Michael Luger

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An Economic Perspective for the Furniture Industry
Furniture Industry Health and Safety Forum

• Michael Luger
• Professor of Public Policy, Business, and
  Planning
• Director, C3E

Winston-Salem, NC 29 June, 2005
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
2
Outline

• Where weve been in the past
• Where we are headed today
• Some reasons for our plight
• Where we can/must go in the future

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
3
North Carolinas Historic Strength in Furniture
TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004

• Why did the furniture industry take root in NC?
• Many Moravians and Quakers, settling in Forsythe,
  Randolph and Rowan counties were wood craftsmen
• Settlers in the rural back woods made handmade
  chairs, tables, beds, for their own use, and then
  for sale
• NC forests had an abundance of oak, poplar, maple
  and other popular varieties for furniture
• Streams/rivers provided power for sawmills

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
4
North Carolinas Historic Strength in Furniture
TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004

• Why did the furniture industry thrive in NC?
• From the late 19th-century abundance of workers
  in the Piedmont to man furniture factories
• paid less than in north worked longer hours
• Rail lines through Piedmont gave producers access
  to ports and markets
• Growth of east coast population in late 19th-
  early 20th century raised demand for inexpensive
  furniture.

By the end of the 1920s, NC led nation in
production of wooden furniture.
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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North Carolinas Historic Strength in Furniture
TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004
This early strength created a value-chain cluster
that was self-reinforcing.
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004
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NCs Strength in Furniture
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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NCs Strength in Furniture

• North Carolina ranks among the top three
  furniture manufacturing states in the United
  States in terms of employment. In 2004,
  furniture-making
• employed almost 60,000 people
• contributed about 2.8 billion annually to the
  state's gross product
• Catawba County had the highest employment in the
  industry with 12,000 people working in furniture
  manufacturing in 2003.
• Guilford, Randolph, Caldwell, and Davidson
  counties all had over 5,000 people working in
  furniture manufacturing in 2003

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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2004IV
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Where the Industry is Headed
TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
12
TABLES Table 1 - North Carolina's Top Furniture
Employers, 2004
Where the Industry is Headed
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
13
Where the Industry is Headed
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where the Industry is Headed
Reasons given for layoffs
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(C3E)
Kenan Institute for Private Enterprise
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Where the Industry is Headed
Mass layoffs reported, 2003
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where the Industry is Headed
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Trends

• Employment in the furniture industry has been
  declining over the past decade.
• dropped from 72,000 in 2001 to around 58,000 at
  the end of 2004, with a 23 percent decline in
  furniture employment since 1998.
• Davidson County was the most affected county,
  with 1,461 jobs lost in 2003.
• The average weekly wage per employee in furniture
  is 22.2 percent below the average manufacturing
  wage in North Carolina's manufacturing industries

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
18
Trendswood furniture imports
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Trendseffect on supply chain hardwood lumber
purchased by US furniture makers
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Why these Trends?
2002 -- 1/3 of all bedroom furniture in US
imported from China

• Increased importation of foreign furniture
  globalization
• loss of wage advantages
• A furniture worker in the United States earns
  around 14 per hour, compared to less than 0.75
  per hour for a worker in China
• changing location of markets
• increasingly strict environmental regulations

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future

• However, there are still considerable
  opportunities/advantages for the American, and
  North Carolina furniture industry
• Demand-side
• Continued population growth in state, region, and
  country, fueled by continued heavy immigration
• A consistently strong housing market (2 million
  units per year) homes getting larger and more
  specialized
• Increasing affluence among home buyers, and a
  steadily rising percentage of home ownership
• Supply-side
• Existing skilled labor and know-how in North
  Carolina
• Existing infrastructure
• Proximity to good wood
• Growing linked clusters

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future

• It is inevitable that we cannot generally
  compete in the market for inexpensive furniture
• Schuler and Buehlmann argue that a "Paradigm
  Shift" is required for the wooden, residential
  furniture industry to survive. They argue that
  the "industry needs strategic renewal in the form
  of a new and more appropriate business model,
  new manufacturing strategies, a re-invented
  product (furniture), newly organized distribution
  channels and a focus on innovation throughout.

There already are examples of that happening in
NC including by companies in this room
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Where we can/must go in the future

• We must turn globalization into an advantage, not
  a disadvantage.
• Freer markets AND a falling dollar, make exports
  more attractive, especially of higher-value
  furniture that pays to ship.

That, too, is happening, as shown in the
following table
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future

• Finally, we must recognize that products that
  have been or can be made by traditional furniture
  makers have uses in growing clusters in NC and
  elsewhere that are not labeled as furniture
• boats (cabinets)
• aircraft
• fiber optic cables
• apparel/textiles
• mobile homes
• labs
• others

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Where we can/must go in the future
The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
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Conclusion

• The trajectory and prospects for the furniture
  industry are not unlike textiles/ apparel and
  other traditional NC industries
• globalization is an undeniable reality
• to compete we must increase productivity, rethink
  how we are organized, make new products, and find
  new markets
• the legacy of the nations strongest industry in
  NC is a foundation on which to build the
  skills, tradition, know-how, and leadership are
  all here.
• NC can be a base for global operations and for
  more exports
• the furniture industry can continue to be an
  element of other growing clusters

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise
32
Conclusion

• In short we can be victims of history or be
  pro-active, seizing new opportunities and
  changing in order to maintain our competitive
  edge.

The Carolina Center for Competitive Economies
(C3E)
Kenan Institute for Private Enterprise