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Group Member:

Amjad Nawaz L1S07BBAM0122

Saqib Zahoor Khan L1S07BBAM2044

Zain Bin Gohar L1S07BBAM0080

Ammar Akram Alizai L1S07BBAM0155

Syed Hammad Raza L1S07BBAM2112

SME

Furniture Industry Empowering Furniture Manufacturing based SMEs in Chiniot will result inhigher volumes of Furniture Exports


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Contents

ABSTRACT 3

INTRODUCT

IO

N TO FUR

NITURE

INDUSTRY O F P AK

ISTA

N4

CH INI OT S FUR NI TURE IN DUSTRY 6

LITERATURE REV IEW 7

A RT ICLES 7 P ROS PECTS A N D FEARS FOR P AK ISTA N S FUR NI TURE IN DUSTRY 7 W HY DO SMA LL FIRMS FA ILS TO GRADUATE TO MED IUM A N D LAR GE FIRMS IN PAK ISTA N 7 W OODE N FUR NI TURE : GREAT EXPORT POTE N T IAL 8 D IME N S IO N S O F MA N U FACTUR IN G STRE N GTH IN THE FUR NI TURE IN DUSTRY 8 A GG RESS IVE A N D P ASS IVE EX PORTERS : A STUDY IN THE FUR NI TURE IN DUSTRY 8 H A N DBOOK O N LO N G TERM FIN A N CIN G S CHEMES O F S TATE B A N K O F P AK ISTA N 9

HY POTHES IS 10

EMPOWERINGFURNITUREMANUFACTURING BASEDSMES INCHINIOT WILL RESULT IN HIGHERVOLUMES OFFURNITUREEXPORTS 10

Q UEST IO NN A IRE 10

IDE N TIFICAT IO N O F P ROB LEM THROU GH RESEARCH 11

EXO GEN OUS FACTORS: 11

EN DO GEN OUS FACTORS: 12

OTHER OBSTAC LES 12

CO N CLUS IO N & RECOMME N DAT IO N 14

RE FERE N CES 15


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Abstract This project was performed to measure the potential of Chiniot made furniture in the foreign

market. We feel that lack of government support to streamline this industry is one of the main reasonsbut the report will enlighten the other factors which made the government uninterested in this sector of industry. A questionnaire was made to test what were some of the reasons this sector of the industry innot flourishing and what can be done so that this industry to perform to its fullest potential.


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I ntroduction to Furniture I ndustry of PakistanPakistan s share in the international wooden furniture market is insignificant, despite

the fact that the country has a history of craftsmanship and innovation in the field of wooden

furniture.

The wooden furniture industry represents 95 percent of the total market in the country.The leading furniture making areas of Pakistan are Chiniot, Gujrat, Peshawar, Lahore andKarachi. In terms of exports, Karachi comes first, followed by Lahore and Peshawar.

But prospects are not rosy. Exporters are suffering manifold problems while localmanufacturers are facing challenges due to heavy imports of furniture. Chinese furniture hasalso hit the local industry by 70 percent and the sales of locally manufactured householdfurniture have gone down by 30 percent.

Pressure on the domestic industry has immensely increased as other countries likeThailand and Korea have started exporting extensively to Pakistan.

At the same time, the high cost of the furniture business has threatened the sector as awhole. The prices of all raw materials used in making furniture which include chipboard,timber, foam, polish chemical materials, color paints and hard ware have increased. Timberproduction on the other hand has gone down drastically because of unchecked deforestation.

As a result, imported chipboard is used in manufacturing bedroom sets, which sell the most.About sixty percent raw material used in furniture making is imported from China. Importeditem mostly used in furniture making are chipboard, hardware items and glass.

Pakistan s major buyers of wooden furniture are the UK, the USA, Sri Lanka and Gulf countrieslike the UAE, Saudi Arabia, Oman and Kuwait. The United States buys mostly bedroomfurniture. UK and the Gulf countries import kitchen furniture and office furniture. For example,the British retail chain Harrods sells some Pakistani furniture at its outlets.

In Pakistan, the wooden furniture industry can be categorized into small scale and cottage.These units unfortunately use obsolete machinery, inadequate tools and manual labor formanufacturing wooden furniture. This means high costs and poor output.

There are more than 700 units of wooden furniture in the country. The market is divided intohome use and contract markets. The contract market constitutes those units that deal withsupplies to hotels, restaurants, offices and public facilities.

