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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

2 Individual Project

Appropriate Tools and Analysis of the Furniture Industry

Kenneth C Holmes

Strategic Management in Dynamic Environments

MGMT690-1602B-01

Professor Lance Spivey

Colorado Technical University

May 30, 2016

(Portions of this document were submitted during MGMT690 -1602B-01)

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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

Table of Contents

Assessment of Discussion Post Recommendations Page 4

SWOT Analysis Page 4

PEST Analysis Page 5

Primo-F Model Page 6

Porter’s Five Forces Page 7

Porter’s Value Chain Page 7

Interrelationship Diagraph Page 8

Benchmarking Page 8

Chosen Analysis Techniques Page 8

Analysis and Evaluation Page 9

SWOT Analysis Page 9

PEST Analysis Page 9

Porter’s Five Forces Page 12

Threat of New Entrants Page 12

Buying Power of Suppliers Page 12

Buying Power of Buyers Page 12

Threat of Substitutes Page 13

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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

Competitive Rivalries Page 13

References Page 14
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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

Appropriate Tools and Analysis of the Furniture Industry

Management has been conducting their own research and discovered there are many tools

available for business situation analysis, and a decision must be made as to the most appropriate

tools for the expansion project assessment. Management has requested a determination of the

most appropriate tools, why they are the best tools for this application, supporting evidence, and

an explanation for why some tools are not necessary. This document discloses all research and

findings.

Assessment of Discussion Post Recommendations

There are many recommendations from the group discussion posts, and they include:

SWOT Analysis, PEST Analysis, Primo -F Model, Porter’s Five Forces, Porter’s Value Chain,

Interrelationship Diagraph, and Benchmarking.

SWOT Analysis. A SWOT Analysis is an essential technique for any business situation.

A SWOT Analysis performs many essential functions including: Creates a picture of Ferrer

Furniture’s current situation, and enables management to make the most educated business

decision based on their current position and capabilities; Helps create a solid and viable business

strategy for success; Will enable Ferrer’s Furniture to recognize, address and respond to internal

and external environmental changes; and will help Ferrer’s Furniture stay on track for success by

utilizing their strengths, address their weaknesses, minimize potential problems, take advantage

of viable opportunities, and recognize and address threats they may face in the marketplace

[ CITATION Tim16 \l 1033 ].

A SWOT Analysis is easy to create, traditionally uses a four-square template, but can be

performed by listing factors by category. Strengths and weaknesses refer to internal factors a
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company can work to improve upon, and include: Personnel and their skills, industry reputation,

production and delivery efficiency, etc. Opportunities and threats refer to external factors in the

marketplace, that a company cannot change, but must address or overcome, and include:

competition, legally mandated industry requirements, global events, and so on. Additionally, a

SWOT Analysis can be performed internally, by a group of stakeholders with varying

perspective, but requires a full understanding of the company’s true attributes, or can be

performed by an independent outside party, who will provide unbiased and truthfully observed

information [ CITATION Tim16 \l 1033 ].

PEST Analysis. A PEST Analysis is an essential structured technique, similar to a

SWOT analysis, but identifies four categories of external factors (Political, Economic, Social and

Technological) that affect a company’s business activities and financial performance. By using a

PEST analysis, Ferrer’s Furniture can analyze all crucial external factors, determine potential

future events through analysis of current events, take full advantage of current and future

opportunities, avoid future threats, and in the process make the best decision at the best time

[ CITATION Kat14 \l 1033 ].

A PEST analysis is easy to create, traditionally uses a four-square template, but can be

performed by listing factors by category. The four elements of a PEST analysis include political,

economic, social and technological. Political, refers to government regulations and legalities

including: tax regulations, patent law, political stability, trade regulations and tariffs,

environmental and employment law, and safety regulations. Economic, refers to external

economic factors including: Economic stability, currency fluctuations, interest rates, inflation,

cost of resources, unemployment, availability of credit, etc. Social, refers to demographic and

cultural factors of the marketplace, factors that determine customer needs and purchase
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decisions, and includes: demographics, age distribution, religion, changes in lifestyle, health

preferences, education, and environmental factors. Technological, refers to the technologies used

to produce and deliver the final product to the customer, and includes: Advances in technology,

life cycle of current technology, application of the internet for business expansion, improvements

in information technology, and so on [ CITATION Kat14 \l 1033 ].

