LOCAL COOPERATION AND UPGRADING IN RESPONSE TO
GLOBALIZATION: THE CASE OF CEBU’S FURNITURE INDUSTRY
Victoria Zosa
I. INTRODUCTION
The Cebu furniture industry is not a newcomer to globalization, with an international
rattan market presence dating back to the 1950s. Partnering with global buyers, Cebu became a
dominant rattan furniture exporter until the 1980s, after which its share in the global furniture
market steadily declined to a negligible level as exports from Malaysia, China, and Vietnam
displaced Cebu’s. The furniture industry, however, is still a major contributor to the Cebuano
economy, remaining one of the top export earners of the province.
The industry’s response to globalization over the decades is an interesting case study of
an established industry suddenly being put in transition. With the entry of new, low‐cost
producers in the global market since the 1980s, the pressure for product upgrading mounted.
These new entrants possess multiple advantages such as low raw material cost, low labor cost,
government support and access to technology. The literature on competitiveness suggests that
Cebu has to take the high road of competitiveness by upgrading—making better products,
producing them more efficiently, and moving into more skilled activities. In this regard,
cooperation among industry stakeholders and global buyers plays an important role in product
upgrading (Loebis & Schmitz, 2005).
In broad strokes, this study discusses the depletion of rattan resources, Cebu furniture’s
coping mechanisms and the shift toward product and process upgrading. The work has the
following objectives: (i) examine the role of local cooperation in product upgrading with respect
to raw materials procurement, inter‐firm relations, knowledge diffusion, entrepreneurship,
gender and income, and business associations’; (ii) determine the role of global buyers in
product and process upgrading; (iii) verify the implications of global market trends on the
Philippine furniture industry.
The paper is organized as follows: Section 2 traces the evolution of the Cebu furniture
industry, defines the study objectives, and presents the data and study approach. Section 3
looks into the industry today, focusing on: (a) the use of common raw materials by
complementary industries, (b) inter‐firm cooperation in the cluster, (c) the role of skilled
workers in knowledge diffusion, (d) the role of local entrepreneurs, (e) the contribution of
women in the industry, and (f) the role of business associations and strategic alliances, such as
those with local government units. Section 4 tackles the global buyers’ tasks in product
upgrading and process upgrading. Section 5 outlines the Philippine experience in the global
furniture industry, and Section 6 summarizes the findings and charts future directions for
competitiveness and upgrading in the furniture clusters and value chain.
II. OVERVIEW OF THE FURNITURE INDUSTRY AND METHODOLOGY
A. Evolution of the Cebu Furniture Industry
The evolution of this Filipino industrial sector is cast within the global value chain
framework. Figure 1 shows the furniture value chain (Kaplinsky & Morris, 2003). The cycle
proceeds as follows: The major inputs to the forestry sector are seeds, chemicals, machineries,
and water and extension services. Cut logs are brought to the sawmill, which are processed to
sawn timber using chemicals, machinery, and logistics and quality advise. Manufacturers
transform the wood products to export furniture, with inputs of design, machinery and
chemicals and paints, adhesives, upholstery, etc. Furniture products are then sold to both
domestic and foreign buyers. In the case of Cebu, however, some 90% of the furniture products
are exported (Organizational Performance Associates, Inc., 2003). The large furniture exporters
have direct access to foreign markets through the wholesalers (distributors), manufacturers, and
retailers. Small furniture exporters, for their part, turn to buying agents. Furniture exports
eventually reach consumers who, after a period of time, either recycle or dispose the furniture
as junk.
The roots of the Cebu furniture cluster can be traced to two historical circumstances: the
Mehitabel‐McGuire supplier‐buyer partnership in 1948 which introduced Cebu rattan products
to the global market, and the 1981 entry of Maitland‐Smith Limited to Cebu, exposing the local
craftsmen and industry players to global furniture design and product innovation. The industry
has experienced major supply side (e.g. the rattan shortage starting in the 1970s, the on‐and‐off
log ban, exodus of skilled craftsmen to competitor countries) and demand side shocks (global
entry of low‐cost newcomers such as Indonesia, Malaysia, Thailand, China and Vietnam from
the 1980s onwards, and the popularity of IKEA assembly‐type furniture).
Machinery
Water Seeds
Chemicals
Design
Machinery
Extension
services
Machinery
Logistics, quality
advice
Paint, adhesives,
upholstery etc.
Forestry
Sawmills
Furniture manufacturers
Buyers
Domestic wholesale
Foreign retail Domestic retail
Recycling
Consumers
Source: Kaplinsky and Morris (2003)
Figure 1: The Furniture Value Chain
Foreign wholesale
Cebu’s rattan furniture went global in 1948, when Mehitabel, a local backyard furniture
shop, partnered with McGuire Furniture Company, a US buyer. Dissatisfied with the quality of
Cebu rattan furniture, McGuire initiated a breakthrough in rattan production by combining
rattan with cowhide to address the bulk‐strength problem (process upgrading) and hiring a US
designer (product upgrading). The Mehitabel‐McGuire partnership became such a success that
McGuire furniture was marketed in 21 US cities, Europe, and Japan. To cope with increasing
demand, Mehitabel subcontracted some jobs to Rattan Arts and Rattan Pacifica (Jurado, 1997).
The furniture association (Chamber of Furniture Industry in the Philippines–Cebu
Chapter, or CFIP‐Cebu) was born in 1974, when furniture exporters, unable to buy rattan poles
from exporters, banded together to lobby against the export of rattan poles. Shortly afterwards,
the 1976 export ban on rattan poles was implemented; the top five rattan pole exporters, in turn,
modernized itself by hiring foreign consultants, importing machinery, and professionalizing its
ranks throughout the 1980s.
The entry of rattan pole exporters into the furniture industry paved the way for Cebu’s
furniture industry to penetrate markets in Europe, Canada, Japan, Australia, and South
America. During the time, exports were at US$50 million annually, and represented 60% to 70%
of all Philippine exports; the Philippines, along with Taiwan, were the region’s biggest furniture
exporters.
Yet the export ban was not able to arrest the dwindling supply of rattan, as an estimated
300,000 hectares of forestland were lost annually due to the massive deforestation in the late
1970s and the early 1980s (Tumaneng‐Diete, Ferguson, & MacLaren, 2005). Hence, the industry
tapped Indonesia and Malaysia for its wood requirements. In turn, Indonesia, the world’s
largest rattan producer, eased out the Philippines as a major player in the global furniture
market by investing heavily on equipment and pirating skilled Filipino workers. On the other
hand, Malaysia, a major exporter of logs, sawn timber and wood products (plywood, veneer,
wood‐based panels, wooden furniture, builders’ carpentry and joinery (BCJ), moldings) just
recently became a major player in the global furniture market.
To protect their local furniture manufacturers, both Indonesia and Malaysia
implemented an export ban on their wood products, further pushing the cost of raw materials
up to an average of 40% of production cost. Again, faced with increasing production costs and
global markets in recession, Philippine furniture exporters again had to make institutional
adjustments. In 1992, the exit of 81% of the furniture firms led to the industry’s near‐collapse;
only 38 out of 200 firms were operational.
The increasing costs of raw materials weighed heavily on the furniture industry
beginning in the 1980s. Fortunately in 1982, Maitland‐Smith decided to locate at the Mactan
Export Processing Zone, bringing to Cebu its vast experience in design and marketing. This
marked what industry players now refer to as a period of “renaissance.” Maitland‐Smith Hong
Kong reproduced 18th century furniture and decorative accessories. Maitland Smith allowed its
company designers to create “signature” or brand items, under strict quality control using
rattan, stone mosaic, coconut shell inlay, faux tortoise shell, penshell inlay, mother of pearl, faux
malachite, petrified wood, and fossil stone, among others (Nielson, 2001).
Suffice it to say, Maitland‐Smith was instrumental in upgrading Cebu’s furniture
industry. Its contributions included: (a) bringing professionals to the industry, (b) making
wood a more prominent material in the industry, (c) initiating the training of workers especially
in wood working skills, (d) attracting new buyers to Cebu, (e) enabling subcontractors to
become exporters, (f) contributing to knowledge diffusion, and (g) experimenting with mixed‐
media design.
Since 2000, the industry has faced market threats from new entrants to the global
furniture industry. In 2003, China exported 1.3 billion pieces of furniture, making it one of the
world’s largest furniture exporters, in terms of quantity; and in 2004, China rose to become the
second leading furniture exporter in the world, next to Italy (CRI News Online, 2004). Today,
low production costs in China, Vietnam, Malaysia and Indonesia, low‐priced DIY (do it
yourself) IKEA furniture, and the creeping encroachment by China, Malaysia, Thailand and
Vietnam on the CFI’s share in the global high‐end niche market also threaten the industry’s
survival.
Though the Philippines’ share in the global furniture market has dwindled to below 1%,
Cebu has managed to retain a reputation as “the Milan of Asia” (Go, 2003). Schancknat,
German design consultant to the Cebu Furniture Industries Foundation, notes that “Cebuanos
were the first in Asia to introduce different materials into a very unique style of mixed media1.”
B. Data and Approach
The industry profile is drawn from four sets of survey data: the Department of Trade
and Industry’s (DTI) 1995 Benchmark Survey on the Micro‐Cottage and Small Enterprises in
Cebu conducted by the Center for Research and Communication‐South (CRC‐South), the 2003
Organizational Diagnosis of Cebu Furniture Industry Foundation, Inc (CFIF) by management
consulting firm Organizational Performance Associates, Inc., the International Labour
Organization’s (ILO) Case Study of Young Workers in the Furniture Industry of Cebu, and
Learning in Small Enterprise Clusters: The Role of Skilled Workers in the Diffusion of
Knowledge in the Philippines, a University of Amsterdam Ph.D. dissertation (Remedio, 1996 &
Beerepoot, 2005).
Information on raw materials and markets were obtained from CFIF, news, and firm
websites, the National Statistics Office (NSO), and the Bureau of Export Trade Promotion
1 Mixed media is “the harmonious marriage of man‐made with natural materials; the innovative blend of
traditional and the contemporary look; the creative combination of soft, flexible fibers with the solid
sturdiness of wood or stones emphasizing the wide range of possibilities than can still be explored with
the use of two or more materials” (Seno, 2004).