Chiniot in Pakistan is well known throughout the word for its beautiful wood carvings and brassinlays. Its furniture is better in quality than that of other areas of the country.


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More than 80 percent of the furniture demand in the country is met by the Chinioti furniture.This industry, combined with the handicraft industry, is employing about 50,000 people.

The wooden furniture industry in Gujrat is also flourishing and contributing a large amount of foreign exchange earnings to Pakistan. About 70 to 80 percent furniture is made of sheesham .

Furniture items produced in Sindh and parts of Punjab are more cottage industry based and fordomestic use only. Most of the furniture produced is simple but heavy in weight and is soldlocally rather than exported.

A number of households in Hala, Kashmore, Khanewal and Dera Ghazi Khan employ traditionalworkmanship, despite drastic change in the tastes of customers. Similarly, Swati furniture hasbasically broad sets and geometrical floral designs carved in various styles of wood work. It is ashame that neither has made any markets abroad.

The statistics overall are not encouraging. The export of furniture which was worth US$3.46million rose to US$6.05 million in 2001-01, thus depicting an increase of 12 percent per annum.

Exports of furniture have gone down since 2007 due to political and economic turmoil coupledwith load shedding. It is observed that no importer has entered the Pakistani market and noone is ready to book orders by browsing through designs at company web-sites.

Quality export furniture is being produced at Chiniot, Gujrat, Peshawar, Rawalpindi and Karachi.The demand for Pakistani furniture has been rising constantly. It has bright prospects to exportmore than $1 billion worth of furniture annually in the international furniture market.

For this to happen, the furniture industry in Pakistan must vigorously transform from cottage orsmall scale industry to innovative industry through training, upgrading supplies and imports,establishing a wood work institute and testing laboratories of international standards. Japan isan important market to tap. Efforts must be made by promoting furniture exports by moreregular participation in international shows. All this can happen if there is government will anda vision amongst furniture traders. So far, this remains to be seen.


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Chiniot s Furniture I ndustryChiniot is world famous for its exotically carved and brightly lacquered furniture.

Chinioti craftsmen and artisans have for centuries carved "beautiful" flowers and geometric

patterns onto cellulose fibers. Masons from Chiniot are thought to have been employed duringthe construction of Taj Mahal and Golden Temple, both now in India.

Despite the knowledge and century old traditions employed in Chinioti wood making,the Pakistani government has made little effort to promote and market its Punjabi furnitureindustry. A lack of vocational education and training centers in Chiniot means that modernworking techniques are rarely used. The lack of computer aided design (CAD) also serves as ahindrance to modern manufacturing.

Furniture making in Chiniot forms a vital part of Pakistan's secondary industry and is also

essential to the Punjab s regional economy.The recent trend of furniture suggests that hand craved furniture is in rising demand.

The changing trend of people from contemporary furniture to antique hand carved furnitureshows that the chiniot s furniture has a high demand in the foreign market.

In total there are more than 175 small and medium furniture manufacturers in Chiniot.And there are over 2500 home units operating in Chiniot.


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L iterature Review Articles

Prospects and fears for Pakistan s furniture industrya. Link:http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furniture-industry/

i. ( Published in the Express Tribune, June 7 th , 2010.)

Summary:

Pakistan's wooden furniture industry has a great export potential, and in quality is inferior tonone. The domestic market is very vast and varied. However, Japan's import market has great potential,too. No tariffs are levied on the furniture or its components. The largest obstacle to imports of furnitureinto Japan is size. Western furniture is often rejected because it is too large for the Japanese consumers.

Traditionally, Japan's furniture market has been heavily dependent on the so-called boxfurniture. This type of market, however, is gradually fading away. Instead, the focus of home-usefurniture demand is shifting to furniture sets for reception rooms. The increasing adoption of westernhousing and interior designs will further accelerate this trend. Many single-family dwellings andcondominiums come with built- in furniture - such as walk-in closets. The Japanese consumers have atraditional attachment to wood. They dislike the presence of knots in the furniture surface, and expectmanufacturers to perform careful finishing to all parts. Hence, products that emphasize the beauty of the wood grain will be an important key to success.

The demand for furniture has been rising constantly for the domestic market, as well as for theexport. It has been estimated that it is likely to maintain a growth rate of approximately 10 per cent perannum by the end of 2005. To meet the growing export demand, the Export Promotion Bureau (EPB)has been arranging participation of the Pakistani furniture exporters in the leading North Carolinafurniture exhibition, which will be held in the USA in April 2002.

