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Industrialization is the only way for a developing country like Bangladesh to gain in economy. Our goal to emerge as a middle income country by 2021 much depends on how we can explore and commercialize our industries. Though Bangladesh is mostly known for its garments and textile industries, there are other industries that are considered potent to capture global market in the near future. Furniture sector is one of them. Furniture sector was included in the Export Policy, 2009-2012 as a Special Development Sector and in Export Policy, 2012-2015 it has been upgraded as a Highest Priority Sector due to extreme export potentials. This issue of BTT tells you about the furniture sector of Bangladesh, its prospect and input for strategic planning for the exploration of the sector.
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Introduction
Historically the furniture industry in Bangladesh was first developed as cottage based industry. But from 90’s as demand started to increase in the local consumer market, the furniture industry started to shift from cottage based industry to mechanized mass-production oriented industries. Now days the furniture industry is no more confined within only timber products, in fact businesses are now accommodating modern machineries, innovative designs and use of perse materials. Furniture industry of Bangladesh is now shifting its focus from dependency on raw timber to processed wood and other contemporary furniture materials and capturing new export markets rapidly. With a 6665 crore taka (according to BFIOA data) local market value, there are around 70,000 small and medium enterprises who are producing a vast range of products. Bangladesh is not still self-sufficient in furniture and a huge quantity is imported every year mainly from China. Proliferation of the furniture industry is a call of time for this huge import substitute and also to capture the lucrative global furniture market.
Sector Profile
The fast growing furniture sector of Bangladesh constitutes approximately 70,000 enterprises all over the country. Most of the enterprises are of small and medium scale.
The growth in terms of turnover is around 19% per annum. The industry is currently employing about 1.80 million people directly. It has not been long since Bangladesh started exploring the export market, but within a very short span of time local manufacturers have started exporting to the USA, Japan, European countries, various provinces in India and other South East Asian countries. In the export market, the average export growth of the furniture industry has been slightly above 20% annually. In last fiscal, the country achieved 16% growth in furniture export to earn over $31m., showed Export Promotion Bureau data. The figures showed in the fiscal 2009-10, the furniture export volume was $19m while it amounted to $21m in 2010-11 and $27m in 2011-12. Opportunity is huge, but the sector needs a large number of skilled workers to meet the rising demand. In last fiscal, Bangladesh earned the highest $7m from the furniture export to the US market and then $5m from the Swedish market. Meanwhile, the ministry of commerce has set a furniture export target of about $38m with 20% growth for the current financial year while the government has set the total export target of $30.5bn.
Categorization of furniture enterprises of Bangladesh
Based on material used to produce furniture by the SMEs in Bangladesh can be categorized according to the below table.
Majority of the raw materials used in the sector are import based and the import duties are quite high on processed wood (92.30%), which is now becoming the main raw material to produce furniture in the global furniture Industry. The duty on Solid wood is 10.72%, which is low but due to the cost and environmental reasons, use of solid wood in furniture is getting reduced in all over the world in recent years. Processed wood furniture is replacing solid wood furniture gradually. Therefore, the high import duties on major raw materials may hinder to achieve competitiveness in export market. Cane and rattan furniture are environment friendly and are mostly used in home furniture like, sofa, chairs. Tea-tables and for other decorative purpose.
Among the above categories the SME furniture industries are responsible for producing the complete range of home furniture and some ranges of office furniture. For the other categories Bangladesh is still dependent on imports that mostly comes from China.
Recently the ship building industry has been growing in Bangladesh which will also require huge supply of furniture. With the present momentum, entrepreneurs believe that Bangladesh could easily export USD 4.00 billion worth of ships, which is 1% of present global demand of almost USD 400 billion, by the next few years. In an average ship usually 0.15-0.20% of the cost goes in to furniture and therefore we can anticipate an existing market of over USD 25 million and a potential deemed export market of around USD 80 million annually by end of 2014. So, this could be another potential area of export market expansion for Bangladesh, which has not been tapped yet by the local manufacturers.