(BETP). Data on exports generated by CITEM‐sponsored trade shows are included to measure
their contribution to export sales. Industry‐specific training programs are likewise furnished by
the CFIF. Firm‐level financial data are obtained from Top 5,000 Corporations 2002 and Top
7000 Corporations 2001. CFIF also provided aggregate data on the profit and cost structures of
selected furniture firms. Financial ratios from these two studies were used as indicators of the
industry’s profit margin and degree of financial leverage. Female participation in the Cebu
furniture industry was gauged by using data from the 2003 DTI survey, CFIF List of Contact
Persons, and the 2000 Census of Population. The percentage share of Cebu‐based export
commodities, which share common raw materials and production processes with furniture
manufacturing, is used as an indicator of the extent of inter‐firm linkages in the cluster. In
addition to these data, information regarding the dominance of certain families in the industry,
results of the CFIF organizational diagnosis, and cross‐country statistics are presented.
The industrial cluster and global value chain analysis approaches are adopted in this
study. Briefly, cluster analysis focuses on the role of local linkages in product upgrading, while
the global value chain considers the role of global buyers (agents, retailers, or brand‐name
companies) in pushing for process and product upgrading. In the context of
globalization, upgrading‐‐innovation to increase value‐added‐‐is a necessary condition for the
“high road” to competitiveness. The analysis of industrial clusters is focused on the role of local
linkages in generating competitive advantages in the export industries (Pietrobelli & Rabellotti,
2004). Table 1 maps the different roles of clusters and value chains in governance and
upgrading (Humphrey & Schmitz, 2002).
Table 1: Governance and Upgrading: Clusters vs. Value Chains
Clusters Value Chains
Governance Horizontal. Close inter‐firm
cooperation and active private
and public institutions.
Vertical. Strong governance within
the chain.
Relations with
the external
world Arm’s length market transactions.
International trade increasingly
managed through inter‐firm
networks.
Upgrading Incremental upgrading (learning
by doing) and diffusion of
innovations within the cluster.
For discontinuous upgrading,
local innovation centers play an
important role.
Incremental upgrading made
possible through learning by doing
within the chain. Discontinuous
upgrading made possible by entry
into more complex value chains.
Key competitive
challenge
Promoting collective efficiency
through interactions within the
cluster
Gaining access to chains and
developing linkages with major
customers.
Source: Humphrey and Schmitz, 2002
Earlier studies provide evidence that clustering enables a group of firms concentrated in
one geographic location to achieve the gains of collective efficiency through local external
economies and joint action. Specifically, local external economies attract local suppliers, and
hence give clustered firms better access to inputs and raw materials and create a pool of skilled
workers. Joint action, made possible by joining business associations, could help firms open
new markets and allow small firms access to government services (Schmitz, 1995).
Porter provides a succinct discussion on the role of clusters in economic competition.
Clusters, according to him, are critical, geographically‐concentrated masses of unusual
competitive success in particular fields. Clusters encompass an array of linked industries and
other entities important to competition—including, for example, suppliers of specialized inputs
and providers of specialized infrastructure. Clusters also often extend downstream (to channels
and customers) and laterally (to manufacturers of complementary products and companies in
industries related by skills, technologies, or common inputs). Finally, many clusters include
government and institutions such as universities, standards‐setting agencies, think‐tanks,
vocational training providers, and trade associations providing support services.
Porter also notes that clusters rarely conform to standard industrial classification
systems by promoting both competition and cooperation. Clusters promote competition in three
ways: first, by increasing the productivity of cluster‐based firms through (i) joint sourcing of
inputs, (ii) access to specialized information, technology and needed institutions, (iii)
complementarities among related industries, and (iv) better motivation and measurement
provided by local rivalry and peer pressure; second, by determining the direction and pace of
innovation; and third, by stimulating the formation of new businesses (Porter, 1998)
Global value chain (GVC) emphasizes cross‐border linkages between firms in global
production and distribution systems. Specifically, GVC proponents emphasize the role of
global buyers in the value‐adding chain of activities carried out by different firms in different
locations. From this perspective, global buyers are instrumental in the upgrading of processes,
products, functions, and sectoral innovations (Pietrobelli & Rabellotti, 2004).
In a world of uncertainty, bounded rationality, and conflicting economic interests, the
coordination issues—what, how, how much, and when to produce—have spawned four types
of relationships in the value chains. First is the arm’s length market relation, where buyer and
supplier do not develop close relationships and where product certification provides buyer
requirement standards. Second are networks, characterized by a more information‐intensive
relationship, where buyers specify certain product or process standards that the supplier should
comply with. Third is the quasi‐hierarchy, where the lead firm exercises control over its direct
suppliers and others further along the chain. And fourth is the hierarchy, where the lead firm
takes direct ownership of some operations in the firm (Humphrey & Schmitz, 2002).
Figure 2 illustrates the production‐demand interactions between the global value chain
and the local furniture cluster in Cebu. Foreign buyers include wholesalers, direct retailers, and
buying agents. Production is mobilized when foreign buyers place an order. Exporters source
some of their raw materials abroad, hire freelance designers for product development (in the
absence of in‐house designers), or outsource some job processes to home workers. Buying
agents may be Filipinos or foreigners who maintain local offices tasked with organizing
production carried out by different manufacturers and subcontractors. Buying agents may fill
one container with products coming from different manufacturers; freelance designers are hired
either by buying agents or exporters; and home workers and subcontractors tap local sources
for their raw materials.
Figure 2: International Value Chain and Local Cluster of Cebu Furniture Manufacturers
The production of furniture exports is a function of raw materials, the presence of other
firms, skilled workers, entrepreneurship, and support organizations such as business
associations, local government units, and national line agencies. From a strategic standpoint,
the Philippines can no longer compete on the basis of low labor costs, cheap materials, and an
unregulated labor market, as doing so will just hasten the Cebu furniture industry’s “race to the
bottom.” What the industry can and should do is take the “high road”: that is, product
upgrading, translating to efficiency enhancement, innovation, high quality productions,
functional flexibility, and good working conditions (Pyke, Becattini & Sengenberger, 1992). The
shift to mixed media in the use of raw materials, horizontal integration, and the reliance on
embedded learning are the industry’s attempts to improve itself along these lines.
Wholesalers RetailersRaw materials, parts,
components
Buying agents
Free‐lance designers
Exporters
Subcontractors
Local raw materials: wood, rattan, abaca,
stone, buri
Home‐
Workers
PHILIPPINE
ABROAD
Source: (Beerepoot, 2005)
III. THE CEBU FURNITURE INDUSTRY TODAY
A. Raw Materials
In the 1980s, the Philippines was one of Asia’s top supplier of furniture exports (Table
2). For instance, the Philippines in 1987 exported US$173 million of wooden furniture to OECD
countries, next to Taiwan and China (US$185 million) and ahead of Korea, Thailand, Hong
Kong, and Singapore. During the same year, the United Kingdom imported its furniture
requirements from developing economies, led by Taiwan, Philippines, and Singapore. The
following year, the US furniture market saw 84% of its wooden furniture imports come from
Asian countries, led by Taiwan and the Philippines. Notably, the Philippines then had 54%
(US$161 million) of the US’ imported rattan furniture market. The Philippines was likewise a
major supplier of rattan furniture to Japan, with an 8% market share behind Taiwan and
Indonesia (International Tropical Timber Organization, 1990).
Table 2: The Philippines’ Share in Furniture Imports of Selected Countries, 1987‐1988
1987 1988
OECD (in USD
million)(in %)
U.S. (in USD
million) (in %)
Total Furniture Imports 18,332 100.0Wood Furniture Imports 1,209.44 100.00
Asia 2,573 14.0Asia 1019.68 84.00
Taiwan 1,848 10.1 Taiwan 599.189 50.00
China 186 1.0 Philippines 110.401 9.00
Philippines 173 0.9 Singapore 64.147 5.00
Korea, Republic 170 0.9 Thailand 63.197 5.00
Thailand 140 0.8 Korea, Rep. 53.854 4.00
Hong Kong 90 0.5 Hong Kong 31.131 3.00
Singapore 88 0.5 China 13.396 1.00
1988 1988
Japan (in Yen
million)(in %)
U.S. (in USD
million) (in %)
Rattan Furniture Imports 18,631 100.0Rattan Furniture Imports 161.204 100.00
Asia 18,521 99.0Asia 159.038 99.00
Taiwan 13,637 73.0 Philippines 86.336 54.00
Indonesia 2,320 12.0 China 34.843 22.00
Philippines 1,450 8.0 Taiwan 20.915 13.00
China 627 3.0 Hong Kong 10.901 7.00
Hong Kong 193 1.0
Thailand 182 1.0
Sources: OECD, United States International Trade Commission, International Development
Association of the Furniture Industry of Japan.
The “golden age” of furniture exports in the Philippines saw the Cebu furniture
industry lead all others in generating furniture export revenues for the country, with most
coming from rattan (Tables 3 and 4). The declining market for rattan furniture exports,
however, forced a switch to mixed media production, where wood, metal, stone, bamboo, and
plastic are also used. Table 5 is a detailed list of the raw materials used by Cebu furniture firms.
Table 3: Cebu Furniture Exports
Year Cebu
(in USD million)
Philippines
(in USD million)
Cebu Share
(in %)
Rattan Share in
Cebu Exports
(in %)
1985 61.6 83.7 73.6 78.3
1986 63.1 89.4 70.6 79.8
1987 84.1 130.4 64.5 78.5
1988 117.4 183.7 63.9 73.8
1989 119.5 203.7 58.7 73.6
1990 103.8 189.5 54.8 66.3
1991 101.9 177.2 57.5 63.4
1992 119.2 181.2 65.8 63.6
1993 92.6 203.2 45.6 56.3
1994 86.2 238.6 36.1 32.2
2002 211.0 316.0 66.8 11.5
Sources: DTI Region VII; Remedio, 1996 and Beerepoot, 2005.
