure 4.7: Finn Export Experience of Finns According to Size ............. ............. 65

Figure 4.8: Number of Countries Finns Export According to Size ......... ... ........ ... 66

Figure 4.9: Firms' Export Contribution to Total Sales Revenue According to Size .... ....................... ...... ............................................... . 67

Figure 4. 1 0: Global Marketing Strategy that Finns Practised According to Size .. 68

Figure 4. 1 1 : Finn's Competitiveness Against Their Local Rivals According to Size................................................. .. . . . . . . . . . . . . . . . . . ... . . . ..... . . . .. . . 69

ix

Figure 4.12: Firm1s Competitiveness Against Their Foreign Rivals According to Size ................................................................................................... 70

Figure 4.13: Decision-makers' Expectation Toward Export Risk .......................... 7 1

Figure 4.14: Incentives for Firms to Engage in Export Activities According to Size ................................................................................................... 12

Figure 4.15: The Importance of Govemment Incentive Package ........................... 14

Figure 4. 1 6: Firms' Activities that could Improve a Global Marketing Strategy ... 75

Figure 4.17: External Domestic Factors InflUence Firms' Global Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Figure 4.18: Global Marketing Strategies adopted by the Wooden Furniture Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . 85

Figure 5.1 The Concept of Marketing and Customer Value .................................. 9 1

Figure 5.2: Porter's Five-Competitive Forces of Entries Model.. .......................... 93

Figure 5.3: The Evolution of the Wooden Furniture Industry'S Outlooks According to Stages of Intemationalisation ............................. ............ 95

Figure 5.4: Global Marketing Strategy for the Wooden Furniture Manufacturers ...................................... . .. ........... ................................... 97

x

Csil

DOS

ECR

ECIGS

EU

FDI

HRD

IMF

IMP

ITAF

ITM

MFIC

MIER

MIDA

MITI

MTIB

NAFTA

OEM

ODM

OBN

R&D

SMI

UPM

LIST OF ABBREVIATIONS

Centre for Industrial Studies Italy

Department of Statistics

Export Credit Refinancing

Export Credit Indurance and Guarantee Schemes

European Union

Foreign direct investment

Human resource development

International Monetary Fund

Industrial Master Plan

Industrial Technical Assistance Fund

Institut Teknologi MARA

Malaysian Furniture Industry Council

Malaysian Institute of Economic Research

Malaysian Industrial Development Authority

Ministry of International Trade and Industry

Malaysia Timber Industrial Board

North American Free Trade Agreement

Original Equipment Manufacturing

Original Design Manufacturing

Own Brand Name

Research and development

Small-and-medium-scale industry

Universiti Putra Malaysia

xi

Abstract of thesis presented to the Senate of Universiti Putra Malaysia in partial fulfihnent of the requirements for the degree of Master of Science

AN ANALYSIS OF GLOBAL MARKETING STRATEGY FOR THE MALAYSIAN WOODEN FURNITURE INDUSTRY

B y

YEAPTEIKBU

April 1999

Chairman: Associate Professor Dr. Mohd. Shahwahid Haji Othman, Ph.D.

Faculty: Economics and Management

The wooden furniture industry has shown a remarkable achievement over

the last decade, especially its export performances. This industry like other natural

evolving clusters is characterised by small-and-medium-scale industries (SMIs),

labour intensive and less specialise production technology. The turning point of

the industry began with the launching of the first Industrial Master Plan ( 1986-

1995) (IMP), whereby the government provided consistent and user-friendly

policy measures to allow healthy competition among the manufacturers and

entrepreneurship development. The influx of foreign investments spurred the

technology transfer process in the furniture industry by introducing the private

subcontracting system which is a global marketing strategy especially the

Original Equipment Manufacturing (OEM), to local entrepreneurs. The resource

advantage and cheap unskilled labour allowed local entrepreneurs to have

sufficient time to nurture and to penetrate new markets.