Primo-F Model. The Primo-F Model is simply an extension of a SWOT and PEST

analysis, and provides a structure for comparing and benchmarking internal and external factors,

previous and future periods, and the competition. Primo-F stands people, resources, innovation

and ideas, marketing, operations and finance. Each category addresses specific areas that must be

addressed, and evaluates how prepared Ferrer’s Furniture is in each area [ CITATION Mik10 \l

1033 ].

The Primo-F Model is easy to create, and just lists factors by category. People, refers to

management and employee experience and leadership, and established monitoring and controls.

Resources, refers to funding, technologies and capabilities, physical assets, products and their

lifecycle, and use of outside agents. Innovation and Ideas, refers to how new ideas are generated,

considered, assesses, planned and marketed, and their originality. Operations-Control, refers to

the IT infrastructure, ability to utilize and share information, appropriate planning and

monitoring, extent of delegation, and performance assessment. Marketing and finance refers to

the company’s strengths or weakness in those areas. Additional information includes:

Experience, refers to the length of time in business, and management’s experience with finance,

product design and development, determination of markets, experience with outside agents, and

growth management. Leadership, involves top management, and refers to their experience base,
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their ability to align their personal ambitions with those of the company, and their education and

training [ CITATION Mik10 \l 1033 ].

Porter’s Five Forces. Porter’s Five Forces is a useful and powerful analysis tool, that

provides extensive analysis of the five forces that determine an industry structure, and the level

of competition within that industry. The five forces include: Threat of new entrants, which

determines the ease at which new companies can enter the market. Fewer barriers to entry, the

more intense the competition, and more barriers to entry, translates to less competitive market;

Bargaining power of suppliers, determines how strong a hold suppliers have on an industry. The

stronger the suppliers market share, the more they are able to charge higher prices, and reduce

buyer’s profits; Bargaining power of buyers, determines the purchase price of supplies for the

finished product. Buyers that purchase in large quantities, or leverage their size to negotiate

lower prices, will obtain lower costs, and improve their profit margin. Buyers that cannot

purchase in bulk, will be at the mercy of the supplier, pay higher costs, and reduce their profit

margins; Threat of substitutes, is determined by the level of competition. More competition in

the market place, makes finding suitable substitute products easy, and requires product and

marketing differentiation to stand out from the competition; and lastly, competitive rivalries.

More competition requires aggressive marketing and product differentiation strategies to

maintain market share, and most often results in lower profit margins [ CITATION Ovi131 \l 1033 ].

Porter’s Value Chain. Porter’s Value Chain is an analysis technique that looks at the

processes, costs and systems involved, analyzes their connection to determine how they affect

profitability, and create value for the company and the consumer. Porter’s Value Chain separates

all activities into primary or support activities. Primary activities directly related to production,

sales, maintenance and customer support, and include: Inbound logistics, which includes
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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

receiving, storing and internal distribution; Operations, which includes production activities that

create the final product from raw materials; Outbound Logistics, which includes delivery of the

final product to the consumer; Marketing and Sales, which includes advertising and selling the

product to the consumer; and Service, which involves post purchase services to maintain the

customers loyalty. Support Activities include: Procurement, which includes purchasing supplies,

securing vendors, and price negotiating; Human Resource Management, which includes hiring,

training, incentives, and employee retention; Technological Development, which includes

information exchange, management and security; and lastly, Infrastructure, which includes all

systems connecting all department, minimizing costs and maximizing efficiency [ CITATION

NA1646 \l 1033 ].

Interrelationship Diagraph. An interrelationship diagraph is a technique that visually

shows the relationship between variables, usually in sequence, and shows the cause and effect

relationship of the variables for each scenario [ CITATION NA021 \l 1033 ].

Benchmarking. Benchmarking is a technique which compare a company’s product

and/or services to others in the industry. Benchmarking helps management determine how the

company is performing in all aspects of their business, learn and instill best business practices,

and provides a guide to improve overall efficiency in manufacturing, company structure and

finance [ CITATION Lau161 \l 1033 ].