Table 4: Value of Cebu Furniture Exports, 2003
Value
(in USD)
Percent
(%)
Wood 58,111,308 53.18
Rattan 27,165,518 24.86
Metal 16,415,086 15.02
Stone 3,703,010 3.39
Parts of Furniture 1,453,052 1.33
Other Materials 1,151,307 1.05
Bamboo 790,032 0.72
Plastic 334,485 0.31
Furnishings 137,746 0.13
Buri 12,566 0.01
Total 109,274,110 100.00
Source: National Statistics Office and Bureau of Export Trade Promotion
Table 5: Raw Materials Used by CFIF Members, 2004 Wood‐based Amount Stone‐basedAmount IndigenousAmount ManufacturedAmount
Wood 104 Stone 83 Indigenous Materials 7 Wrought Iron 97
Veneer 4 Romblon 2 Abaca Woven 17 Metal 20
Rattan 80 Ceramics 2 Natural Fibers 2 Cast Aluminum 6
Rattan veneer 1 Tiles 1 Cotton 1 Brass 4
Close Cane 1 Phil Alabaster 1 Anakao 1 Steel 1
Wicker 14 Recycled Glass 1 Lampakanai 3 Plastic 5
Bamboo 13 Fiberglass 17 Turnsole 1 Synthetic Wicker 1
Buri 6 Seagrass 3 Dexin 2
Coconut 4 Mother‐of‐Pearl 1 Prolen & Prolex 1
Cast Resin 6 Shells 2 Upholstery/Vinyl 2
Man Made Boards 5 Leather Inlaid 22
Medium Density Fiber 2 Accessories 18
Lamination 1
Total 241 107 38 161
Average 1.4 0.6 0.2 0.94
Source: Cebu Furniture Industry Foundation (CFIF) Website
1. Rattan.
Rattan is either locally sourced from neighboring islands or imported from Papua New Guinea
and Burma. Pabuayon, Rivera and Espanto (1998) mentioned that
“Rattan products generate more than US$200 million annually in 1994, with an
estimated 4 million dependent on the sector. Major rattan production areas
include Apayao (Conner and Kabuyao), Cagayan Valley (Baggao), Palawan
(Puerto Princesa), Bukidnon (San Fernando) and plantation sites in Bislig,
Surigao del Sur (Paper Industries Corporation of the Philippines) and Talacogon,
Agusan del Sur (Provident Tree Farms). The major demand areas are Pampanga
(San Fernando and Angeles City), Cebu (Cebu City and Mandaue City), and
Metro Manila, Laguna and Quezon”.
The rattan market participants include:
i) gatherers who are mostly tribal people and could be members or non‐
members of a gatherer’s association
ii) gatherers’ associations, composed of gatherers residing in particular
upland communities and organized for the purpose of obtaining a
rattan cutting permit or undertaking other activities
iii) plantation owners who initiated rattan planting on their own or
through government reforestation program
iv) raw material traders who may or may not hold permits
v) manufacturers who include producers of furniture and handicraft
items
vi) workers who include subcontractors and in‐house workers
vii) finished product traders who are engaged in trading at the domestic
or foreign market or both
viii) transporters who include truckers and shipper
“The study shows that the gatherers’ share of product value averaged only 5‐
21%, about 63.87% went to the manufacturers and the rest to the traders. The
shares refer to both profit and costs incurred. The higher added value of the
manufacturer refers to the associated costs of producing rattan furniture. The
added value of the trader includes the transport‐related cost. In general, the cost
component of marketing margin for the market participants exceeds the profit
component. For instance, traders realize about P46.17 net return per 100 lm of
rattan shipped or P30,232 per shipment. Forest charges, which are based on
misdeclared shipment (only about one‐third of actual value) comprise about 14%
of total costs, while bribes, which make underreporting possible, are about 8%.
The full charges, if paid, would amount to P64.63 per 100 lm. Without the bribes,
net return would still be positive at P36.58 per lm or P25,913 per average
shipment of 65,476 lm. Transport cost comprises 19% of total cost. If it can be
lowered, then higher profit rates are possible. Another illegal practice involves
multiple uses of transport documents which means that profits are higher since
no forest charges are paid (although bribes are still paid) in second or third
shipments.”
2. Wood
Lumber is available in the domestic market, with lauan and tanguile as the most
commonly used species. Plantation species like rubberwood and gemelina are used for
particleboards, while medium density fiberboard (MDF) is popular material for panels and
office furniture. Imported wood, mainly sourced from Malaysia, Brazil, New Zealand, and the
US, include Honduras and Brazilian mahogany, pine, oak, beech cherry, and maple. Veneer, a
thin slice of exotic wood or other materials, is applied over a thicker backing to make decorative
materials more durable.
3. Stone
The stonecraft industry, originating from the neighboring island of Negros Oriental,
crossed over to Cebu, which, in turn, used it for decorative furniture. Stone‐based tabletops are
made with wooden carcasses and laminated with pieces of fossilized stones colored white,
beige, gray, coral, green and black. Cebuano firms, using fossilized stone as a raw material for
their furniture exports generally cater to the Middle East market. Nonetheless some Cebuano
furniture firms cite health hazards and the relatively high cost of stone cutting as the primary
reasons for their decision not to make stone‐based tabletops. Cebu is exporting fossilized stones
as raw materials to China’s furniture industry.
4. Mixed Media
Mixed‐media furniture combine conventional materials like rattan, wicker, buri, wood,
metal, stone craft, bamboo, and plastic with tems such as grasses, shells, coconut lumber and
leather. For instance, “lava stone” designs consist of recycled waste materials laid, crushed,
compressed, and mixed with chemicals to result in stone‐like products. Other products include
mixed‐media sofas with metal skeletons wrapped in rattan splits; cabinets featuring bamboo
twigs encased in oak wood frames; furniture finished with signature veneers from bamboo,
sugarcane and coconut; and laminated tabletops from banana tree barks, corn husks, spliced
coconut roots and even termite‐eaten wood (Seno, 2004).
Mixed media metal furniture, on the other hand, combines wrought iron with wicker,
wood, seagrass, and other indigenous materials. Examples are Prelen and Prolex, patented
synthetic materials simulating rattan, bamboo, abaca, rusted metal, bark, wood, willow, wicker,
hickory, and wrought iron. It is resistant to chemicals, weather, humidity, and water. Plastic
furniture is largely designed for outdoor use.
B. Inter‐firm Cooperation
The Cebu furniture cluster fosters horizontal integration through close inter‐firm
cooperation. This is an alternative way of organizing the value chain:
“The proximity of companies and institutions in one location, and the repeated
exchanges among them, fosters better coordination and trust. Thus clusters
mitigate the problems inherent in arm’s‐length relationships without imposing
the inflexibilities of vertical integration or the management challenges of creating
and maintaining formal linkages such as networks, alliances, and partnerships.
A cluster of independent and informally linked companies and institutions
represents a robust organizational form that offers advantages in efficiency,
effectiveness and flexibility” (Porter, 1998).
Table 6 lists Cebu exports that share complementary inputs with the furniture industry,
representing 36% of total Cebu exports. Furniture exports, for example, share similar
intermediate inputs with house wares and gifts, toys, and handicrafts (GTH). This is due to the
use of mixed media in these industries. Aside from the use of common raw materials,
complementarities occur in the industries’ sharing of designs, skilled workers, machinery and
equipment, and quality control standards, among others. This allows visiting buyers to see
many vendors of different export products in a single trip (e.g. attending the CebuX).
Table 6: Cebu Export Products Using Complementary Inputs, 2003
(Value in US$ 1,000)
House wares Value
Basketwork 7,156
Wickerwork
Shell craft 467
Woodcraft 229
Ceramics/Stoneware 1
Textile articles 38
Flower articles 28
Metal ware 1
Glass articles 30
Other articles 2,518
Sub‐Total 10,468
(2%)
Consumer Products Value
Fashion Accessories 9,914
Garments 53,970
Holiday Décor 1,051
Toys 45
Giftware 8,131
Woodwork 3,461
Consumer Products 5,126
Sub‐Total 81,898
(16%)
Food and Resource Products Value
Marine Products 18,855
Mineral 1,028
Coconut 2,939
Forest Products 300
Seaweeds 37,246
Marble 144
Cut flower 6
Twine 8,518
Non‐metallic mineral 7,904
Natural Fibers 24
Other Resource 4,358
Sub‐Total 79,964
(15%)
Table 6: Cebu Export Products Using Complementary Inputs, 2003
(Value in US$ 1,000)
Industrial Manufactures Value
Metal 540
Construction 7,755
Chemicals 7,314
Packaging 303
Others 3,241
Sub‐Total 19,153
(4%)
Exports of Complementary Inputs 188,483
(36%)
Cebu Exports 521,791
Sources: National Statistics Office (NSO) and Bureau of Export Trade Promotion (BETP)
To illustrate the horizontal integration or interdependence of different industries in the
Cebu cluster, a comparison between the furniture and fashion accessories is made in terms of
raw material usage, machinery and equipment use, and design sources. As per Table 5, the top
raw materials used in furniture are wood (65%), wrought iron (60%), stone (52%), rattan (50%),
leather in‐laid (14%), metal (12%), accessories (11%), abaca (11%), fiberglass (11%) and wicker
(9%). To some extent, this overlaps with those most used in making fashion accessories: shells
(84%), wood (68%), coco shell (56%), resin (52%), metals (28%), bamboo (20%), chains (16%),
glass beads (16%), glass (12%), and semi‐precious stones (12%).
An interview with a designer revealed that the excess shavings of furniture raw
materials are sometimes used in the manufacture of fashion accessories, and that materials such
as stone inlay, first introduced for small items like gifts and toys, are now used in the furniture
industry (Interview 1). “We closely watch the Gifts, Toys and Hardware sector for new product
ideas. In that sector, the trends go much faster. They have to be more innovative and come up
with new ideas more often. We also often visit local and regional trade fairs that are organized
by DTI. In the countryside, people are more innovative in experimenting with indigenous
materials. Our design team often goes to the provinces for new ideas. An example is my desk
from laminated coconut‐shells. At first, laminated coconut shells were only used for picture‐
frames. We introduced the material for furniture production and made an entire desk from it”
(Beerepot, 2005; Interview 1)
Based on key informant interviews, inter‐firm cooperation takes the form of
subcontracting, ending of materials, sharing of buyers, consolidation of small shipments and the
“bandwagon effect”. One company interviewed, Company A, however, claims that “full
cooperation is not possible because furniture is a jealous and secretive industry” (Interview 2).
