A Wood Based Industry In Malaysia Marketing Essay

Published Date: 23 Mar 2015

The wood-based industry in Malaysia comprises four major sectors which are sawn timber, veneer and panel products that include plywood and other reconstituted panel products such as particleboard, chipboard, fireboard, mouldings and builders' joinery and carpentry (BJC). The industry is predominantly owned by Malaysian and it is estimated that 80 to 90 percents of the companies comprise small and medium size establishments. The manufacturers of Malaysian furniture produce a wide range of furniture from office, kitchen, bedroom, dining room, occasional, living room, upholstered furniture or sofa, outdoor and garden furniture.

Prior to 1995, the industry was characterized more by such activities as logging,

sawmilling and plywood manufacturing. During the period of the 2nd Industrial Master

Plan (IMP) (1996 - 2005), the industry developed further to include value-added processing such as furniture, MDF, panel products and veneer. The annual growth rate of the wood-based industry registered a steady rate of 5% during this period. In terms of export value, the trend shows that furniture ranks first followed by plywood, sawntimber, logs and fibreboard. The star performer was the burgeoning furniture sub-sector which brought in an impressive double digit return of 11% growth or in real earnings - RM 5.8 billion. The 3rd IMP (2006 - 2020) has earmarked a growth rate of 6.4 per annum for the wood-based industry to achieve RM 53 billion of export value by 2020. The main contributors of this planned growth and export value is to come from furniture and panel products - mainly from MDF and plywood.

This chapter consists of literature review regard to the wooden furniture export from Malaysia to existing world market. It covers the various aspects of the wood based industry in Malaysia and export of wood based products including wooden furniture to the world countries. The method used in this study to analyze the data were also included to provide a better understanding about the process of analyzing data. Malaysia is one of the leading exporters of tropical hardwoods in the world and also world's leading exporter of tropical sawn timber, plywood and hardwood moulding (MTIB, 1994). Large amount of log supply coming from

forestlands used to support the rapid development and establishment of other primary wood processing industries. Once in a while, the wood based sector is dominated by primary processing activities such as sawmilling, veneer and plywood production. However, in recent years, downstream processing activities such as the manufacture of mouldings, furniture and joinery have increased significantly (Anon, 1 996).

According to Lew (1977),the timber industry in Malaysia is an export oriented industry. Malaysia's export of major wood based products has increased steadily over the last decade. Even though there is a significant increase in wood based export, Malaysia is still a small producer in the global market for wood based downstream products. This means that there is a considerable room for expansion in the value added products category. To ensure the continued development of tbe industry in future, Malaysia is actively pursuing a program of promoting the wood based downstream industry. Many plans and activities have been organized to help the industries in all kind of sectors. These activities including globalization strategy, the knowledge-driven strategy, strengthen cluster development and others.

Comparative advantage involves the concept of opportunity cost either in producing or

exporting a particular good (Mohd Arif, 2008). According to Mohd Arif (2008), the

comparative advantage of one country against others may reflect from the difference of the

domestic cost and the world price. The higher the cost differential, the higher is the advantage

for the country in producing that good. Some other factors such as abundant resources,

technology, telecommunication, subsidized fuel and road development (including low

transportation cost) could play their role in the comparative advantage. Additionally, Hunt

and Morgan (1995) believed that the efficient use of existing resources and innovation in the

production may lead to the comparative advantage of the products. Other factor such as the

improvement in road infrastructure may reduce the trade costs and facilitate the movement of

goods and services between places (Bhattacharyay, 2009).

