Volume 1, Issue 2, pp. 42-48; April 2012

Online Journal of Social Sciences Research ©2012 Online Research Journals

Full Length Research

Available Online at http://www.onlineresearchjournals.org/JSS

A Conceptual Framework on the Relationship between Furniture Design and Branding Strategy-Performance Relationship in Malaysian Exporting Furniture Firms

Norzanah Mat Nor*, Puteri Fadzline Tamyez and Syed Jamal Abdul Nasir

Faculty of Business Management, Universiti Teknologi Mara, Shah Alam, Malaysia. Downloaded 27 March 2012 Accepted 19 April, 2012

The study attempts to investigate the effects of design on branding strategy-performance of furniture companies in Malaysia. The study focuses on furniture companies that participate as exhibitors in the 2012 Malaysian international furniture fair. The reason lies in the fact that Malaysian international furniture fair is the most distinguished and influential furniture fair in Asia where it draws participation by both big and small Malaysian furniture exporters who are known to have excellent track record and products with good quality.

The results provide solutions that will regenerate the interest of the furniture economy level in years to come. It would benefit the government to properly allocate fund to the right channels where need arises and to keep track of other issues to prevent derailing. By resolving this common concern, it is possible to escalate the Malaysian furniture entrepreneurs to be head to head not only with the locals but also with the global market. Not only that, it is also to formulate new strategies, formulations, solutions, recommendations to uplift the socioeconomic contributions of the furniture entrepreneurs to the country’s export of furniture’s income. This study is perhaps one of the first to address the effects of design on the Malaysian furniture company’s branding strategy. Keywords: Branding strategy, furniture design, export performance, conceptual model, Bumiputera.

INTRODUCTION The furniture industry in Malaysia is under a manufacturing sector of small, medium enterprises (SMEs). Malaysian SMEs consists of agricultural sector, basic raw materials sector, business services sector, and manufacturing sector. Hashim, A. et al. [1] mentioned that 17 percent of the total manufacturing sector is in the wood sector manufacturing. The Malaysian furniture industry started from a traditional, cottage-based production in the 1980s to a technologically advanced multi-billion ringgit industry today [2,3]. These furniture companies started from backyard business during the Second Industrial Plan where the wood furniture factories were invested by Taiwanese investors. Currently, 90% of wood furniture production is exported with over 160 countries worldwide [4,5,6]. It has been the main contributor of the Malaysian’s economy since then. *Corresponding Authors E-mail: norzanah@salam.uitm.edu.my

The Malaysian furniture industry gives out an impressive growth for the past nine years as it contributes from 2.6 billion in 1997 to 6.3 billion in 2009 [6]. The production of furniture in 2000 which valued RM6.4 billion jumped to RM8.1 billion in 2006 and RM8.5 billion in 2007. The total furniture exports have increased to RM 8.5 billion in 2007 [7]. It is estimated that the Malaysian export earnings will be RM53 billion by 2020 [8]. Malaysia is currently ranked the 9

th largest furniture exporter in the world and 3

rd in

Asia. On the other hand, Vietnam tops the largest furniture producer and second by Malaysia in the ASEAN region. The total exports of Malaysia’s timber products is RM2.4 billion in 2009 and in 2010, RM7.96 billion were recorded for furniture exports which accumulate to 1.24 percent or RM640 billion of total export trade of Malaysia [9] (figure 1).

Furthermore, there is a stable growth since the past 10 years other than 2009 where the world economy drops in recession. In 2001 the export value stood from RM 5.09 billion, to RM 8.69 billion in 2008 and downslide to RM

Nor et al. 43

Figure 1. Malaysian furniture exports (2001-2010) [9].

Figure 2. The performance of the Bumiputera furniture entrepreneurs [5].