To avoid being drawn to discussions on pricing and raw material sources, this company shies
away from CFIF‐sponsored social gatherings; then again, it lends materials to other furniture
firms and offers the use of their slow‐moving materials to small, start‐up furniture firms.
In the case of another company, Company B, subcontracting is limited to some veneer
and wood products—and only to Company B’s Multipurpose Cooperative whose members are
former employees retrenched more than 10 years ago when the high‐cost of rattan forced the
company to discontinue this product line. Company B encouraged the retrenched employees to
organize a cooperative, and provided space for a working area. Today, the cooperative has its
own building, has assets of up to Php8 million (some in T‐bills), and supplies the company with
rattan poles and other materials, aside from labor contracting. The president of Company B
claims to be sharing materials and information with competitors – “A company cannot do
everything”. From his 20 years of experience in operating six furniture plants, he shares with
other industry players’ information and lessons on the different standards for rattan, wood, etc.
(Interview 3).
Table 7: Raw Materials Used in Cebu Fashion Accessories: 2005 Imported
Local Direct Local Traders
Total Materials
No. Percent No. Percent No. Percent No. Percent
Shells 21 84.00 21 84.00
Wood 16 64.00 1 4.00 17 68.00
Coco shell 14 56.00 14 56.00
Resin 11 44.00 2 8.00 13 52.00
Metals 4 16.00 2 8.00 1 4.00 7 28.00
Bamboo 5 20.00 5 20.00
Chains 1 4.00 2 8.00 1 4.00 4 16.00
Glass Beads 2 8.00 2 8.00 4 16.00
Glass 2 8.00 1 4.00 3 12.00
Semi‐precious stones 1 4.00 2 8.00 3 12.00
Beads 1 4.00 1 4.00 2 8.00
Leather 1 4.00 1 4.00 0.00 2 8.00
Plastics 1 4.00 1 4.00 2 8.00
Raffia 2 8.00 2 8.00
Acrylics 1 4.00 1 4.00
Adhesives 1 4.00 1 4.00
Bones 1 4.00 1 4.00
Carabao bone 1 4.00 1 4.00
Chemicals 1 4.00 1 4.00
Chords 1 4.00 1 4.00
Crystals 1 4.00 1 4.00
Elastic Garters 1 4.00 1 4.00
Fiber 1 4.00 1 4.00
Horns 1 4.00 1 4.00
Metal casting 1 4.00 1 4.00
Paint 1 4.00 1 4.00
Pearls 1 4.00 1 4.00
Sandpapers and abrasives 1 4.00 1 4.00
Silver 1 4.00 1 4.00
Sinamay 1 4.00 1 4.00
Table 7: Raw Materials Used in Cebu Fashion Accessories: 2005 (continued) Imported
Materials Local Direct Local Traders
Total
Stones 1 4.00 1 4.00
Synthetic beads 1 4.00 1 4.00
Wax Chords 1 4.00 1 4.00
Wires 1 4.00 1 4.00
Wood beads 1 4.00 1 4.00
Source: Interview with 25 Manufacturers of Fashion Accessories, January 2005
Company C, serving solely Global Buyer 1, subcontracts to individuals and families to
cut down costs, with skills and disciplines handed down to subcontracting parties as part of
their cultural heritage (Interview 4). Company D, for its part, claims that depending on the
closeness of personal relationships, firms share buyers subject to some limitations (Interview 5).
Company E advances money to subcontractors and agrees to consolidate small shipments with
its competitors (Interview 6). Company F’s owner, interestingly, set up a furniture export
business in 1983 in hopes that he will be as affluent as other Cebuano exporters were (Interview
7).
C. Role of Skilled Workers in Knowledge Diffusion
This section draws heavily from the work of Beerepot (2005), which emphasized the role
of skilled workers in knowledge diffusion. Competent entrepreneurs and an adaptable, well‐
trained labor are keys to innovation and product upgrading (Scase, 2000).
Collective learning is a source of competitiveness for regional clusters, especially
because of the shared knowledge base of entrepreneurs and workers engaged in the local
production system that initiate innovations and upgrades (International Labour Organisation,
2002). The knowledge and know‐how of skilled workers are intangible assets that enhance the
international competitiveness of regions. On that note, since an important aspect of collective
learning is the development of trust among the industry’s stakeholders, it is necessary to
identify how inter‐personal and inter‐firm relations enable the diffusion of knowledge within
the Cebu furniture cluster.
1. Labor Market Segmentation
Table 8 demonstrates the highly segmented nature of the labor market, with the co‐
existence of highly educated and learning‐by‐doing workers. This labor market structure is due
to how production is organized. Beerepot (2005) further distinguishes between “knowledge
protectors” and “knowledge transmitters.” Knowledge protectors (entrepreneurs, production
managers, designers) treat their knowledge in specialized production and design skills as a
scarce good, and do not share their contacts (international buyers, sub‐contractors, or
production source) with their peers in the industry. Knowledge transmitters are workers with
limited formal education who learn their skills primarily on‐the‐job. They are highly skilled in
weaving and intricate woodcarving, for instance. Knowledge transmission occurs when these
skilled workers hire apprentices or assistants to increase production. The practice of piece‐rate
payment of skilled workers encourages the craftsmen to bring in a young helper. This
arrangement, of course, has its disadvantages:
“Entrepreneurs and production supervisors have limited willingness to invest in
workers’ skills, training and technological capacities. The fear that other
companies will pirate production workers, or that workers will start companies
for themselves, often prevents investment in training. The little attention to
training and skills development is a general trend in developing country clusters,
as price‐based competition is still predominant here. Several entrepreneurs in
Cebu ask lead‐men in their company to start for themselves and work
exclusively as subcontractors for their current employer. The advantage for the
entrepreneur is increased informal production environment. The second
advantage is that the loyalty of the subcontractor, based to a large extent on
dependency, prevents the leaking of knowledge or the stealing of ideas.
Through this process, the company can outsource production activity, but still
retain control of key knowledge. The subcontractor is, in this context, so much
weaker and dependent that it can be questioned to what extent he can serve as a
source of knowledge or feedback for exporters.”
Table 8: Labor Market Segmentation in the Cebu Furniture Industry in Cebu
Category
Special skilled,
secure entrepreneurs
and workers
Skilled secure
workers
Skilled secure/non‐
secure workers
Semi‐skilled non‐
secure workers
Position Entrepreneurs,
production managers,
designers, draftsmen
Supervisors, lead‐men
in big companies
Lead‐men, sample‐
makers, skilled
workers
(semi) skilled work
for subcontractors,
apprentices
Education College degree College degree or
vocational
High school graduate,
(some) college
Elementary graduate,
(some) high school
Occupational status Regular employees Regular employee Regular and
contractual
On‐call, job‐outer,
piece‐rate workers
Source of knowledge Formal training, then
experience
Experience then
formal training
On the job, experience On the job
Additional training Yes (some) Yes (some) No No
Job security Medium Medium Medium/low Low
Payment >150% of minimum
wage
Up to 150% of
minimum wage
Minimum wage Below minimum
wage
Local labor mobility Medium Medium High Very high
Knowledge transmitter No Little Yes No (receiver)
Knowledge protector Yes Yes No No
Source: Beerepoot (2005)
“Entrepreneurs admit that they have little control over this process of transfer of
skills among workers. The availability of a large surplus of skilled production
workers in the local labor market is generally encouraged through their easy
willingness to share knowledge and teach others their skills. Most of the surveyed
production workers indicated that they learned their skills primarily from other
workers, their lead‐men or relatives. For lower hierarchy workers, apprentices or
helpers are not seen as a threat to their own position on the labor market. The
prospect that, eventually, these helpers will look for a skilled position has not made
them more hesitant to share their knowledge. A high labor mobility of these
workers within the local industry can bring benefits to the entire industry, as
production knowledge becomes more widely accessible. Skilled workers might not
always have a secure position within the particular company where they work, but
they feel their knowledge and skills give them the opportunity to easily find
employment elsewhere in the local industry. It can be questioned if a high labor
turnover can distort the built‐up of distinctive skills in individual companies within
the Cebu cluster. Undifferentiated basic production knowledge and techniques are
widely available within this cluster, but the complementary knowledge and skills
necessary to strengthen the industrial base are limited.”
“When workers and subcontractors are employed under circumstances of limited
security of tenure, as are most workers in category three and four, they are more
willing to share knowledge and undertake common efforts. In these groups, the
cooperative spirit exists that ‘poor people should help each other.’ This can be by
training a young relative in a specific craft or when subcontractors help each other
to reach a deadline for delivery, or share orders during the low season. Interviewed
subcontractors claimed that discussions with other subcontractors were one of their
key sources of market information. These contacts are important, as they have
difficult access to formal providers of information or knowledge from outside the
cluster. For subcontractors, the necessity to protect their specific knowledge has not
much importance. The scope for localized learning and interventions to stimulate
learning might, therefore, have most success at lower levels in the production
hierarchy. At this level, production knowledge and skills are already transmitted
easily. When companies expand, or people enjoy relative security in the local labor
market, the willingness to associate or undertake collective activity that should
encourage knowledge accumulation diminished” (Beerrepot, 2005; 78‐91).
Beerepot (2005) demonstrated that knowledge transmission in the furniture industry is
constrained by the local mode of production, characterized by the increased outsourcing of
work to the informal sector and the prevalence of piece‐rate payment schemes for workers.
Local value chain relations and outsourcing strategies are based on the dominance of exporters,
mainly to protect their own position in the value chain. Because of this, investments in skills
and capacities necessary for product upgrading are low. Hence, the majority of the workers
acquire their skills through informal mechanisms, and only a few undergo formal training to
augment their knowledge and skills. This production setup hinders the development of a
regional culture of trust and collaboration, which is a necessary condition for a localized
learning process.
2. Matching of Processes and Skills
The 2003 CFIF Study undertook a documentation of thirteen processes in furniture
making, the quality controls done for each process, and the modes of skill acquisition. The
results are reported in Table 9. (However, to date, there is no available skill certification or any
standard against which to measure the current levels of manpower skills in the industry.) The
findings show that skills on raw material preparation; assembly and carpentry; carving,
sanding, finishing, and polishing; rough milling and machining; fiberglass casting; upholstery;
leather inlay; and stone inlay and packaging are largely self‐learned, obtained from work
experiences, or acquired from co‐workers. On the other hand, formal training is required for
rough milling and machining, metal works, product engineering, and design and maintenance.