xiii

New opportunities and threats to the industry were unveiled when the

Second Industrial Master Plan underwent a revision in its objectives owing to the

changes of the internal and external factors of the industry. Malaysia has already

placed a firm economic foundation by establishing intra- and inter- linkages,

which to a certain extent provides better opportunities to adopt other global

marketing strategies. These strategies may even ensure a more sustainable growth

to the industry and is able to reap a price premium. On the other hand, the

Malaysian wooden furniture industry needs to deal with more uncertainties as its

close rivals; Thailand, Indonesia and China, as well as other emerging economies

such as Latin America, and East European countries, acquire similar marketing

strategy. The formation of the regional groupings such as the European Union and

North American Free Trade Agreement provide more uncertainties in the world

economy.

The objectives of the study are derived from feedbcks of the

manufacturers' point of view and the issues they put forwarded:

a) to analyse factors contributing to their global marketing strategy; and

b) to examine the factors leading to different global marketing strategies

adopted in the wooden furniture industry.

A comprehensive literature review highlighting a firm's decision maker in

exporting, the choice of competition on global marketing strategies, value chain

concept, as well as the Industrial Master Plan ( 1996-2005) have assisted the

formulation of the hypotheses. Hypothesis One proposes that the firm's decision

on a global marketing strategy for wooden furniture industry is influenced by the

XIV

external and internal factors. The external factors include the government's

domestic incentives and the risk factors. The internal factors are the

competitiveness of the domestic and foreign rivals, the decision maker's previous

experiences and decision maker's attitude or expectation towards exporting.

Meanwhile, Hypothesis Two suggests that size of the finn's, the firm's

experiences in exporting, the decision maker's attitude, current global marketing

strategy and the firms establishment can affect the firm's choice in global

marketing strategy.

Through factors analysis, the findings confirm the government's primary

incentives, political environment risk factor, business risk factors, pioneer status,

firm's competitiveness over domestic rivals, firm's competitiveness over foreign

rivals and the decision maker's expectation of exporting are the key factors

explaining 79.7 percent of the hypothesis. Firm's characteristics and the decision

maker' s attitude towards exports are significant to Hypothesis Two.

The findings draw the attention to the manufacturers as well as the policy

makers that customers value and Porter's five-competitive forces of entries model

are important factors to consider in formulating both a business strategy and the

government policies. The policies that will bring about a strategy shift include

research and development, human resources development (HRD) , marketing and

information gathering, infrastructure, financial assistant and raw material

procurement.

xv

Abstrak tesis yang diketnukakan kepada Senat Univesiti Putra Malaysia sebagai tnemetluhi sebahagian daripada keperluan Ijazah Master Saills

ANALISIS STRATEGI PEMASARAN GLOBAL BAGIINOUSTRI PERABOT KA YU 01 MALAYSIA

Oleh

YEAP TEIKBU

April 1999

Pengerusi: Professor Madya Dr. Mohd. Shahwahid Haji Othman, Ph.D.

Fakulti: Ekonomi dan Pengurusan

Industri Perabot Malaysia telah menunjukkan pencapaian yang

memberangsangkan dalam masa satu dekad yang lalu terutamanya dari segi

persembahan eksportnya. Industri ini memiliki ciri-ciri biasa seperti mana yang

dimiliki oleh "natural evolving cluster" lain yang selalunya dikuasai oleh Industri

kecil dan sederhana, berintensitkan buruh dan kurang mengkhusus dalam bidang

kemahiran and teknologi. Walau bagaimanapun, lembaran industri ini mula

menampakkan perubahan sejak pelancaran Pel an Induk Industri Malaysia Pertama

(1986-1995), di mana kerajaan telah melaksanakan dasar-dasar yang konsisten

untuk menwujudkan persaingan yang sihat di dalam industri dan dapat

mengembangkan daya keusahawanan. Aliran pelaburan asing telah

mempercepatkan pemindahan teknologi ke dalam industri perabot kayu dengan

pengenalan system sub-kontrak swasta. Ia juga telah memperkenalkan strategi

pemasaran global terutamanya strategi Alat Pembuatan AsH (OEM strategy)

kepada usahawan tempatan. Kelebihan dari segi faktor sumber semulajadi dan

xvi

tenaga bumh kurang mahir yang murab telab memudabkan pelabur tempatan

dalam mengharungi arus perdagangan yang bam.

