The readiness of the malaysian furniture firms

Proceedings International Conference of Technology Management, Business and Entrepreneurship 2012

(ICTMBE2012),

Renaissance Hotel, Melaka, Malaysia 18-19 Dec 2012

797

THE READINESS OF THE MALAYSIAN FURNITURE FIRMS

TO VENTURE INTO DESIGN-BRAND-INNOVATION

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

Faculty of Business Management, Universiti Teknologi Mara,

Shah Alam, Malaysia

ABSTRACT

The globalization of the economy has created great competitiveness in the furniture market. This 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 (MIFF, 2010). However in 2012, Malaysia still has to endure the fierce competition with low cost producers of China and Vietnam. The decline of raw materials and the rise of costs have forced

companies to venture into branding and design. Not to be left behind, more companies have transformed

from OEM (Original Equipment Manufacturing) to ODM (Original Design Manufacturing). Malaysia is

in fact between China and the Italian in terms of quality of products. Such a phenomenon has created a concern of whether the current manufacturers have been equipped with the right innovation and

originality to reach world-class producers. Little attention has been given to examine their readiness of

design innovation in the context of the furniture industry besides looking at the effectiveness of brand strategy and positioning. This study attempts to address this gap in the literature. There have been a few

academic literatures on design innovation in the context of brand strategy and positioning and therefore

this study aims to provide ample perspectives on both variables of brand strategy and positioning which

considered being jointly in contrast to in isolation in the recent studies. Thus, this study will investigate whether the relationships between those variables are correlated and whether they contribute to adverse

effects in aspects of brand performance. Micro-sized companies are not included in this survey but rather

on small, medium and large-sized companies. Thus, it would benefit the government by really allocating the proper fund to the right channels where needs arise and to keep track other issues to prevent derailing.

In reality, design innovation and branding need to be concentrated as competency towards achieving

Original Brand Manufacturing (OBM) or Original Design Manufacturing (ODM).

Keywords: Design innovation, brand strategy, brand positioning, brand performance


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Introduction

Background

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 (MIFF, 2010). Most buyers from all over the world craves

for solid wood furniture made from Malaysian rubber wood and oil palm wood. This had enable Malaysia

to be one of the 10th most exported furniture in the world after China and Vietnam(Unit 2011). However

according to (Commodities 2009), Malaysia has to endure the fierce competition with low cost producers

of the People‟s Republic of China (PRC), Vietnam and India along with the decline of raw materials and

the rise of costs. 600 of our exporters ceased to exist with 50 of them contributes to 65 to 75 percent of the exports (Wong, 2011).

Unit (2011) mentioned other challenges which are legality and environment certifications, over dependency on the foreign workers, difficulties to obtain financing, and low research and development

(R&D).

The vision of this industry has been aspired by National Timber Industry Policy (NATIP) to produce 60% of high value downstream products and 40% commodity-based products such as sawn timber(Unit 2010).

Therefore, innovation is one of the most important factors to accomplish this vision in terms of

technological innovation both for local and export uses (Unit 2011). Nevertheless, the Malaysian furniture industry is focusing too much on technology driven and/or market driven innovation (NATIP, 2009; Unit

2010). Not only that, Ratnasingam (2008) mentioned that the levels of technology applied by the firms are

not at par with other countries.

Another area that needs to be pursued is the branding of the Malaysian furniture products (Unit, 2011).

According to (Commodities 2009), branding should be given much emphasis as furniture firms are

merely contract manufacturers serving for international brands. Moreover, it must be aligned with the support of design in order to identify specific niche markets.

Agencies related to the furniture industry are committed and highly enthusiastic in giving support to overcome the challenges ahead. NATIP or National Timber Industry Policy has given its full guidance in

drawing appropriate policies for sufficient growth in the years to come. Furthermore, the government is

moving to an innovative society with its new slogan „Creativity and Innovation 2010‟ that recognizes 4 key areas which will hoped to have the most impact in transforming our design industry; education,

society, economy and governance (Commodities 2009).

The Problem in Context

The Malaysian furniture industry is a dynamic industry which contributes to RM7 to RM8 billion

annually although it is losing its competitiveness in production cost compared to China and Vietnam. Even though this industry are based on mass-production segment, it is declining based on the Malaysia‟s

market share (Commodities 2009). In addition, a major part of companies in the furniture industry are

family businesses which own a less risk taker attribute in terms of innovation. These typical traditional family businesses are much dependable on resources and short term perspectives. They are already


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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 an OEMs (Original Equipment Manufacturers)(Unit 2010). Copying is accepted and considered conventional among Asian

countries. Therefore, finance, accounting, or any production backgrounds are being put the highest

organization hierarchy compared to marketing that is regarded as stepchildren and end up being suppliers of commodity products to global branded firms.

“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 determine

a wide differentiation for products and changes a new outlook among customers(Roll 2008)

As a matter of fact, Asian companies still consider branding as merely a logo design or as

advertising(Roll 2008; Unit 2010).