7.62 billion in 2009. However, the value revived again by 4.4 percent or RM 7.96 billion in 2010 in consequence of the fact that the economy surfaced steadily in 2010 along with the benefit of the traditional export destinations of USA, Singapore, Canada, and the UAE. Apart from that, markets from India, Canada, UAE, and Germany also boost the higher value contribution in the Malaysian furniture export. Factors that influenced nation’s economy recovery are improved financial conditions, pick-up in global trade, rising capital flows, and growth stimulus measures [2]. Problem Statement The first problem to be addressed in this research is the decline of the furniture export performance which results from the economic turbulence in the United States. Both face an economic crisis and has not recovered to the second quarter of 2012 [10]. In 2010, Malaysian Furniture Entrepreneurs Association members or MFEA managed to achieve RM1.97 billion but began to decline in the first quarter of 2011 to RM1.66 billion. It is forecasted that the second quarter will contribute to lower revenue and they hoped the assistance from the Government in implementing export administrative relief measures which

covers adopting a competitive exchange rate of the US dollar against the ringgit as well as waiving the levy tax on foreign labour for three years in order to increase the competitiveness and growth [11].

This management dilemma covers a few symptoms to the Malaysian furniture industry which are rising costs of raw materials, declining sales which stems from fierce competitors from China and Vietnam, and many more. Despite significant contribution by the furniture industry to the wooden and wood-based furniture export is 27 percent; the Bumiputera

1 furniture entrepreneurs only

contributed 0.5 percent which is addressed as the second problem.

It is the earlier years when the total wood and wood products exported was some RM 14.72 billion in 1997 and the furniture’s share was 17.7 percent (RM 2.6 billion), the contribution to the furniture export made by the Bumiputera entrepreneurs was 4.5 percent, which was the peak contribution by the Bumiputera. Figure 2 shows a fluctuation since 1997 to 2006. However beginning year 2001, there was a downtrend to 0.3 percent. Total number of Bumiputera exporters and entrepreneurs has also declined to 55 percent and 45.9

1 Regarded as the sons of soils or Malay [12]

44 Online J. Soc. Sci. Res.

Table 1. Total fund allocated for the Bumiputera furniture entrepreneurs.

Malaysia

Plan

Programme

Expenditure

(RM)

Malaysia Bumiputera Export Value

% Comparison between Export Value

(RM billion) (RM

million) Malaysia and Bumiputera

6 MP Infrastructure 4,999,950 4.32 11.2 3

Training 667,700

Marketing 0

TOTAL 5,667,650

7 MP Infrastructure 18,500,000 16.55 55.5 3.4

Training 1,500,000

Marketing 2,500,000

TOTAL 22,500,000

8 MP Infrastructure 33,548,553 240.99 25 0.1

Training 1,000,000

Marketing 2,600,000

TOTAL 37,148,553

9 MP Infrastructure 16, 300,00 627.78 30.3 0.05

Training 3,000,000

Marketing 7,900,000

Stimulus Package 10,000,000

TOTAL 20,900,000 889.64 122 6.55

percent, respectively (Figure 2) compared to the 1997 figure. In 2009, the Bumiputera has managed to increase the export value to 0.5 percent in 2009.

Throughout the years pioneering government agencies for the Bumiputera furniture development such as Malaysian Timber Industry Board (MTIB) and Furniture Industry Technology Centre (FiTEC) are aggressively equipping Bumiputera furniture manufacturers to meet the challenging and demanding world of the wood industry business. Many steps been taken to restore to the old figure of contribution if not increasing the percentage of Bumiputera furniture exports.

The government agencies were criticized for not achieving their vision in upgrading the Bumiputera participation in terms of furniture export value. The efforts contributed are not being recognized yet and both manufacturers and relevant government agencies are working towards restoring at least the earlier export value. Large capitals were allocated and spent in the Sixth, Seventh, Eighth and Ninth Malaysia Plan (6MP, 7MP, 8MP and 9 MP) as referred to table 1. This has raised to an amount RM 20.9 million to recapture the position of the Bumiputera entrepreneurs; infrastructure,

training and marketing. Nonetheless, the volume spent did not match the export value contributed until to this day. The 10

th Malaysia Plan (10MP) is expected to

allocate more funds to increase the contribution of exports among the Bumiputera entrepreneurs [13]. Various agencies are administrating 79 funds and grants with a grand total of RM 8.8 billion [14].The Malaysia External Trade Development Corporation (MATRADE) estimated about 200 exporters among the Bumiputera and women exporters by the year 2015 [13].

Concurrently, the manufacturers are lagging further behind the non-Bumiputera furniture manufacturers even at the small and medium entrepreneur (SME) level. Both government and entrepreneurs need to come to terms whether the fund allocated is used and spent rightfully.