Peluang serta ancaman kepada industri ini telab ditemui dengan mengkaji

semula objektif-objektif baru di bawah Pelan Induk Perindustrian Kedua dan juga

meninjau perubahan faktor-faktor dalaman and luaran. Kerajaan Malaysia

telabpun menyediakan asas ekonomi yang kukuh dengan mengadakan rangkaian

inter and intra di antara industri. la telah sedikit sebanyak menyediakan peluang

yang baik kepada pelabur yang ingin mengharungi strategi pemasaran global.

Strategi ini juga dikatakan akan dapat memastikan pembangunan yang kekal

kepada industri perabot. Walau bagaimanapun, industri perabot kayu Malaysia

perlu bersedia menghadapi cabaran-cabaran daripada pesaing-pesaingnya seperti

Thailand, Indonesia, China dan juga lain-lain negara membangun seperti negara

Latin Amerika dan negara-negara Eropa Timur yang menggunakan strategi yang

sama. Ini ditambah pula dengan penubuhan kerjasama ekonomi seperti Kesatuan

Eropah (EU) dan Perjanjian Perdangan Bebas Amerika Utara (NAFfA) telah

menambahkan ketidak pastian dalam arus ekonomi dunia.

Objektif kajian ini adalah untuk mengenalpasti keperluan dan isu-isu yang

diutamakan oleh pengeluar-pengeluar di dalam industri perabot kayu Malaysia

dengan:

a) menganalisis faktor-faktor yang menyumbang kepada strategi pemasaran

global pengeluar-pengeluar perabot; dan

b) mengkaji faktor-faktor yang menyumbang kepada penggunaan strategi

pemasaran yang berbeza di dalam industri perabot kayu.

xvii

Ulasan-ulasan kajian yang menyeluruh telah dipersembahkan dalam

mengetahui keputusan firma dalam mengeksport dan juga pernilihan dalam

strategi pemasaran global, serta konsep rangkaian penarnbahan nHaL Malah kajian

Pelan Induk Perindustrian ( 1996-2005) juga telah rnembantu dalam pernbentukkan

hipotesis kajian ini. Hipotesis pertarna rnencadangkan bahawa keputusan strategi

pernasaran global industri ini dipengaruhi oleh faktor luar dan dalarnan. Faktor

luaran termasuklah insentif-insentif kerajaan dan juga faktor-faktor risiko.

Manakala faktor-factor dalarnan pula adalah tahap persaingan di antara firma

temp at an dengan persaingan firma di antara firma asing, pengalarnan terdahulu

pernbuat keputusan di luar negeri dan juga harapan atau sikap pembuat keputusan

terhadap eksport. Hipotesis kedua pula mengemukakan saiz firma, harapan atau

sikap pembuat keputusan terhadap eksport, pandangan pembuat keputusan

terhadap eksport, strategi pernasaran global yang sedia ada dan kedudukan firma

memberi kesan kepada pemilihan strategi pemasaran global firma.