“I felt that Asian business would never get anywhere if it didn’t own brands. Partly this reflected the

earlier experience in our family business of putting in the energy to build a brand as agent for an overseas principal, only to lose it when they eventually took the brand in-house. I also knew the problems

of competing in commodity markets where the business disappear as soon as a cheaper supplier comes

into the scene.” Ho Kwon Ping

A dramatic change as a whole is crucial as Asian companies need to be fierce in being trendsetters by

being closely linked to society, the people and the culture (Dae-ryun and Roll 2011). Trendsetting must be

carried out globally through branding, in being a role model for our nation‟s richness in culture and identity.

As long as the manufacturers remain as an OEM producer, they will not be able to compete in the low-end market segment and must forced themselves to achieve product differentiation through branding and

venture into niche designs(Commodities 2009). Product branding and design will only differentiate the

Malaysian furniture products than other competitors.

Therefore the furniture industry arrives to a junction whether to upgrade their design to an avant-grade,

exclusive and hi-end which produces less volume or to furniture of higher value such as by the Italians

from Milan or; or producing furniture design incrementally but with excellent branding strategy such as Swedish furniture like IKEA (Dominicis 2008). According to Ratnasingam (2004), design and branding

are not considered as the main strength of this industry despite the fact that these both elements can only

achieve value-added products and produce very profitable products. The export performance of the furniture industry is mostly based on subcontracting and not many firms manufacture complete furniture

products.

According to (Czarnitzki and Thorwarth 2009),

“15 years ago companies competed on price. Now it’s quality. Tomorrow it’s design”

Baker (2006) cited by (Czarnitzki and Thorwarth 2009)


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The next section will address the both conceptual model and literature related.

Conceptual Model

This conceptual paper integrates design innovation, branding strategy, brand positioning which makes it

necessary to give a theoretical framework on its brand performance. This is a result of reviews and theories from related literature and studies. Literature from design innovation were from (Mozota 2003;

Salavou, Baltas et al. 2004; Lindman, Scozzi et al. 2008; Dell 'Era 2010; Ho, Fang et al. 2011). Brand

strategy were from the earlier works by (Wong and Merrilees 2005; Lassen, Kunde et al. 2008; Soni

2010), and literature of brand positioning from (Beverland, Napoli et al. 2010). Besides that, brand performance‟s literature was from (Wong and Merrilees 2008)

Figure 1.0: Conceptual framework

Their ideas produce the base towards a successful brand performance among Malaysian furniture

companies which are branding strategy, brand positioning as mediating variable and design innovation as

the independent variable.

Literature Review

Design Innovation

A continuous innovation not only hinders competitors, but also produces momentum to the brand and

creates visibility. The ultimate brand when the innovation is branded and considered a “must have”

among customers(Abbing 2010; Aaker 2012). Innovation is very risky, although it can determine the

success of a brand through disrupting the status quo and attracting a great number of buyers in a very short period even though commanding a price premium. This can be carried out by implementing it

effectively and also with appropriate communication. Good examples are Dyson vaccum cleaner, Apple‟s

IPad and many more. It in fact an enhancement of a differentiation in a product or service(Brown 2011).

Brand Positioning

Design Innovation

H3 Brand performance

H2 H5

Brand Strategy

H4 H1


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Figure 1.1: Brand innovation (Aaker 2007)

A synergy of innovation and branding will increase the barrier against competitors with the implementation of proper investment and active management of the firm. It can also add credibility and

legitimacy to an innovation, knowingly that this innovation in this company is worth branded, and can

overall make the innovation visible. A new innovative product and feature will be enhanced with having a

new product name that is both easy to remember and understand. This can only be carried out through initiating a brand which makes communication attainable(Aaker 2007; Abbing 2010). However, in order

to deliver brand value to an innovation is that it has to be authentic, meaningful, understandable and

inspiring and these values must be driven by the stakeholders of the brand(Abbing 2010).

Visibility

Enhanced

Aids

communication

Add

credibility

Own the

innovation

Branding

the

Innovation


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Figure 1.2: Brand-Driven Innovation Strategy(Abbing 2010)

Referring to Figure 1.2 this brand-driven innovation strategy can successfully delivered based on the

organisation‟s external stakeholders desire and what they can perform. Innovation fulfills the brand promise by proactively finding opportunities to create value(Abbing 2010). According (Beverland,

Napoli et al. 2007) product innovation is an indicator to ongoing brand equity and giving more meaning

to a brand. Great examples are Apple, Dunlop Volley, Mini, and Gucci. The emergence of IMac or iPod

enlivens the brand of Apple by escalating market share and raising sales. Most brands such as Ralph Lauren, Krispy Kreme, and Jack Daniels are focused on incremental innovation as a determinant for

solidifying a brand. Although creating innovation with a brand strategy would be meaningless without

design. Design plays a huge role in both innovation and brand strategy through delivering meaning to customers, in usability and attractiveness(Abbing 2010).