Chosen Analysis Techniques. Each of the analysis techniques are useful for project

analysis, and have their place the final determination of which country is best for global

expansion, but SWOT, PEST, and Porter’s Five Forces are the most useful for researching the

ideal location, and providing essential information for making the appropriate determination. The

Primo-F Model is suitable for determining available project funding, creating the ideal product
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line, the ideal IT infrastructure, and establishing benchmarks for success. Porter’s Value Chain

will prove essential when determining the ideal infrastructure for importing necessary raw

materials, manufacturing efficiency, management expertise, product logistics, and providing the

customer the best value for their money.

Analyses and Evaluation

SWOT Analysis.

SWOT ANALYSIS FOR ITALY BUSINESS

EXPANSION
Strengths
Have been in business for 14 years
Have been nationwide for 10 years
Strong reputation for exceptional customer service
and quality
Manufactures contemporary designs
Attracts mostly young, upper-middle class
consumers
High-end quality and price structure
Vertical integration structure: Able to quickly
design based on market changes
Has ten production facilities in the U.S.
Maintain strong sales from their website
Opportunities
To expand into European market
To build strong reputation and brand recognition
overseas
To build strong relationships with overseas
furniture agents, and a strong EU market
Weaknesses
Has no experience with international markets
Does not have longevity in the industry
Designs contemporary furniture that primarily caters
to the young upper-middle class
Does not cater to middle market consumers
Primary source of sales is their website
Only has two retail showrooms in the U.S.
 
 
 
Threats
highly competitive overseas industry
Will be competing against well-established
manufacturers
Will have to compete with Chinese and Philippines,
lower cost imports

PEST Analysis.

PEST ANALYSIS FOR ITALY BUSINESS EXPANSION

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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

Political
Politically stable, democratic and U.S. friendly
Political corruption is an issue
The Italian mafia still operate in Southern Italy, and
charges businesses protection money, but is losing
ground every year
Welcomes foreign investment in Italian companies
and banks
Investment information available online for foreign
investors
Provides national treatment to U.S. investors
established in Italy and other EU countries
Economic
Resources are expensive since Italy lacks most natural
resources including: wood, steel, oil and natural gas.
Average power bill is 45% higher than the EU rate
Italy is a major producer of renewable energy
Italy uses the Euro, and its value is set by the European
Central Bank. The Euro fluctuates, is generally stable,
and is currently valued lower than the U.S. dollar.
Exchange rate currently € .873 = $ 1
No restrictions on currency exchange, but must be
reported
All transfers over €1000 must be electronic

No double taxation on U.S. companies 12.4% unemployment, especially high in Southern Italy
Corporate income tax 27.5% Equal wages established throughout Italy
Customs duties same for all EU members Work visas subject to annual quotas
Summary declaration required for all imported goods,
and must be in modernized custom code Employee hours not to exceed 8 hours per day, or 48
hours per week, and all hours over 40 are overtime
The main free trade zone in Italy is located in Trieste, Female employees have special pregnancy and
in the northeast. At Trieste FTZ, customs duties are maternity leave protections
deferred for 180 days from the time the goods leave
the FTZ and enter another EU country. The goods
may undergo transformation free of any customs
restraints
Minimum working age is 15, or at the end of
Currently, goods of foreign origin may be brought into compulsory education
Italy without payment of taxes or duties, as long as
the material is to be used in the production or
assembly of a product that will be exported.
Italy's current inflation rate based on consumer price
index is (0.5%), and is sliding further into deflation
Compliant with WTO trade investment regulations
Anti-trust laws enable review of mergers and
acquisitions over a certain threshold Current IR = 0%, and interbank rate = (0.25%)
Member of the Paris Union International Convention Bank fees among the highest in Europe
for the protection of industrial property (patents and
trademarks)

Patents granted for 20 years, and are transferable Italy maintains a 2.8% debt deficit, within the EU 3% cap
Subject to single-market directives mandated by the
EU Resource strong in cattle, pigs and sheep, for hides

Intellectual property rights not adequately enforced  

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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