Melalui penganalisaan faktor-faktor (factors analysis), hasil kajian

menunjukkan bahawa insentif-insentif kerajaan, risiko keadaan politik, risiko

faktor perniagaan, taraf printis, tahap persaingan firma berbanding dengan

pesaingnya tempatan, persaingan firma berbanding dengan firma asing dan

harapan pembuat keputusan terhadap rnengeksport mempengaruhi 79.7 peratus

daripada Hipotesis Pertama. Hasil kajian juga rnenyokong pandangan bahawa sifat

firma dan harapan firma terhadap eksport adalah signifikan kepada Hipotesis

Kedua.

xviii

HasH kajian ini jelas menampakkan kepada para pengeluar dan perancang

dasar bahawa nilai pengguna, and model lima pengaruh persaingan Porter

(Porter's five-competitive forces model) merupakan faktor-faktor penting dalam

pembentukan strategi pemiagaan dan dasar kerajaan. Dasar-dasar kerajaan yang

boleh mengakibatkan peralihan strategi merangkumi pengkajian dan pembanguan

teknologi, pembangunan sumber manusia, pemasaran dan pengumpulan

maklumat, pembangunan infrastruktur, bantuan kewangan dan perolehan bahan

asIi.

xix

CHAPTER I

A REVmW OF THE WOODEN FURNITURE INDUSTRY

Introduction

The Malaysian furniture industry has shown a remarkable achievement for

the last decade, especially in its export performance. The turning point of the

industry began with the launching of the first Industrial Master Plan (IMP) in

1986. While exports of furniture were negligible in 1986, in 1995, the Malaysian

made furniture export ranked the world's sixth largest, amounting to RM2 billion.

Besides the implementation of correct policies, the foreign direct investments

(FDIs) also played a role in facilitating technology transfer to local entrepreneurs,

and the resources advantage factor enabled firms which also included the small

and-medium-scale industry (SMI) to grow.

This chapter describes the current industrial profile of the wooden

furniture industry, the export profile of the wooden furniture industry,

distinguishes the factors leading to the industrial success, evaluates the

opportunities, threats and issues, stresses on the objective of the study, and

explains the framework of the study.

1

2

Current Industrial Pr()Ble

Common Industrhl1 Features

the wooden fumiture industry contributes the smallest amount of the total

output� value-added and fIXed assets among the wood-based sector (Table 1.1).

The industry also has distinct features compared to the pulp and paper products

and wood and cork industry. The furniture industry is mainly SMI-dotninated, and

labour-intensive as these ftnns, particularly SMls, employ a low level of

automation (Table 1.2). However, larger fIrms with greater fInancial capabilities,

adopt a higher level of technology in their operations (Chee, 1990, and Shahwahid,

1994: 7). It was estimated that there are more than three thousand furniture

manufacturers, of which SMIs make up of more than 90% of the total.

Table 1.1 : Number of Establishment, Gross Output, Value-added, Employment and Fixed Asset Value of the Wood-based Sector for the Year

1993

Industry MICCode No. of Gross Value- Employment Salaries Fixed Firms Output added & wages Assets

RM(mil) RM(mil) RM(mil) RM(mil)

Wood & cork 331 893 9,761 3,172 130,482 1,009 4,309 exe. furniture* 57% 74% 73% 72% 69% 57%

Furniture 332 504 1,497 517 32,054 233 599 &.fixtures 32% 11% 12% 18% 16% 8%

Pulp and paper 341 171 1,958 649 19,091 217 2,665 products** 11% 15% 15% 1l% 15% 35%

Wood·based 331+332+ 1,568 13,216 4,338 181,627 1,459 7,573 sector 341 100% 100% 100% 100% 100% 100% * The MIC 331 "Wood & cork except furniture" include: 33111 sawmills; 33112 plywood,

hardboard and particleboard mills; 33113 planing mills, window and door mills and joinery works; 33114 pre-fabricated wooden houses; 33119 other wood products; 33120 wooden and can containers and small can ware; and 33190 wood and cork products.

** The MIC 341 "Pulp and paper products" include: 34110 pulp, paper and paperboard; 34120 containers and boxes of paper and paperboard; and 34190 pulp, paper and paperboard articles.

a. The percentage figures have been rounded-up. Source: Department of Statistics, 1993 Census of Manufacturing Industries, 1995.