The results of furniture export value needs to be proportionate with the increasing allocation channelled. Exploratory interviews have been carried out to examine views and opinions from the government and Bumiputera furniture entrepreneurs. Factors identified that contribute to the decline of Bumiputera furniture exports are raw material, management gap, government inefficiencies, fund gap, product development and marketing. To fill this

Nor et al. 45

PRODUCTIVITY GAINS

INDUSTRIAL GROWTH INCREASING EXPORTS

INCREMENTAL INPUTS Figure 3. Sustainability of the export performance growth factors in the Southeast Asian furniture sector

gap, this study examines on marketing in the branding perspective and product development in the design identity perspective in both Bumiputera and non-Bumiputera furniture companies.

If these variables are found to have significant relation-ships with their export performance, recommendations can be made on how to provide solutions for the economic issue faced by the Malaysian furniture companies today. The next section will address the both conceptual model and literature related. LITERATURE REVIEW Export performance The definition of export performance is applying their export marketing plan to produce achievements which is closely linked to their strategic and financial objectives. The concept of furniture industry applies to the theory of agglomeration or clustering. Information exchange, lowered cost, and ease of access to resources are some of the huge benefits to clustering [15]. A perfect example is in Taiwan where they deliver the competitive edge through clusters compared to fully integrated facilities. Therefore this implies that low cost production is not only the main factor of competitiveness in most Asian wooden furniture industry, but also on the structural difference of manufacturing applied. However, the growth may be hindered with the combination of a drop of resources and the rise of labour cost particularly in the Asian industry [16]. Figure 3 shows the Sustainability of the export performance growth factors in the Southeast Asian furniture sector Nonetheless, it is reported that actual productivity gains does not play a key role in increasing the exports, but by incremental capital gains. This indicate that factors that drive the furniture export growth is still not ascertain and this could lead to an industry that is accessed inaccurately with unreliable statistics [16]. The export revenue from timber products in year 2009 was RM19.5 billion whereas the total export for Malaysian furniture in 2009 is RM6.7billion throughout 160 countries. This signifies that the furniture sector has obtained 32% of the total export revenue in 2009. However, the number of participation from Bumiputera is still small which is below 5% [5,17]. Currently there are about 167 Bumiputera companies registered under the FITEC vendor. The Bumiputera entrepreneurs only focus on domestic and government contracts that have market

guaranteed. From the published studies, it is clarified that the most influential drawbacks contributing to the downscaling performance of Bumiputera furniture entrepreneurs are both internal and external factors [9]. The above findings allow us to construct the following hypothesis: H1: There is a difference between Bumiputera furniture companies and the non-Bumiputera furniture companies in terms of export performance Branding strategy Branding strategy begins by equipping strong brand equity which will produce a steady growth directly or indirectly to both top line and bottom line. The minds of consumers are implanted with a successful business that roots from a reputational asset which is brand equity. It further maximizes profitability, escalates market capitalization, increased return on investment and protects itself from fierce competition. When a reputation has been built, loyalty increased amongst customers, market awareness intensified, and also it will boost preference for the products and services. Apart from that, opportunities are broaden for growth and the power of negotiation are strengthened [18]. There are a total of 98 brands from Asia which includes 26 emerging countries, 54 companies from Japan, and 9 companies from South Korea. It is recorded that there is only one valuable brand from Malaysia from the total 500 most valuable brand in the world. This shows there is only 19.6 percent of the most valuable brand in Asia from the list of the world’s 500 most valuable brands 2010. The main reason is the existence of poor markets for the companies to build and develop their brand. Most companies has also do not feel the importance of brand as their market had expand very quickly in their business by being in the right place and the right time. Another reason is because they are already plentiful in their own comfort zone in their short term profit mentality. There feel competent and bountiful in outsourcing for other global branded companies and remained as OEMs (Original Equipment Manufacturers) [19]. A dramatic change as a whole is crucial as Asian companies need not only have to be fierce in being trendsetters by being closely linked to society, and the people and the culture [20]. Trendsetting must be carried out globally through branding. Copying is accepted and considered conventional among Asian countries. Asian companies that own businesses globally would not

46 Online J. Soc. Sci. Res.

Table 2. A fundamental guide of branding vision and strategy

Category Product Design Branding Market Trading Strategy Model

A Inhome Other Other West - Survival

B Inhome Partner Partner East/West Own/

Partner

Strong brand design identity

C Inhome Original Own East/West - Partnerships

Table 3. Four themes of branding Malaysia from his perspective.