Suggestion for Strategy Plan
The furniture industry is now in a state that can be compared with a dormant volcano. Proper strategic steps from the concerned bodies can surely secure a definite space in the global furniture market. In spite of lack in the legislative and preferential trade benefits furniture industry has grown by 19% year on year to 31m$ and the export target is set to 38m$ with a 20% growth this year. Labor cost in furniture manufacturing is comparatively lower than those of competitor countries exporting furniture. In all the other contemporary Asian furniture exporting nations (China, Vietnam, Thailand, Malaysia), the cost of labor is either equal to or more than USD 120 per month whereas in Bangladesh it ranges from USD 37-120 per month.It is assumed that Bangladeshi hand carved furniture has more potential in export market than other furniture and such products require high labor hour involvement.
Hand carving skills of workers without any help of machineries
Bangladesh furniture sector was in the list of special development sector in Export Policy, 2009-2012 and it is now upgraded to highest priority sector in 2012-2015 Export Policy. According to the export policy the furniture sector is supposed to enjoy the following benefits from the government:
- Project loans at reduced interest rates on a priority basis;
- Income Tax rebate;
- Possible financial benefits or subsidies consistent with WTO Agreement on Agriculture, and Agreement on Subsidies and Countervailing Measures, including concessionary rates for utility services such as electricity, water and gas
- Providing export loans at lower interest rates and on soft terms ;
- Air transport facilities at concessionary rates ;
- Duty draw-back/ bond facilities;
- Facilities for setting up backward linkage industries including infrastructural development for reducing cost of production ;
- Expansion of institutional and technical facilities to improve and control quality of products;
- Assistance in production and marketing;
- Assistance in exploring foreign market; and
- Necessary initiatives to attract foreign investments.
SWOT Analysis
Importing of raw materials for the furniture industry is the major backlog at the moment. Industry people say around 60% of raw goods including timber, wood coating materials, hardware and accessories and fabrics are imported from different countries. The export policy declares the assistance in developing backward linkage industries but it will take time and the furniture sector has to depend on imported inputs.
The furniture industry can be a booming sector if it is assisted to grow in capacity and quality. The government is trying to explore the untapped markets for highest priority sectors but the approaches should be more realistic and demand oriented. From the above study the following recommendations are assembled for the furniture sector:
- A restructure of the government import duty policy so that the furniture manufacturers can import their raw materials at a rate so that they remain competitive in the global market. The current import duty on timber at 10.72% and on processed wood at 92.30% is too much to be competitive in the market.
- Direct cash incentives can be offered to the furniture exporters to mitigate their excess import costs. The sector sought through their association a 20-25% cash incentives to achieve 100% growth in exports.
- A Technology Transfer Office (TTO) should be developed to assess and acquire new technologies in furniture production to achieve more sustainability.
- There is no product design education offered by the educational institutes in Bangladesh hence there is no qualified furniture design services available for the manufacturers. Integrated education curriculum is a must to create technological know-how among the manufacturers. Present trial and error methods are not sustainable for the contemporary global market. Furniture design and wood technology can be highly demanded occupation in the near future.
- Our workers are still semi-skilled and unskilled. So integrated training programs should be arranged to teach them about the modern production and design techniques. Sourcing from highly skilled manpower to import some tacit technology can be a good approach right now. pision of labor according to specialization can be sustainable practice for the long run.
- Quality of product and after service issues are of great value in earning export reputation. Furniture exporters should emphasize more on these areas to achieve reliability from the export destinations.
- Fairs and promotional programs should be arranged regularly to attract foreign buyers and motivate local and foreign entrepreneurs and investors to invest in the furniture industry in Bangladesh.
- Above all the export industry of the country heavily relies on the smooth economic and financial movements. So political stability is a must for the industry to become a trustworthy supplier of quality products to the buyers.
Conclusion
The global furniture market is led by China, Poland, Germany, India and other European countries. Europe is the biggest market of furniture followed by USA and Japan. China has a big local market but they are supplying most of their demand of furniture internally. Bangladesh furniture industry is not yet self-sufficient as a huge volume of Chinese furniture is imported every year to mitigate the local demand. As the furniture sector will grow its capacity, it can easily substitute these huge imports. Bangladesh has 66 billion BDT internal market of furniture and only half of the demand is supplied internally. Due to skill in artisan and hand carving there is a good demand of made in Bangladesh furniture in the global market as well. Apart from some of the large scale producers like Otobi, Hatil, Partex, Navana, Akhter and Brother’s, most of the furniture industries are of SME structure. An integrated effort is required from the concerned stake holders to create more competitiveness of Bangladeshi furniture in the global market and augment the market share gradually and continuously.