W hy do small firms fails to graduate to medium and large firms in Pakistanb. Link:http://www.pide.org.pk/pdf/PDR/1993/Volume4/1249-1257.pdf

i. (Aut hor: A.R. Kemal - The Pakis t an Developmen t Review: December 1993) Summary:

The article makes an attempt to examine the level and sources of efficiency and examinesconstraints on the growth of small firms in Pakistan. Since the relatively higher level of efficiency inthe small-scale manufacturing industries is attributed to lower capital intensity, the article focuseson the analysis of capital intensity and productivity of capital and labor. The viability of variouseconomic activities has also been examined by taking into consideration that small enterprises areexempted from the payment of sales taxes and excise duties and that the labor laws are notapplicable to small producers which tend to reduce the wage costs and allow the producers toexploit workers in term of work for longer hours.


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export stimulation programs in Brazil. However, it was not possible to affirm that aggressiveness wascorrelated with firm export performance.

Handbook On

Long Term Financing Schemes Of State Bank Of Pakistanf. Link:http://www.furniturepakistan.org.pk/images/Financin%20Facility%20For%20Furnit

ure%20Sector.pdf i . Published March 2010

This handbook focuses on the three long-term refinancing schemes namely Long Term FinancingFacility (LTFF), Modernization of SMEs and Scheme for Financing

Power Plants Using Renewable Energy, developed for capacity building of industrial units. Theformulation of this handbook was necessitated to facilitate the stakeholder s by consolidating theguidelines of each scheme and to ease the dissemination process. To facilitate export led growth

through setting up export oriented projects LTFF was introduced to provide funds on long term (up to 10years) basis for import of machinery and purchase locally manufactured plants.

Similarly, focusing on development of SME sector, scheme for Modernization of SMEs waslaunched to provide funds on medium and long term (upto 7 years), for procurement of plant andmachinery. Presently Scheme limit to Rice Husking units and Cotton Ginning factories, where as otherclusters are under consideration for which separate announcements will be made.


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H ypothesisEmpowering Furniture Manufacturing based SMEs in Chiniot will result in higher volumes

of Furniture Exports

QuestionnaireTelephonic Survey conducted by 12 Manufacturer of Chinioti Furniture based in Chiniot.

A) Are you into furniture manufacturing?

B) Are you an exporter of furniture?

i. If yes what is your annual turnover?ii. Do you export furniture under your own license or use export agent?

iii. Do you feel any difficulties during the export procedures?

iv. What grants and rebates are available for exporting furniture?

v. Do you think that government support to this industry is sufficient?

vi. How can government help to increase the exports of Chiniot s Furniture?

vii. Have you ever been rejected on the reasons of bad quality?

C) If No,

i. Why don t you export your manufactured furniture?

ii. Do you sell your furniture to export agents?

iii. Do you attend Export Promotion Bureau Exhibitions?

iv. Do foreign buyers show interest in your furniture?

D) Do buyers try to influence your furniture designs?

E) What export policies do you want government to render to support your business?

F) How can government support R&D in your sector?


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I dentification of problem through research

Exogenous Factors:

Sheesham Wood getting expensive

Chinioti Furniture is known for use of sheesham wood in carving, therecent increase in its prices has affected the industry in a big way. To cover this huge amount of sheesham is imported which is 4 times expensive.

Tr anspo r tation r ates a r e inc r easing

Where previously a company would have sent 4 containers, it ends upsending only two. Diesel/petrol rates have also increased.

Raw mate r ial is diseased

Raw materials cost is high and it is of sub standard. As a result, lowquality of furniture is produced. Companies have to suffer severe loss.

Cu stoms examination done is ve ry seve r e

During customs examination furniture is broken / torn for inspection. Asa result all material has to be made again. A huge loss is incurred on the companies. Some companiesgive money and get their material cleared from the Customs. In this process, even the poor quality

material reaches foreign buyers and the image of the whole industry is destroyed.

P r oblem in basic u tilities

Load-shedding is a major problem. Furthermore, gas rates are on the rise with increase shortage of supply too.

Railwa y Tr anspo r tation

Pakistan Railway is only used for movement of bonded goods and it is not available forcommercial exporters. Railway is one of the most cheapest means of transportation in country.