Theme/Concept Perspective

Exotic Nature, pureness, lost paradise

Tradition Elegance, gold, rich material

Wood Roots, grace, robustness, performance

High Technology Technology, future, cities, contemporary

succeed without branding. Margins are squeezed; high volume and cost are rising by the day [19].

Singapore has formed a B2B brand called ‘Mosaic’ lead by Singapore Furniture Industry Council (SFIC). This brand is a synergy between already established furniture companies that are able to compete aggressively in the global market. They feel building a brand is crucial to be able to respond fast to the changes of the furniture market [21]. Lavelli stressed that every Malaysian furniture entrepreneurs must search and collect information on the furniture market as much as possible, as well as be an expert of the consumers [22]. Being an expert is meant by wanting to know, listen and understand the needs of the consumers. Therefore the following hypothesis ensues: H2: There is a difference of branding strategy between the Bumiputera and the non-bumiputera Furniture design Ratnasingam [16] stressed that even though Malaysia, China as some of the countries in South East Asia has the largest furniture exporting constituency in the world; still elements of innovation and original design are still weak and immature. He also mentioned that customer when purchase furniture would consider the aesthetic appeal of the product, the branding and its competitive pricing.

The most important element for the furniture industry to progress is design. Function and form that complement each other are regarded as the best design. In order to boost sales designers are urged to aspire with original ideas and be trend setters to new products in the market [5]. Manufacturing and marketing are given more focus than design by some managers, as in Italy that gives out expressive design in comparison to Denmark that

focuses on functionality. Most furniture is related to functionality and this gives difficulty in branding to promote to the buyers to buy furniture [23]. A fundamental guide of branding vision and strategy in table 2 could differentiate the Malaysian identity than others [22].

Category A is the majority of strategy model applied, which is survival. It is mainly among small and medium firms, old family business and firms that is reluctant to change. Their market and shares will decrease to 5-20 percent squeezed by companies producing in low cost. Low cost producers are not suitable for the future especially for the Malaysian furniture entrepreneurs.

Category B is brand and design strategy model. It is applied by companies that obtain a very strong brand identity. High quality material and skilled labour with investment will produce high or medium high price. Technology innovation is less important than design and marketing. Value added is remained such as in Europe. Delocalisation will continue as pressure on margins increased and emerging countries become important sales markets [24].

Another strategy model is partnership which is category C. Technology innovation is the key and price of product is premium. Riva [24] stressed about the importance of branding for the Malaysian furniture entrepreneurs. He categorized 4 themes of branding Malaysia from his perspective in table 3.

Rich of architecture and culture is probably a way to form a concept as a Malaysian flavour or to represent Malaysian furniture. There must be certain flair of a local culture even though the furniture industry is merely a functional industry. Twin towers is been seen as a character that could probably fit well in Americans. Making it as a part of the theme of this huge industry it is important to recognize a way to position all that [24]. Lavelli [22] emphasized to the Malaysian furniture players

Nor et al. 47

Figure 4. Conceptual model for branding strategies [13].

Figure 5. Conceptual framework

to produce original design. “Today the designer in Hong Kong or Taipei opens the magazine and looks at the best seller and copies that. But to be successful you have to find your own designs and energy.” Phillip Starck. This statement indicates the low importance of design among Asian companies. Design in fact determines a wide differentiation for products and changes a new outlook among customers [25]. Dominicis [26] stressed that Malaysian furniture entrepreneurs must find their true identity just as Italy has found theirs. Thus, we suggest the following hypothesis: H3: There is a difference between Bumiputera and non-Bumiputera in terms of furniture design Conceptual Model The conceptual framework is designed to illustrate the relationship between furniture design and the branding strategy with the export performance of the Malaysian furniture exporters. In Figure 4 is a result of reviews and theories from related literature and studies, especially from insight [7,19,27,28].