(College graduates do the latter tasks.)
Company A, which invested in machinery to cope with big orders, employs about 700
workers. To minimize returned sales, quality inspection is done before shipment, in the testing
laboratories of foreign buyers. The company policy is not to hire ex‐employees who left to work
for an Indonesian or Chinese firm. Company B, meanwhile, complements its huge investment
in machineries with 2,000 workers. To control product quality, it avoids subcontracting, except
to a cooperative run by retrenched employees. It also hires professional managers, has its own
testing facilities, engages in product development, and allows overseas buyers to bring in
technicians to train workers (particularly in woodworking). Company C started as a small firm,
with just seven workers who now have been with the firm for more than three decades.
Company C’s workers perform multiple functions on a rotation basis and they learn by doing.
Loyalty is rewarded by non‐retrenchment during times of recession, and credits its Japanese
buyers for influencing them to continuously monitor product quality. Company D employs
home‐based subcontractors; company F initially hired unskilled and unschooled workers until
they dragged down the firm’s productivity.
Subcontracting or local outsourcing involves the production of all or parts of a final
product specified and marketed by an export firm outside the premises of the export firm.
Subcontractors employ family labor or a few hired workers or apprentices while operating on
very little capital, utilizing a low level of technology and skills, and providing low and irregular
incomes (International Labour Organisation, 2002). Exporters adopt local outsourcing to reduce
cost, spread risks and avoid labor disputes, and have been used by the furniture industry to
adopt restrictive labor laws. When subcontractors are unschooled and lack managerial
competencies, difficulties can arise, so according to one company, reducing the communication
gap between labor and management immensely improves quality and productivity.
During the mid‐1980s, a substantial number of furniture factories closed shop because of
labor unions which went on strike. This scenario is no longer present mainly because the labor
market is quite tight, and in cases when workers of furniture firms are affiliated with labor
unions, employers maintain harmonious labor relations. Company D says “it is a give and take
proposition.”
Table 9: Matching of Processes and Skills in the Cebu Furniture Industry, 2002 Process Description Skills Inventory
Raw Material
Preparation
Plywood and solid wood are commonly used
materials, which are bought kiln dried. The
five most common wood working equipment
are: table saw, band saw, cut‐off arm saw and
circular saw. Quality control is done by
comparing the material quality against a set
standard or by its moisture content.
A few attended training courses, mostly on
developing supervision skills. Skills were
obtained from work experiences.
Rough Milling/
Machining
Most respondents processed solid wood,
medium density fiberboard and plywood. The
five most common wood working equipment
are: surface planer jointer, thickness planer,
table saw, band saw and shape molder.
Quality control is done by comparing
measurements/dimensions against wood
quality and specifications based on the cutting
list.
Most respondents attended training on
woodworking, furniture & cabinet making
and jigs & fixtures making. Skills were
obtained from work experiences.
Assembly/
Carpentry
The five most common furniture assembly
gadgets are: jigs, clamps, assembly machine,
cabinet press and rubber bands. Quality
control is done by comparing the work against
job or customer specifications, full‐size
checklists, patterns or blueprints.
Attended training on furniture assembly.
Acquired skills from previous job, supervisor,
co‐worker, relative, self‐learned and school.
Carving Quality control is done by comparing the full‐
size detailed carving against the sample
picture.
Carving skills were mostly self‐learned or
acquired from previous job.
Sanding, Finishing
and Polishing
Most SMEs dry their finished products in open
areas or under the sun. Quality control is
done by adhesive test and visual inspection,
comparing the color with the color swatches
and inspecting for crackles, pinholes, bubbles
or other marks.
Finishing skills were mostly self‐learned.
Some respondents were taught by supervisor,
co‐worker and finishing consultant.
Fiberglass and
Casting
Quality control is done by comparing the
product with job specifications.
Skills were self‐learned, acquired from
previous job, supervisor or training on
fiberglass making.
Upholstery Quality of sewing, fitting, uniformity of foam
thickness and color is checked.
Attended training on upholstery; self‐learned;
acquired from co‐worker or previous job.
Leather Inlay Leather inlays are tested for bubbles, edges
and grains.
Learning‐by‐doing; taught by supervisor, co‐
worker and previous job.
Stone Inlay Hairlines, stone grains, stone color and
adhesion to carcass are checked. The hammer
test is used to test the stone inlay.
Skills acquired from co‐worker, previous job,
supervisor, relatives and self.
Metal Works Quality control is done by comparing with the
job specification or performing the drop test or
heavy load test.
Obtained vocational course on Mechanical
Technology; previous job as iron fabricator.
Table 9: Matching of Processes and Skills in the Cebu Furniture Industry, 2002 (continued) Process Description Skills Inventory
Packing and Crating Quality control is done by comparing with
buyer’s standards or specifications, drop test
and adhesion test.
Learning‐by‐doing; taught by supervisor, co‐
employee and training on packing standards.
Product Engineering
and Development
Quality control is done by following a manual
or procedure in correcting quality defects and
product inspection (random sampling, batch,
process, lots per batch).
College degree (Architecture, Fine Arts,
Mechanical and Industrial Engineering);
Trainings
Maintenance Manual for preventive maintenance is
followed. Repair records are kept.
Maintenance training
Source: Industry Analysis, Cebu Furniture Industries Foundation, Inc.
C. Entrepreneurial Competence
There is an important distinction to be made between proprietorship and
entrepreneurship. The entrepreneur is driven by the need to accumulate capital, so his decision
is based on business factors; the proprietor is driven by the need to earn income. Since the
latter’s economic surplus is likely to be used to sustain a specific standard of living rather than
be re‐invested in business, there is little capital accumulation (Scase, 2000). Recently,
organizations such as ILO, UNIDO, and GTZ have emphasized strengthening entrepreneurial
competence. In buyer‐driven value chains, producers are expected to receive technical training
and information on products and designs through network relations with foreign buyers.
Beerepot (2005) considers entrepreneurs the most privileged group in the cluster in
terms of access to knowledge. An entrepreneur absorbs knowledge through four channels: (i)
observing similar products, (ii) negative action, (iii) value chain, and (iv) joint action. Observing
similar products of other firms is a cheap means to absorb knowledge, although the scope for
knowledge absorption is quite small. For instance, when entrepreneurs attend trade shows,
they can observe fashion developed by competitors and may copy the designs if they wish.
Negative action results from free‐riding behavior of rival firms, such as poaching of workers
and designs. Though the financial costs of negative action might be small, the social costs of
these actions might be high (ostracism). Global buyers encourage local producers to create a
market brand for their designs, to invest in new machineries, and to comply with quality
standards of foreign buyers. Joint action refers to the sharing of information through both
formal and informal mechanism, motivated by a relationship of trust.
D. Profitability of Furniture Firms
The profitability of furniture firms can be gleaned from the data on the Top 5,000/7,000
Corporations and the 2003 CFIF Survey (Table 10). The Top 5,000 Corporations (2002) include
29 Cebu furniture exporters and 5 Luzon furniture exporters, collectively contributing sales of
P2.123 billion. Cebu‐based firms contribute 67% of total sales and account for 53% of the total
assets of the Top 5,000 Furniture corporations. They represent 86% of total equity and generate
94% of the profits of furniture firms. In fact, the profit margin for Cebu firms (4.52%) is 7.45
times more than Luzon firms (0.61%). The difficulties of Luzon furniture firms stem mainly
from liabilities, which make up 91% of their total assets. They are, unsurprisingly, highly
leveraged, with a debt‐to‐equity ratio of 1043%. In simple terms, the implication is that if these
firms would close today and the assets were sold, the owners would only receive 9% of total
assets.
Table 10: Selected Financial Indicators for Top 5,000/7,000 Furniture Corporations, 2001‐2002
2002 2001 Indicator
Cebu Luzon Cebu Share Cebu Luzon Cebu Share
F/S Data (in P1,000)
Total Assets (TA) 2,324,176 2,065,104 53% 3,562,497 2,075,416 63%
Fixed Assets (FA) 1,407,623 410,385 77%
Liabilities 1,262,493 1,884,460 40% 2,485,029 1,843,268 57%
Equity 1,071,413 180,644 86% 1,077,467 228,550 83%
Sales 4,235,958 2,123,340 67% 6,973,719 2,041,594 77%
Profit 191,636 12,896 94% 273,906 18,514 94%
Financial Ratios (in %)
Profit Margin 4.52% 0.61% 7.45 3.93% 0.91% 4.33
Asset Turnover 182% 103% 1.77 196% 98% 1.99
Return on Asset 8.25% 0.62% 13.20 7.69% 0.89% 8.62
Return on Fixed Assets 19% 5% 4.31
Debt to Equity 118% 1,043% 0.11 231% 807% 0.29
% of FA to TA 40% 20% 2.00
% of Liabilities to TA 54% 91% 0.60 70% 89% 0.79
% of Equity to TA 46% 9% 5.27 30% 11% 2.75
Source: Top 5000 Corporations (2002) and Top 7000 Corporations (2001)
The Top 7,000 Corporations (2001) include 43 Cebu and 13 Luzon furniture exporters,
contributing total sales of P5.638 billion. Cebu‐based firms contribute 77% of total sales and
account for 63% of the total assets of those Top 7,000 furniture corporations. They claim 77% of
total fixed assets, represent 83% of total equity, and generate 94% of the profits of furniture
firms. Even in 2001, Luzon firms were highly leveraged, and reported a lower percentage of
fixed assets compared to Cebu firms. Their return on fixed assets is a lowly 4.51%, as against
19.46% for Cebu firms.
The 2003 CFIF Survey disaggregates profit and cost structures by asset size (Table 11).
The industry is dominated by large firms, which capture 41% of total sales. Medium, small, and
micro‐enterprises account for 36%, 21%, and 2% of total sales, respectively. Profit rates of
micro‐enterprises are the highest at 9%, while those of large firms are less than 1%. In absolute
terms, large firms registered the highest average profits at P5 million, while micro‐enterprises
had the lowest average profit at P1.256 million. Raw materials claim a lion’s share (74% of
revenues) in micro firms, while the combined labor and subcontracted labor represent the bulk
of expenditures of large firms (45% of revenues). Large firms had the lowest share of fixed
assets to revenues at 20%, while small firms showed the highest build‐up of fixed assets to
revenues at 406%.