Table 1.2: Productivity and Capital Intensity of the Wood-based Cluster for the Year of 1993

Activity Labour capital Capital Productivity* Productivity** Intensity *** (RM/Labour) (RMILabour)

Wood & wood cork exc. furniture 24,307 0.74 33,020

Furniture 16,140 0.86 18,689

Paper & paper products 34,016 0.24 139,599

Wood-based Sectltr 23,887 0.51 41,693

Total Manufacturing Base 36,426 0.62 58,602

* Labour productivity ratio is calculated as total value-added over total labour employed.

** Capital productivity ratio is calculated as total value added over total value of fixed assets.

***Capital intensity index is calculated as total value of fixed assets over total employment.

Source: Adopted from Department of Statistics, Census of Manufacturing Industries: 1993. Published in 1995.

States' Contributions

3

Most of the furniture industries' activities are carried out in the west coast

of Peninsular Malaysia This is because it is equipped with a more advanced

infrastructure such as ports, transportation systems and other supporting facilities,

a large domestic market, and the availability of skilled labour. In terms of state

contributions, lohor and Selangor are the most prominent states for the wooden

furniture manufacturing. These two states make up 45% of the total number of

establishments, and contribute 73% of the total industrial furniture output, 72% of

the total value-added output, 66% of the total employment and 7 1 % of the total

4

ftxed assets in 1993. However, East Malaysia has the greatest potential to be

developed as there are an abundance of resources (Table 1.3).

Table 1.3: Number of Establishments; Output, Value-added, Employment, and Fixed Assets or the Furniture and Fixture Manufacturers According to

States in 1993

State No. of output Value-added Employment Fixed Assets Establishment (RM'OOO) (RM'OOO) (RM'OOO)

Kedah & Pedis 12 42,217 13,444 1,073 27,650 Penang 12 22,939 8,651 438 3,682 Petak 19 48,960 18,244 1,411 15,356 Selangor & KL 102 481,531 162,868 8,924 173,275 N. Sembilan 21 54,921 19,718 1,419 35,071 Melacca 24 78.114 27,006 1.925 34,005 Jobor 126 602,813 207,632 12,156 250,216 WestCodst 316 1,331,507 457,623 27,352 539,255 Percentage 62.7 89.0 88.5 85.3 90.0

Kelantan 11 9,456 2,806 296 2,598 Terengganu 5 3,648 1,729 186 551 Pahang 9 81,951 28.131 1,385 29,360 East Coast 25 95,055 32,666 1,867 32,509 Percentage 5.0 6.4 6.3 5.8 5.4

P. Malaysia 341 1,426,562 490,289 29,219 571,764 Percentage 67.7 9$.3 94.8 91.2 95.4

Sabah 94 37,709 15,793 1,619 13,386 Sarawak 69 32,333 11,275 1,216 13,905 East Malaysia 163 70,042 27,068 2,835 21,291 Percentage 32.3 4.7 5.2 8.8 4.6

Malaysia 504 1,496,604 517,357 32;054 599,055 Percentage 100.0 100.0 100.0 100.0 100.0

Source: Adopted from Department of Statistic (DOS), 1993 Census of Manufacturing Industries, 1995.

5

The Exporting Firms

There were as many as 485 export-oriented furniture manufacturers located

in Peninsular Malaysia in 1995, which is estimated to be about one-sixth of the

total furniture manufacturers (Table 1 .4). The majority of the exporting firms are

Malaysian-ownedl . However, more firms are expected to be involved in export as

an increasing number of firms are actively looking for markets abroad.

Table 1.4: Number of Export .. Orientation Wooden Furniture Factories in Peninsular Malaysia

Year No. of Establishments

1 980 55 1 985 90 1 987 45 1 988 150 1 989 178 1 990 224 1 99 1 283 1992 300 1 993 427 1 994 446 1995 485 1 996 530

Source: Statistics on Commodities, Ministry of Primary Industries Malaysia, various issues.

I This statement was testified by the Secretary General of Malaysian Furniture Industrial Council (MFIC) through the interview.