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Endogenous Factors:Lack of space is a p r oblem

Because of small area, less pieces of furniture are produced. There s40% loss and as a result all opportunities are lost. If more material is produced, it is wasted because

there is no space for its storage.

Lack of p r actical implications

SMEs seeking to go international need to learn a lot about external andinternal environment impacting their organizations.

Lack of skilled labo r Since the injunction of contemporary furniture, there is a decline in

overall hand carvers in the market.

No association o r chambe r to s u ppo r t these SMEsThere is no established association or chamber who help protects the

rights and problems faced by this industry.

Other Obstacles A ccess to the inte r national ma r kets tends to be a p r oblem

As producers may be unfavorably located; far from the main consumption centers andsuffer from costly transportation.

A ccess to r aw mate r ials at competitive costs becomes a p r oblem as SMEs

These SMEs are at disadvantage because of their small size. This can become ahindrance to organizing the flow of raw materials from domestic, non-transparent timbermarkets controlled by various intermediaries, and often leads to timber shortages just whenexports are growing.

A ccess to knowledge and technolog y is a majo r pr oblem a r ea.

SMEs tend to fall behind because of their strong reliance on traditions: e.g. they may beusing high-value timber for secondary uses, simply through force of habit and thus gainrevenues far below the timber s real potential.


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A ccess to capital is diffic u lt to find at competitive r atesSince domestic bank finance is scarce, interest rates are generally high and collateral

requirements are strict.

A ccess to designe r s is limited

The exporters rely on simply selling items as they are , copying new models orproducing according to the buyer s designs.

T he r e a r e sho r tages of skilled labo r and in-ho u se t r aining(Apprenticeships, on-the job training, etc.) is usually considered too much of a burden.

Manage r ial skills a r e poo r Opportunities to develop them outside the SME companies are rare.

Lack of intellect u al r ights p r otectionIntellectual Rights Protection is a vital element in the encouragement of creative design

activities. If authorities fail to put such a protection scheme into a widespread use within theindustry, it hinders the development of original designs within the industry.


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Conclusion & RecommendationHand carved furniture is coming back into fashion and Pakistan is one country which still has the

art alive. The only competitive country producing this kind of furniture is India. Recent ban by the Indiangovernment on export of furniture made through antique wood has left a huge supply gap for Pakistan

to supply to. To make full use of this supply gap the government needs to provide special favors to thisindustry. Following are some of the possible solution for the revival of this industry segment.

1. The government should initiate export quality standards in conjunction with PCSIR, throughwhich substandard and low quality furniture should be discouraged and manufacturers andsuppliers of quality furniture made of quality wood should be issued a certification. This helpsexporters and manufacturer get orders from European and American countries.

2. Government should encourage hand carving art and train workers in this field in the vocationaltraining institutes so that more carvers graduate with the required skills to support the industry.

3. To help reduce Sheesham Wood prices the government should wave off the duty on import of

this wood. This will help bring down the prices of Sheesham wood in local market and thusreducing the overall prices of hand carved furniture.

4. Government should subsidies 50% of the total transportation cost of inland goods movementespecially for this industry to encourage furniture exports.

5. Government should allot its own land and warehouses are reduced prices with properinfrastructure to store furniture and charge a nominal rate. The proposed location of thiswarehouse could be near the Chiniot bypass near the motorway.

6. Government should make a new department inside the Export Promotion Bureau, and its solepurpose should be to promote the furniture industry of Pakistan. It should mediate betweenforeign exhibitionists and the exporters so that Furniture manufacturer can participate in such

exhibitions worldwide.7. Government should subsidize import of latest technology so that manufacturer is encouraged to

use latest technological means of manufacturing.


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Referencesy http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furniture-industry/

y http://www.pide.org.pk/pdf/PDR/1993/Volume4/1249-1257.pdf

y http://www.jang.com.pk/thenews/investors/sep2002/if.htm

y http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VB7-3SX1X9H-5&_user=10&_coverDate=11/30/1997&_rdoc=1&_fmt=high&_orig=search&_origin=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=dcd284c31241b1258d0f5b03e154507f&searchtype=a

y http://www.emeraldinsight.com/journals.htm?articleid=855195&show=abstract

y http://www.furniturepakistan.org.pk/images/Financin%20Facility%20For%20Furniture%20Sector.pdf

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