Conceptual model which was modified by Malaysian timber industry board [28] also investigates how branding strategy determine the performance of Malaysian furniture exporters in Figure 5. Their ideas produce the base towards a successful export performance among Malaysian furniture companies which are branding

strategy and design as the independent and moderating variable. CONCLUSION The argument presented in this study is how furniture design affects the branding strategy-performance of the Malaysian furniture companies. Design is a determining factor of branding and also regarded as a key element of competitiveness as well as attaining a brand experience. Dominics [26] mentioned that currently more marketers involved in Malaysian furniture companies are fully aware the importance of branding specifically the real definition of product branding and strengths of owning a strong brand. As advocated by Riva, there still exist companies that continue to place their confidence on original equipment management (OEM) to shield them against fierce competition in the global market [24]. This design-branding strategy must be emphasized in this furniture industry as closely as possible in order to develop a unique Malaysian identity that parallels to outstanding export performance [28]. There is little attention on how furniture design is able to affect the branding process [29]. Therefore, this study come at the right time for all the related bodies to foreseen the circumstances of the current issues and would provide a significant contribution towards improving the furniture industry to the utmost achievement in fulfilling the need of the nation

Branding strategy

(IV)Branding strategy

(IV)

Export performance (DV)

Design

(MV)

48 Online J. Soc. Sci. Res. to become a well-developed country, perhaps by 2020. REFERENCES [1] Hashim MK, Zakaria M. Internationalization of Malaysian SMEs: Options, Incentives, Problems and Business Strategy. Malay. Manage. Rev. 2008; 43(1), 63-76. [2] Malaysian Furniture Promotion. Furniture Exports, Malaysian Furniture Promotion Council. 2008. [3] Malaysian Furniture Promotion. Furniture Exports, Malaysian Furniture Promotion Council. 2011. [4] MATRADE. Leveraging on MATRADE's Services to Increase Exports. MATRADE. Kuala Lumpur. 2008. [5] Malaysian Timber Industry Board. Mas Kayu. November 2010; P.11. [6] Malaysian International Furniture Fair. Media MICE Pte Ltd. 2009. [7] Malaysia Furniture Fair. Design in Furniture Booth. MIFF. Sdn Bhd, Kuala Lumpur. 2008. [8] Malaysian Timber Industry Board. Mas Kayu. October 2010; P 10. [9] Malaysian Timber Industry Board. Perabot Malaysia. Mas Kayu. 2000. [10] Chan E. Good Things are Happening Right Now. Furniture and Furnishing Export International. Selangor, APS Media Group PTE Ltd. 2012. [11] Tan D. Association expects furniture exports to drop by 15%. Star. Kuala Lumpur. 2011. [12] Ali SH. The Malays, Their Problems and Future. The Other Press Sdn Bhd. 2008. [13] SME Association of South Johor. MATRADE to Boost Contributions to Country’s Exports. 2012. [14] Ministry of Foreign Affairs. The 2010 Budget Speech. Ministry of Foreign Affairs. 2009. [15] James C J, William W, Rucks MC. The Rise of the Furniture Manufacturing Industry in Western Carolina and Virginia. Manage. Decision. 2005; 43(6): 906-924. [16] Ratnasingam J, Ioras F. The Sustainability of the Asian Wooden Furniture Industry. Eur. J. Wood Prod. 2003; 61(3): 233-237. [17] Anonymous. FiTEC Bekal Perabot Sekolah ke Bangladesh. Utusan Malaysia. Kuala Lumpur. 2010. [18] Roll M. Asian Brand Strategy-Executive Summary. 2008. [19] Economic Intelligence Unit. Brand and Deliver: Emerging Asia’s New Corporate Imperative. The Economist. 2006. [20] Dae-ryun C, Roll M. Next Level of Asia Marketing. The Korea Times: Business Focus. 2011. [21] Morrison DP. B2B Branding: Avoiding the Pitfalls. Marketing Management. 2011. [22] Lavelli G. The Marketing in the Furniture Market: Research, Prospective and Guidelines. The Right Approaches for European Market: Design, Market and Trade. Malaysian Furniture Promotion Council. Seri Pacific Hotel, Kuala Lumpur. 2008.

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