In 1998, Malaysia ranked fifth and seventh in the world ranking of wooden furniture export leaders for office and other wooden furniture, respectively. The United States (US), Japan, Singapore and the United Kingdom (UK) were among the largest destination for Malaysian wooden furniture. Export value of wooden furniture in 1996 was RM 1.6 billion, which placed Malaysia as the second largest exporter in this region, after Taiwan, whilst the 15th in the world (Anon., 2000c). The export value has been increasing every year and it reached RM 3.8 billion in year 2000. However, since early 80's export of Malaysia wooden furniture was mainly to the US and Japan where it accounted more that 50% of the total exports (Anon., 2001)

As timber industry in Malaysia traditionally is an export oriented industry, the export market is important to enabling the timber industry in Malaysia to reach its present height of development, not withstanding the contnbution from domestic market. During the 70's, major output of the industry which were logs, sawn timber and plywood were largely exported. The export of processed products such as moulding surged in the 80's due to increasing demand from overseas market and also government's drive for export which charted out in the Industrial Master Plans (IMP), 1986-1995. The export of moulding, furniture and joinery there on continued to increase.

The international marketing research, there was several dimensions used by the researcher indicate marketing strategy. Previous researchers acknowledged firm strategy (Aaby and Slater, 1989), export marketing strategy (Julian, 2003 ; Akyol and Akehurst, 2003; Zou and Stan, 1998; Cavusgil and Zou, 1994; Koh, 1991), export strategy ( Aulakh et al.,2000;Chetty and Hamilton,1993), business strategy (Baldauf et. Al,2000) or strategy (Cicic et al.,2002; Thirkell and Dau,1998). According to the International Tropical Timber Organization (2008), producer countries exported nearly 13 million m3 of tropical logs worth $3.0 billion in 2007, with Malaysia being the largest exporter accounting almost 35percent of exported volume. The exports of Malaysian timber and related products in 2008 amounted to RM22.5 billion. Since many decades Europe has been a major market for export of wood products in Malaysia.

From ( Boon-Kwee, Ng* and Thiruchelvam, K., 2001) in his statement, Malaysia's furniture industry is largely wooden and cane based. The industry is highly fragmented, and the predominance of the small and medium-sized enterprises (SMEs) in the industry is very significant. As one of the manufacturing sectors, the industry has adopted the standard definitions of SME that have been approved by the Central Bank of Malaysia in year 2005, that is, firms with total number of fulltime employees less than 150 people, or total annual sales turnover less than MYR 25 million. Statistics published by Department of Statistics (2009) show that the SMEs constitute almost 95% of the total establishments in the furniture industry. However, from the perspective of performance of the industry, both SMEs and large enterprises produce an equal share in terms of value of gross output, value added, employment, salary and wages, and value of assets.

Ratnasingam (2004) views the value of furniture as a matter of perception, as it is sold based on a perceived value, rather than on an actual value. This suggests that the creation of value-added furniture is not about using high quality materials or state-of-the-art technologies, but rather it is about expressing a lifestyle in a creative and innovative manner. The artistic part of the piece of furniture drives its value, while the scientific part assists in the consistent production of the piece. Indeed, a similar view of the value of furniture has been advanced by Ettema (1981), who argued that furniture is an important means of self-presentation, and that it is particularly sensitive to ostentation. He asserts that technology has directly caused elaborate and

degraded styles to appear within the furniture industry. In general, machines have allowed furniture production to increase, but they have also failed to democratize style, because machines cannot produce inexpensive copies of an expensive-looking ornament. Proliferation, not elaboration, was the legacy of technological innovation in the nineteenth-century furniture industry.

As stated by (Z. Noor Aini, 2009), Malaysia is one of the developing countries in Southeast Asia which experienced remarkable economic growth and industrialization in the past decade. Exports of the natural resources and related products as well as manufactured goods have contributed to the development of Malaysian economy. Besides that, with the fact that 60percent of Malaysia is covered with natural forest, it is difficult to ignore that forest product industry plays an important role in further developing the economy. Malaysia is currently one of the world's top tropical timber producers. This work supports the idea of Uusivuori and Tervo (2002) that a country which has richer forest assets will have larger net exports of forest products. Furthermore, the country with a larger forest endowment exhibits the comparative advantages in their exports as in comparison to countries with lesser forest endowments.