Anti-piracy and anti-counterfeit laws enforced  

Poor whistleblower protection  
Has written and consistently applied commercial and
bankruptcy laws  
Legal system recognizes international law, and
enforces property and contractual rights  
Italy is subject to single-market directives mandated
by the EU, which are intended to harmonize
regulatory regimes among EU countries  
Labor laws more flexible, can hire full time, part time,
and contract employees  
Company and creditor resolution encouraged to meet
agreement in place of bankruptcy  
Environmental laws are evolving, and include public
health, pollution, the environment and natural
resources  
The Ministry of Labor and Health enforces OSHA
requirements, provides legislative advice, supervision,
promotes health, and assists business in complying
with OSHA requirements  
Social Technological
90% of the population is Roman Catholic Italy embraces and is a major global producer of
renewable energy
Uses modern health care and specialists, as well as EU and Italian furniture industry take technology and
healers and potion makers innovation seriously
Education is prized, and extensive government and Furniture manufacturers invest heavily in employee
private funding is available. There are numerous skills training, quality improvements, computer
universities for all studies including: medicine, generated design technologies, and production
engineering, social work, and so on. efficiency innovations
Arts and humanities are prized, and supported by Furniture innovations include: restructuring,
public and private benefactors technological innovations, and more efficient business
model implementation
Men and women treated as equals, and currently
Italian women are the most liberated in Europe  

Stores generally close at 8 PM  

Italians live a slow lifestyle; they take their time  
Italy is the largest wine producer globally  
Environmental concerns more prevalent, and
consumers interested in alternative energies and
environmental conservation  
Growing use of internet for product research and
purchases by high income, highly educated men  
Population: Urban 69%, Rural 31%  
Gender ratio is 47% male and 53% female  

Age distribution: 0 - 14 = 13.7%; 15 - 64 = 64.3%; and  

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TOOLS AND ANALYSIS OF THE FURNITURE INDUSTRY

65 and over = 22%

Mid income = € 45,770  
1.4 million millionaires  
Majority of wealth in Central and Northern Italy  

Porter’s Five Forces. The following is a detailed analysis of the five forces that drive the

European marketplace, and demonstrate their effects on the performance of the furniture

industry.

Threat of New Entrants. Because Europe’s furniture industry is labor intensive,

depends on highly-skilled labor, the newest furniture production and design technologies,

research and development, faces high environmental, sustainability and technical standards, and

has high production costs, it is expensive to enter, and even the most established firms often have

difficulty maintain a competitive edge, and keeping pace with the lower costs of Chinese

imports. Additionally, EU manufacturers face duties on imported supplies and goods, and tariffs

on finished exports. The result is an industry that is not easy to enter, and costly for research and

innovation [ CITATION NA1647 \l 1033 ].

Bargaining Power of Suppliers. With the EU furniture industry dominated by small to

medium sized firms, suppliers have a great deal of power over the industry, and since many EU

members have few natural resources of their own, importing supplies gives a great deal of power

to the suppliers. The main suppliers of raw materials to Italy include: Germany, the largest in the

EU, France, U.S.A, Switzerland, UK and Spain [CITATION NA1643 \l 1033 ].

Bargaining Power of Buyers. Because there are 130,000 furniture manufacturers in the

EU, buyers power is not strong, and Italian furniture manufacturers rely heavily on their strong

relationships with their supply trade partners, technology and design innovations to reduce costs
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and remain competitive in the global market place, and their global reputation for producing

high-quality furniture, which affords Italian furniture makers a global market for their products

[ CITATION NA1647 \l 1033 ].

Threat of Substitutes. Since there 130,000 furniture manufacturers, from low to high

end, and continued increase of lower cost products imported from China, the threat of product

substitution is intense. To reduce the threat of substitution and costs, and entice younger skilled

workers, many companies are investing in employee skills training, design technologies, and

research and innovation to reduce costs, quickly adapt to customer changing taste, apply more

profitable business structures, and build strong and loyal relationships with customers.

Additionally, many EU furniture manufacturers are using more sustainable resources, in the

hopes to attract environmentally concerned customers [ CITATION NA1647 \l 1033 ].

Competitive Rivalries. Research found no information regarding specific competitive

rivalries, but the issue that continues to arise involves the increasing levels of Chines imports.

China has become the world’s largest exporter of furniture to the EU, and accounts for more than

50% of all EU imports. Chines Imports introduce to the European marketplace high-quality, and

lower cost products, that force European manufacturers to implement more efficient systems of

production to compete effectively in the EU marketplace, and forces them to seek new markets

for their high-end, high quality products [ CITATION NA1647 \l 1033 ].

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