The data indicate that firms have a tendency to continue investing in fixed assets until
becoming classified as a “large” company, upon which its rate of investment (relative to sales)
becomes lower than microenterprises. This suggests that furniture manufacturers are acting
more as proprietors rather than as entrepreneurs.
Table 11: Profit and Cost Structure of Selected Furniture Firms, by Asset Size, 2002
(in PhP million, % in parentheses)
Variable Micro Small Medium Large Total
No. of Firms 2 11 5 1 19
Gross Sales 28.45 270.09 457.68 530.00 1,286.22
Percent (2.21) (21.00) (35.58) (41.21) (100.00)
Gross Cost 25.80 249.92 443.11 522.00 1,240.82
Taxes 0.156 5.81 4.431 3.00 13.39
After‐Tax Income 2.51 14.36 10.14 5.00 32.02
Profit Rate (in %) (8.83) (5.32) (2.22) (0.94) (2.49)
Gross Cost 25.80 249.92 443.11 522.000 1,240.815
Labor 3.80 66.50 75.500 159.00 304.80
% Labor (13.36) (24.62) (16.50) (30.00) (23.70)
Subcontracted Labor 1.83 40.58 70.24 79.50 192.15
% Subcontracted Labor (6.42) (15.03) (15.35) (15.00) (14.94)
Raw Material 19.01 115.10 185.31 201.40 521.71
% Raw Material (66.84) (42.95) (40.49) (38.00) (40.56)
Others 1.15 26.85 112.06 82.10 222.15
% Others (4.04) (9.94) (24.48) (15.49) (17.27)
Fixed Capital 8.18 1,096.01 277.88 104.9 1,486.972
% to Revenues (28.77) (405.80) (60.71) (19.79) (115.61)
Average Fixed Capital 4.09 99.64 55.58 104.90 78.26
Source: Industry Analysis, CFIF, 2003
What could account for the better performance of Cebu furniture firms vis‐à‐vis their
Luzon counterparts? One possible reason would be the dominance of family firms in Cebu. In
many developing countries, family businesses play an important role in the national economy.
In response to globalization, family businesses had to obtain management resources such as
financial, human, and technological resources from outside their families (Shimizu, 2004).
E. Family Ownership of Furniture Firms
How strong are family businesses in the Cebu Furniture Cluster? A tentative answer
can be gleaned from the membership information obtained from the CFIF website (Table 12). It
seems that some families either own more than one furniture firm. Specifically, 32% of the CFIF
member firms are co‐owned by families. Some 68% of CFIF firms list contact persons who are
non‐family members tasked to attend CFIF and represent the firm in CFIF functions.
Table 12: Contact Persons for CFIF Activities
Contact Persons Number of
Persons Percentage
Family 55 32%
Same Representative in CFIF Firms 12 7%
Family Member Representative in CFIF Firms 43 25%
Independent Representative 116 68%
Total 171 100%
Source: Cebu Furniture Industry Foundation (CFIF) Website
The designation of firm representatives in CFIF activities is shown in Table 13. From the
information, it can be inferred that functions such as overall management, production and sales
management, finance and designing are reserved for family members. This practice might
explain the protectionist behavior among key persons in the industry referred to by Beerepot
(2005). This, in turn, hinders the development of a regional culture of trust and collaboration,
which is a necessary precondition for localized learning processes. Another consequence of
protectionist tendencies is low investment in skills and capacity upgrading. (On the other hand,
family enterprises can make important strategic decisions faster than usual.)
Table 13: CFIF Representatives, by Position and Gender
Position Male Female Total
Male
(in %)
Female
(in %)
President 75 8 83 90 10
CEO 6 1 7 86 14
Vice President/COO/OIC 7 7 14 50 50
Managing Director/General Manager 28 10 38 74 26
VP Finance/Finance Officer 2 5 7 29 71
Operations/Production Manager 2 3 5 40 60
VP Marketing/Marketing Manager 3 12 15 20 80
Designer 2 0 2 100 0
Total 125 46 171 73 27
Source: Cebu Furniture Industry Foundation (CFIF) Website
All of the key informants run family‐owned furniture firms. For Company A, key
positions are held by family members who have some foreign heritage; policy directions are set
by family members, though employees who help run the company are treated as parts of the
family. This company recently ventured into Vietnam while retaining Philippine operations.
Company B, during its early years, was run by a husband and wife management team. At
present, plant managers are non‐family members who participate in a profit‐sharing scheme.
Interestingly, Company B is open to transferring operations to other countries. Company C is
managed by the mother and assisted by two sons (handling marketing and accounting) and a
brother (in charge of planning, logistics, systems and control). Company D, like A, limits key
positions to family members. The highest position that an employee can reach is plant
manager. Company E’s team is composed of the husband as the president, the wife as vice
president, the son as finance business manager, and the daughter as the corporate secretary.
The husband is in‐charge of marketing and production, while the wife oversees the finance.
Company F has a husband‐wife tandem with the husband handling sales and the wife
designing their products.
F. Gender and Income
It is worth noting that while overall management and product design in CFIF firms are
male‐dominated, finance, production, and sales work are largely handled by females. A more
comprehensive picture of the distribution of furniture workers in Cebu is given by the 2000
Census of Population is used (Table 14). Since the Census did not identify the workers engage
specifically in the furniture industry, the following occupation codes were used as proxy
indicators: code 714 (painters and related trade workers), code 721 (metal molders, welders,
sheet metal workers), code 733 (handicraft workers in wood, textile, leather) and code 742
(wood treaters, cabinet makers and related trade).
The census data on the 10% sample of Cebu households show that furniture workers
comprise 14% (47,050) of the province’s total population. Stratification reveals that Mandaue
ranks first in terms of estimated number of furniture workers (9,790), followed closely by Cebu
(9,710), and Lapulapu a distant third (4,850). Contrary to perceptions of key informants,
furniture workers are predominantly male (81%). Regardless of gender, the median age of
furniture workers was 32, while the median educational attainment was Second Year High
School. The census data likewise show that child labor (below 15 years old) is a production
input, and conversely, that there are aged between 90 to 99 still involved in furniture work.
The 2003 DTI Furniture Industry Profile also states that only 43% of the sample were
women. Only medium‐sized firms hired more female workers, largely due to the presence of
semi‐skilled female workers. Large firms reported having more male employees.
Table 14: Number of Furniture Workers, by Age and Education, 2000 Age of Workers (in years)
Location No. of Workers Median Range
Education
Male Female % Female Male Female Male Female Male Female
Cebu 3,806 899 19% 32 32 10‐99 11‐87 HS II HS II
Mandaue 716 148 17% 32 33 11‐74 12‐72 HS II HS II
Cebu City 823 148 15% 33 33 10‐90 15‐67 HS III HS III
Lapu‐Lapu City 422 63 13% 32 30 15‐80 17‐56 HS II HS II
Others 1845 425 19% 32 32 12‐99 11‐87 HS I HS I
Source: 2000 Census of Population
With regard to monthly income, the information shows that wage rates among males and
females by work category do not have much variation (Table 15). For instance, the median
monthly incomes for both male and female managers are over P10,000. The median monthly
income for males is higher than females, however, for supervisory, specialist, and semi‐skilled
labor posts. On the other hand, females earn a higher median monthly income for multi‐skilled,
skilled, and unskilled labor. On the whole, male workers earn slightly more than female
workers (1.34%); the rate of variation between male and female workers ranged from a low of ‐
4.29% for unskilled workers to a high of 2.82% for semi‐skilled workers.
Table 15: Employment Size and Monthly Income by Position, 2003
Employment Size/
Monthly Income Managerial Supervisory
Specialist/
Support
Staff
Multi‐
skilled
Labor
Skilled
Labor
Semi‐
skilled
labor
Unskilled Total
Employment Size
Micro: 9 or Less 47 36 29 17 10 21 21 181
Percent Female 38% 44% 48% 47% 50% 62% 52% 47%
Small: 10 to 99 8 17 10 25 32 27 11 130
Percent Female 50% 35% 30% 36% 38% 37% 36% 37%
Medium: 100 to 199 2 3 5 8 2 20
Percent Female 50% 67% 60% 63% 50% 60%
Large: 200 and Above 3 7 2 1 13
Percent Female 33% 29% 0% 0% 23%
Total of percent sample 55 53 41 48 54 58 35 344
Percent Female 40% 42% 44% 42% 41% 48% 46% 43%
Median Income (in P)
Males > 10,000 7,333.83 5,653.36 5,176.97 4,750.51 4,333.83 2,375.09 5,455.05
Females > 10,000 7,176.97 5,538.96 5,385.12 4,788.21 4,214.79 2,481.65 5,382.85
% Difference 2.19% 1.74% (3.86%) (0.79%) 2.82% (4.29%) 1.34%
Source: 2003 DTI Furniture Industry Profile
G. Local Support Organizations and Strategic Alliances
Local economic development is enhanced with the establishment of partnerships between local
governments and community and civic groups in managing existing resources, creating jobs,
and stimulating economic activity (Helmsing, 2003). In Europe, cluster development proceeded
in two stages: spontaneous growth, then institutionally enhanced growth (Gereffi, 1999). It is
in the second phase of cluster development that local support institutions—business
associations, local government units, national line agencies, education and training institutions
and foreign funding agencies—play a vital role.
Figure 3 depicts the sources of knowledge and its transmission. Business associations,
local governments, and education and training institutions are the main learning facilitators and
knowledge sources in the furniture industry. Foreign buyers, the business community, and
external sources (exhibits, the Internet, magazines, foreign donor organizations, etc.) are
contributors of knowledge in the furniture industry. The entrepreneur then transmits
knowledge to subcontractors, rank and file employees, and skilled workers.
Figure 3: Learning Stakeholders at Cluster Level
1. Cebu Furniture Industry Foundation and Strategic Alliances
With daily operations hindering firms from conducting joint projects and initiatives, the
business association is responsible for cooperative activities that would otherwise not be
undertaken by individual firms. In the Cebu furniture industry’s case, before the CFIF, there
was the Chamber of Furniture Industry Philippines‐Cebu established in 1974 to respond to the
threat of declining rattan supply. The organization was successful in lobbying for an export ban
on rattan. In 2002, CFIP‐Cebu disassociated itself with CFIP‐Manila to form CFIF due to
concerns about the Cebu furniture industry’s declining US market share, the expansion of
China and Vietnam, and an increasingly negative outlook for the industry as a whole.