According to (Shabboo,2011), challenges of employing sustainability could be various depending on different factors such as the type of product, knowledge of established principles, consumers' expectations, manufacturers' policies and facilities, legislation, local resources, etc. In Malaysian furniture industry, a survey that is conducted in 2009 revealed that the adoption of green manufacturing practices is limited among wooden furniture producers. Another study in 2008 discovered that the readiness to adopt chain of custody certification among wooden furniture manufacturers was low. This certification has the objective to ensure the wood products really come from an environmentally certified source. Although the number of studies on the environmental aspect of furniture industry is still small in the country, all results demonstrate the poor implementation of sustainability. In addition, integrating sustainability into furniture industry has not been studied from design perspective yet.

Ratnasingam and Thomas (2008) argue that the level of technology employed by the Malaysian furniture industry is on par with other countries which manufacture furniture, if not higher. The MTC (1998) has stated that most of the country's furniture manufacturers have invested considerably in machinery and equipment. Ratnasingam (2000) asserts that the machine-operated process is the most important value-addition operation in furniture production,

as it converts the raw materials into a profiled component that is eventually assembled into the finished product. The quality of the machining process makes the gluing and finishing operations become very effectives. Furthermore, poorly machined cannot be joined and fastened tightly, so machining processes influence the structural rigidity of the furniture. It is for this reason that machining processes, especially through the use of automated machinery, have attracted a great deal of research interest. However, most of the machinery purchased is special function machinery which is aimed at reducing the labor content in the manufacturing outfit, with the ultimate aim of reducing the manufacturing cost or unit cost. This is to be expected, as the industry is labor intensive in nature, and there is an increasing reliance on foreign-contract workers within the industry (Ratnasingam, 2005).

Procedures are also in place to meet the increasingly high business standards in terms of price-cutting, quality and material properties. A periodic review of the existing polices is warranted to ensure that the industry stays competitive. However, the pressing problem the industry faces lies in the management of land utilisation, given the scarcity of readily available land for the cultivation of plantation forests. There is a need to step up research and development (R&D) for

introducing not only new products and new processes that will augment the industry's competitiveness, but also new technology that will reduce the land intensity of rubber tree growing, i.e. clones with shorter gestation and richer wood.( Professor Mohamed Ariff, 2011).

According to (Professor Mohamed Ariff, 2011), to offset the decline in rubberwood supply and the lack of viable alternative wood sources, in order to support the ongoing development of the WBI, possible solutions include the importation of logs from abroad and the development of plantation forests at home. Importing logs faces problems of log bans from neighbouring countries and high transport cost. Plantation forests within the country are thought to be a more viable option. Several countries have successfully adopted this approach, which has stimulated the development of substantial downstream industries in forest products. This, in turn, has led to the growth of clusters of ancillary industries. While the Malaysian WBI is predominantly rubberwood-based now, other species including Acacia, Sesendok, Albizia, may well prove equally suitable in future.

A study by Bojei et al., (2002) on global marketing strategies in the Malaysian wooden furniture industry, the marketing strategies used by the wooden furniture companies, either original equipment manufacturing (OEM), own design manufacturing (ODM) or own brand name (OBM), the most important factors influencing the success of those strategies were firm's primary characteristics, decision maker's expectation of exporting and global marketing strategy.

Lastly, since export marketing strategy has been considered as one of the key determinants on export performance (Cavusgil and Zou, 1994), not all of the marketing strategy elements will affect the export performance simultaneously. Study by Koh (1991) on the relationships among organizational characteristics, marketing strategy and export performance has found that only export pricing, direct buyer, and channel strategies of marketing strategy variations have effects on export performance. However, adapting marketing mix variables to the specific needs of developed country markets would enhance export marketing performance (Aulakh et al., 2000). In contrast, a study by Julian (2003) to identify the key factors influencing export marketing performance found that export marketing strategy has no effect on the Thai firm's export marketing performance.