The above findings allow us to construct the following hypothesis:

H1: Design innovation has significant effects on brand strategy

Abbing‟s research has empirical evidence that brand positioning does not hinder a firm‟s innovation

efforts. He stressed that firms that has little consideration in positioning their brand for the new product

The brand

The

innovation

function

The Outside World The Internal

Organisation

The Marketing

Function


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development will contribute to negative impacts for a firm‟s performance(Beverland, Napoli et al. 2010).

Beverland (2010) had built a typology of innovation practices in reinforcing differently positioned brands and consequently create types of tactical implication depending on the branding efforts applied. The

reason lies in the difference between radical and incremental innovation as forms of innovation and

strategic aggressiveness that consists of market driven versus market driving. Incremental innovation that fits in his model is follower brands and category leader brands by satisfying customer (follower brands)

and dominating the competition against competitors.

Therefore the following hypothesis ensues;

H2: Design innovation showed notable effects on brand positioning

Brand Strategy

According to (Manhas 2010), brand strategy and brand positioning is very much connected with brand positioning as it the latter is considered the fundamental concept in brand strategy which serves as

instilling a niche in the minds of the target consumers. Decisions of positioning are crucial as it

determines the customer‟s perception of a brand. Therefore, marketing program needs to be consistent and supportive as a clear positioning strategy (Hofer and Ladner 2006; Hamidi, Pezeshki et al. 2010;

Harrison-Walker 2011). Making precise decisions of positioning will save time in building brands and

maximized resources(Srivastava 2006) However, four things must be considered in brand positioning,

which are; the target market, how the product is different or better than competitors, the value of this difference to the target market, and the ability to demonstrate or communicate this difference to the target

market(Virtsonis and Harridge-March 2008; Manhas 2010). Thus, we suggest the following hypothesis;

H3: Brand strategy presented remarkable effects on brand positioning

Brand strategy could be evaluated through brand performance based on financial value, equity, brand

report card, or on the brand building process. However, a combination of various evaluation methods

could bring to better results of the performance of a brand (Carvalho 2007).

A model called the Branding-achetypes ladder were formed by Wong and Merrilees (2005) which

indicates the implementation of brand strategy towards a higher brand performance.

Level of

Brand

Orientation

Minimalist Brand Orientation

Embryonic Brand Orientation

Integrated Brand Orientation


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Brand Marketing Performance

Figure 1.3: Branding-archetypes ladder (Wong and Merrilees 2005)

Brand performance of a company increases when the level of brand orientation transits from minimalist, embryonic and further towards an integrated brand(Carvalho 2007). It is also defines as a tool to evaluate

how successful a brand in the market (Wong and Merrilees 2008). Another model describes brand

orientation and brand distinctiveness as a backbone to brand-marketing performance, with the addition of brand barrier as a main factor for under-investing SMEs to build distinctiveness in their brand strategy.

Thus, there is a close relation between Figure 1.3 and 1.4 where high brand barriers and the lowest brand

orientation result to minimalist SMEs. The second type of SMEs is embryonic firms that have higher

level of brand distinctiveness and integrated firms are SMEs that has the strongest brand distinctiveness and brand orientation.

+

+

+ +

Figure 1.4: Brand Performance model

Therefore, this hypothesis is suggests;

H4: Brand strategy presented remarkable effects on brand performance

Brand Positioning

When a brand is created, it needs to be communicated and positioned in the market(Cláudia Simões

2001). It is described as one of the most important tool in modern marketing management(Virtsonis and

Harridge-March 2008; Manhas 2010). Brand positioning derives from a brand identity implementation system. It acts as a brand identity subset which contains a target audience, must be actively communicated

and thus provides a competitive advantage(Beverland, Napoli et al. 2010). The most important element in

brand positioning is differentiation (Sujan and Bettaan 1989; Srivastava 2006; Ferreira, Hall et al. 2008; Harrison-Walker 2011). It is not only the paramount importance for introducing new brands, but also for

repositioning an existing brand or increasing its market potential (Hofer and Ladner 2006). There are

three types of positioning concepts, which consists of market exhaustion which are centralized their brand

in the minds of customers; differentiation, which are dealing with other competitive brands; and imitating a successful brand(Hofer and Ladner 2006). This therefore suggests this hypothesis;

Brand Distinctiveness

Brand Barriers Brand Orientation

Brand Marketing

Performance


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H5: Brand positioning revealed outstanding effects on brand performance

According to (Carvalho 2007), small businesses own customers that has lower levels of loyalty to their

brands with less market share, in comparison to larger companies that obtain more frequent purchases and

more buyers. Therefore, these enterprises need to identify their market niche in order to obtain higher loyalty towards their brands. Moreover, not only do they need to differentiate in terms of product

innovation, but also innovating the entire marketing activities within an SME(Carvalho 2007). They often

have a misconception of referring branding as launching a logo, and corporate slogans (Wong and

Merrilees 2005; Aaker 2007; Ahmad, Omar et al. 2012).

Conclusion

This conceptual study addresses the concept of the readiness of the Malaysian furniture firms to venture

into design-brand-driven innovation. It must be emphasized in this furniture industry as closely as possible in order to develop a unique Malaysian identity that parallels towards an outstanding brand and

export performance.

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