The following year, the CFIF held a Buyers’ Forum to consult with exporters, buyers,
suppliers, subcontractors, other‐industry exporters, and government. In 2004, CFIF celebrated
its 30th year, growing from an eight‐member to a 172‐member business association (now
Learning Facilitators and Knowledge Sources
Local gov’t
units
Business
associations
Education and
training institutions
Entrepreneurs ‐ International outlook
‐ Production organization
‐Market trends
Subcontractors
*Materials
*Production
knowledge
*Reputation
of exporters
Rank‐and‐file
workers
*Production
skills
*Critical
enabling skills
*Labor market
Skilled key workers
*Specific job‐skills
*Organizational
skills
*Access to networks
of workers and
LABOR FORCE
Source: Beerepot (2005)
including subcontractors). CFIF members are given the opportunity to join trade and study
missions to international furniture shows in North America, Europe, the Middle East, and Asia.
CFIF organized the participation of Cebu exporters in international trade shows in Cologne
(Germany), Milan (Italy), Tokyo (Japan), Dubai (United Arab Emirates), and Shanghai (China).
From July 2003 to June 2004, CFIF sponsored a total of 25 training programs involving
430 training hours attended by 494 participants, or an average of 20 participants per training
program (Table 16). Out of the 25 training programs, 20 were short‐term seminars while 5 were
long‐term training programs.
Table 16: List of CFIF Training Program, July 2003‐June 2004
Short Term Seminars Long Term Training Programs
Management of Change Supervisors Production Capability for
Customer Service Enhancement Program Furniture Manufacturing Operations
Quality and Cost Effective Furniture Finishing Seminar
Reinforced Plastics Furniture Manufacturing: Working
with Fiberglass
Furniture and Cabinet Making (FCM)
Technology
Total Quality Management (TQM)
Environmental Management Systems Supervisory Development Program for Furniture
Strategic Compensation Manufacturing Operations
Jigs and Fixtures Technology
Focus on Leather Marketing Management
Decorative Process of Gold Leafing (Gilding)
Marketing Through Printed Sales Literature Principles and Applications of Management
Basics of Fair Participation and Booth Designs and
Visual Merchandising
FSC Certification & Its Importance to the Furniture
Industry
Competitive Pricing for Maximum Marketability
Reproductive Health & Gender Sensitivity
Design Trends and Marketing Updating Briefing
Machine and Equipment Maintenance
Timber and Lumber Drying: Focus on Solar Drying
PEPP Environment Management Workshop: Batch 1
PEPP Environment Management Workshop: Batch 2
Source: CFIF 2004 Annual Report
The CFIF 2004 Annual Report enumerates several strategic alliances with other
organizations. The Business Linkages Project (BLP), facilitated by DTI under the Entrepreneur
Support Program (ESP) of the Canadian International Development Agency (CIDA), assisted in
institutional strengthening and market exposure. The European Chamber of Commerce of the
Philippines (ECCP) created and managed the CFIF website, www.furniturecebu.com. The
German government through its technical consultants from Center for International Migration
(CIM) and German Development Services (DED), launched the Dual Training System (DTS) on
Furniture and Cabinet Making, a one‐year course on furniture making for operators and
supervisors accredited by the Technical Education and Skills Development (TESDA). The Carl
Duisberg Foundation (CDG), Center for Promotion of Imports from Developing Countries (CBI)
of the Netherlands, Private Enterprise Accelerated Resource Linkage (Pearl 1 and Pearl 2) of
CIDA, ASEAN Center, and Japan Export Trade Organization (JETRO) funded study and trade
missions.
The Confederation of Philippine Exporters (PHILEXPORT) has joined CFIF in advocacy
issues on matters affecting the whole export sector. Regarding an issue on Giant African Snails,
PHILEXPORT lobbied for the resumption of accepting shipments from Cebu to Australia. CFIF
advocated making the Cebu International Port ISPS‐compliant by July 1, 2004. In response to
another issue, this time about toluene, the CFIF crafted two position papers for the immediate
release of detained containers by the Bureau of Customs and the decentralization of the
issuance of PDEA licenses, permits, and certifications from Manila to its regional office in Cebu.
A business‐friendly Mandaue City government has made possible the emergence of the
Cebu Furniture Cluster. The local government processes business permits within a day, and
has allocated some 9,000 m2 of its city‐owned lot in the North Reclamation Area to house the
proposed Cebu International Trade and Exhibition Center (CITEC). The CITEC Task Force was
organized in 2002, with members coming from the CFIF, Cebu Chamber of Commerce and
Industry (CCCI), PHILEXPORT‐Cebu, the European Chamber of Commerce, DOST, and DTI.
The Japan International Cooperation Agency (JICA) is the proposed funding agency. CITEC is
expected to benefit 265,619 SMEs by providing a venue for trainings, meetings, conferences, and
exhibitions.
The DTI has designated furniture as the product representative of Cebu in its “one
product, one province campaign.”2 Company C claims that the DTI has announced the
availability of P300 million credit assistance to SMEs in the next two years based on buyers’
purchase orders.
On a related note, the Department of Environment and Natural Resources (DENR)
encouraged mandatory self‐monitoring and compliance with environmental standards through
the Environmental Consent Agreement. CFIF partnered with LGUs and private organizations
in the reforestation of Cebu’s denuded watersheds and the rehabilitation of mangrove areas in
Olango Island.
2 DTI serves as the conduit for the industry to link with trade‐affiliated agencies such as Center for
International Trade Expositions and Missions (CITEM) and the Product Development and Design Center
of the Philippines (PDDCP), as well as other government agencies (e.g. Furniture and Handicrafts
Industries Research Development Program (FHIRDP) of the Forest Products Research and Development
Institute (FPRDI) of the Department of Science and Technology (DOST).)
The linkage with Don Bosco Technical School assures a constant supply of skilled
manpower to the furniture industry. Presently, Don Bosco offers a BS in Industrial Technology,
major in Furniture Making. CFIF was involved in curriculum development and admission
applications for the course. CFIF also collaborates with the University of the Philippines’ Cebu
Campus in offering Summer Module Courses on Industrial Design. The CFIF is likewise
working with TESDA in promoting work in the industry as a career for skilled, vocational
workers. In this regard, the Cebu furniture sector can focus on developing subcontractors,
which are mostly unregistered, backyard industries. CFIF estimates that 92% of the jobs in the
furniture industry are outsourced to subcontractors, making them an important albeit neglected
industrial partner.
IV. GLOBAL BUYERS AND UPGRADING
Most industrial clusters in developing countries operate in a “buyer‐driven” value
chain, i.e., the buyer exercises control over the chain in the absence of ownership (Gereffi, 1999;
Humphrey &Schmitz, 2002). In the Cebu furniture cluster, foreign buyers or their buying
agents are the main source of information for entrepreneurs. Entrepreneurs meet their foreign
buyers through participation in furniture exhibits, through word‐of‐mouth, references,
advertisements, the Internet or intermediary organizations like CFIF or the Cebu Chamber of
Commerce.
Though the Cebu furniture cluster is widely seen as buyer‐driven, furniture exporters
are now exploring original design manufacturing (ODM) and hoping to eventually venture into
original brand manufacturing (OBM). Mixed‐media furniture, in particular, has become the
conduit for this functional upgrading. Toward this end, the CFIF started a Product
Development Program for Furniture‐Contemporary Design to assist local furniture
manufacturers to understand contemporary furniture design for specific markets, especially
Europe. Five participating companies developed prototypes of nine occasional furniture pieces,
13 furniture collections, and five accessories collections. Most of the final prototypes were
displayed during Cebu X.
Figure 4 shows functional upgrading in the value chain, tracing the role of design,
production, branding, and marketing. To a certain extent, furniture design takes into account
the production structure, such as availability of mixed media, logistics, quality and packaging,
among others. Likewise, quality and consistency of production are conditions for a product to
attain branding. As of late, there is an effort to market Cebu furniture as an international
brand—which could foster sustainability.
A. Market for Cebu Furniture Exports
The DTI’s 2003 Profile of Furniture Industries report that 89% of the furniture firms
surveyed engage in direct export trading, while 42% engaged in indirect export trading and
others were involved in both (Table 17).
Table 17: Economic Activities Engaged by Respondents, 2003
Type of Activity Industry Role Total Percent
Subcontracting 1 1 1 1 5 9 18 47
Manufacturing 14 2 3 5 9 33 87
Domestic trading 1 1 3 9 14 37
Indirect export trading 1 1 2 3 9 16 42
Direct export trading 1 1 14 2 3 5 9 34 89
Total 1 1 1 1 1 14 2 3 5 9 38 100
Percent 3 3 3 3 3 37 5 8 13 24 100
Source: 2003 DTI Furniture Industry Survey
Respondents claimed that 68% of their biggest foreign buyers were distributors and
wholesalers, retailers for 21%, and manufacturers and assemblers for the rest (Table 18).
Multiple responses were allowed.
Design
Production
Logistics
Transform inputs
Quality
Packaging Etc
Branding
Marketing
Figure 4: Functional upgrading in the value chain
Table 18: Main Business of Biggest Foreign Buyer, 2003
Main Business Frequency Total Percent
Manufacturer/Assembler 5 5 13
Retailer 6 2 8 21
Distributor 24 2 26 68
Wholesaler 24 2 26 68
Total 5 6 24 2 37 97
Percent 13 16 63 5 97
Source: 2003 DTI Furniture Industry Profile
The top 10 markets for furniture exports as of 2003 are the US, Japan, Great Britain and
Northern Ireland, Australia, Saudi Arabia, Netherlands, France, Italy, Spain, and Canada (Table
19). Some 63% of furniture exports are bought by US buyers. Together, the top 10 markets
comprise 88% of total furniture exports.
Table 19: Top 10 Markets for Furniture Exports, 2003
Country Value
(in USD) Percent
USA 126,288,378 63
Japan 13,185,046 7
Great Britain and Ireland 6,555,875 3
Australia 5,933,783 3
Saudi Arabia 4,844,271 2
Netherlands 4,797,376 2
France 4,750,600 2
Italy 3,945,350 2
Spain 3,702,232 2
Canada 2,612,850 1
Total Market Share of Top 10 countries 176,615,761 88
Total Furniture Exports 200,965,549 100
Sources: NSO and BEPT
B. Role of Design and the Designers’ Guild in Product Upgrading
New products are developed through interactions between a foreign buyer and an
exporter. Sometimes, foreign buyers provide the design and product specifications (e.g. paint
color and shade). Most export firms maintain in‐house designers, although they hire freelance
designers when they join exhibits. Estimates from buying agents indicate that 50% to 70% of the
furniture designs are done by Filipinos. In one case, a foreign buyer requested a Cebu‐based
foreign designer to implement a furniture design for Chinese production. Since these products
cater to niche markets, they are mainly sold in small volumes. A testimony of a designer is
given below, while Table 20 is a sampling of furniture designers and their works.
“Coconut tiles are a new material for us. When I visited the furniture show in
High Point (USA), I saw that another producer from Cebu had used the material.
My buyer asked if I could produce a similar product (dinner trays). Sometimes
my buyer sends me pictures of products from competitors. My buyer then asks
if I can produce something similar. For this product, I placed an advertisement
for coconut tiles in a local newspaper. Ten guys reacted, but only one of them
was involved in the production himself. The rest were just traders. One of my
existing subcontractors will do the inlay of the tiles.” (Beerepot, 2005; Interview,
13‐05‐2003).
Table 20: Sample List of Furniture Designers and their Works
Designer Works Awards/Accomplishments
1948: Innovated the combination of
rattan and rawhide, an exclusive
trademark patented internationally
1988: Galleon Award (Manila) as top
buyer of Phil. Rattan furniture and
contributing to the development and
improvement of the product and
expansion of the market
15 designs, two are classics displayed
at the Museum of Modera Art in
New York (officer’s chair and
otterman)
Opened 21 showrooms in key US
cities; distributor for Europe and
Sebu Dept Store (Japan)
John McGuire, McGuire
Furniture Co.
Tapped Mehitabel, Rattan Arts,
Nazareno (Zambales peel), Indonesia
and Hongkong (teak and mahogany
with rattan)
Popularized the use of ceramics on
tiles
1993: KATHA Award for Best
Product Collection (Manila Fair) with
Water Buffalo line in terracotta tiles
and metal
Design used sustainable and
renewable materials on
contemporary lines
1997: Best Product Design for
Contemporary (Cebu Fair) for
skeletal metal frame chaise with
stitched leather
Design inspired by Filipino heritage,
studies of Malay and Eastern culture
1994: Vitruvian chair graced the
cover of the International Home
Furnishings Market Resource Guide,
Fall Edition (Highpoint, North
Carolina)
Debbie Palau, Design
Ventures
Design philosophy revolves around
concepts that mix the linear
simplicity of the West with the
“wabi‐sabi” complexity of the East
1998: Carl Duisberg Gesellschaft
(CDG) sponsored Advanced Eco‐
Design Management Program in
Germany
Table 20: Sample List of Furniture Designers and their Works
Designer Works Awards/Accomplishments
President of the Designers Guild –
Phil.
Applies new treatments to the 100%
natural materials he uses in his
designs
35 years experience in designing
furniture and working on interior
decoration projects
Original design, hand‐crafted and
use of entirely natural materials
1985: National Design in Traditional
Craftsmanship Price (Spanish
Ministry of Industry and Energy)
Kalma Collection: European design
inspired by traditional Asian
furniture, bamboo, rattan, cotton
matting, wood, leather, and iron
1988: Best Image Price (Milan
International Furniture Fair)
1988: Chosen by C.E.E. to develop
the project Natural Design in the
Caribbean
Kalma Nature’s Light: natural shell
collection transformed into standard
or table lamps and hanging lights.
Each shell has a unique light and
transparency, creating an ocean
atmosphere on land
1999: Artistic Director (Manila
International Furniture Fair)
Ramon Castellanos,
Diseno en Asia, Inc.
Takto Collection: leather and
bamboo are principal materials
1999: Artistic Director of the Cebu
International Fair
Betty Cobonpue, Interior
Crafts of the Islands
Patented a process of laminating
rattan
Design integrate locally sourced
organic materials with innovative
hand‐made production techniques as
an alternative to the Western
definition of modern design
1987: Studied Industrial Design at
Pratt Institute (New York);
apprenticed for a leather and wood
workshop near Florence, Italy
Fuses industrial techniques with
indigenous materials. Complements
his use of steel with sturdy native
fibers (rattan, abaca, buri and
coconut)
1994: Studied Marketing and
Production at Export Akademie
Baden‐Wurttemberg in Reutlingen,
Germany and worked in Bielefeld
and Munich
Movement 8 (Filipino furniture and
accessory designers formed by
CITEM and DTI)
12 Mugna and 4 Katha Awards for
Design Excellence (Phil. International
Furniture Exhibition)
Kenneth Cobonpue,
Interior Crafts of the
Islands
Japan Good Design Award (2003,
2004) for Voyage Bed, Yin and Yang
Chair, Kabuki buffet cabinet and
loveseat/easy chair
Table 20: Sample List of Furniture Designers and their Works
Designer Works Awards/Accomplishments
Golden Shell Award (2002) for
embodying the ideals of Asian
design
2003: Ten Outstanding Young Men
Award (Phil Jaycees Inc. and Gerry
Roxas Foundation)
Featured in magazines like I.D., Elle
Décor, Wallpaper, Asiaweek and
Time
Carlo Cordero, Cebu Fil
Veneer
Design‐diven, limited‐edition pieces
with highly technical features
2001: Editors’ Award for Best
Manufactured Product (International
Contemporary Furniture Show, New
York); square‐cut bamboo chair of
142 pieces joined only by pegs
Tropea: uses wood and bamboo held
by strips of leather.
Stephanie Zagala, SS
Dezign
Laminated surface using banana tree
barks, corn husks, spliced coconut
roots and termite‐eaten wood to
create different patterns, mosaics and
marbled effects for table tops and
occasional furniture (side and coffee
table)
Glider: quasi‐rocking chair on ball
bearings
Maitland Smith Use rare stone, metal and shell
veneer. Evolved to incorporate
innovative designs which include
metal casting, porcelains,
sophisticated finishing techniques,
detailed hand painting, beautiful
inlaid marquetry and handcarved
woodwork
8,000 designs of 18th century English
reproduction furniture. Cebu has
niche market for small volumes; it is
design‐led from concept to
production
Pacific Traders European‐trained design team
Source: Company Websites
The Cebu Furniture and Furnishings Fair was launched in 1988 in conjunction with
CITEM. Eventually, six of the participating designers formed the Designers Guild of the
Philippines (DGP), which has now grown into 51 in‐house and freelance designers, including
members of the academe. The vision of the DGP is to transform concepts and ideas into creative
and innovative designs for furniture through the bonding of artists, professionals, and
designers for home, commercial, and contract export markets. As a non‐profit organization, it
funds its operations through seminars, trainings, and workshops. To become a guild member,
one must be actively engaged in the furniture or related industries in any of these processes:
design, production, distribution, promotion, communication, and training.
Of the four designers interviewed, two are DGP founding members, one is a PDCP
member, while the fourth is unaffiliated (Interview 1). According to them, designs are arrived
at through constant experimentation, materials and library research, reading magazines,
attending trade fairs, surfing the Internet, and combining old designs with contemporary ones.
Overall, Filipino designers lack the foreign exposure and formal training that their foreign
counterparts have—making Filipino designers reliant on the tastes of particular buyers—but
nonetheless make up for this with their proficiency in using different raw materials.
The designers share the following concerns: limited technology and materials, design
piracy and intellectual property issues, and, in relation, the tedious process of patenting.
Designers are usually given commissions when their creation is marketed, ranging from 3% to
5% of gross sales to a mutually agreed lump sum amount.
C. Role of CITEM and Cebu X in Product Upgrading
CITEM, a support agency of the DTI, organizes trade fairs to facilitate face‐to‐face selling and
provide opportunities for taking orders and immediate feedback gathering from buyers and
other trade members. Participation in trade fairs requires substantial investment, about P1
million for local trade fairs and P1.5 million for international trade fairs. There are several
Philippine trade fairs, but Cebu X is notable for being organized by CFIF members.
Statistics for the Philippine International Furniture Show (PIFS) from 1997‐2004 are on
Table 21. In 1997, sales generated by 181 exhibitors amounted to US$ 44.7 million, or an average
of US$246,886. This went down to 116 manufacturer‐exhibitors selling US$13.8 million, or
average sales of US$119,299 in 2004. This could mean two things: either trade shows have
ceased being effective in attracting foreign buyers, or that the Philippines has simply lost too
much of its share in the global furniture market.
Table 21: Philippine International Furniture Show, 1997‐2004
Exhibitors/Buyers 2004 2003 2002 2001 2000 1999 1998 1997
Exhibitors 141 140 123 137 185 207 206 181
Manufacturers 116 119 103 117 165 197 196 181
Trade Service/Sponsor 25 21 20 20 20 10 10
Sales Generated (US$) 13,838,733 10,260,535 17,640,343 16,013,727 30,214,602 27,596,461 34,225,504 44,686,333
Booked Sales 7,382,895 4,201,788 7,704,666 7,121,615 12,580,900 9,405,398 12,817,362 19,698,751
Under Nego 6,455,838 6,058,747 9,935,676 8,892,113 17,633,702 18,191,064 21,408,143 24,987,581
Average Sales
(in USD/manufacturer) 119,299 86,223 171,265 136,869 183,119 140,084 174,620 246,886
Buyers 1406 861 3097 1586 1704 1649 1502 1727
Foreign 952 458 981 873 1057 1143 1114 1198
Local 454 403 2116 713 647 506 388 529
Average Sales
(USD/Foreign Buyer) 14,536.48 22,402.92 17,982.00 18,343.33 28,585.24 24,143.89 30,723.07 37,300.78
Average Sales
(US$/Buyer) 9,842.63 11,917.00 5,695.95 10,096.93 17,731.57 16,735.27 22,786.62 25,875.12
Top (10) Countries 610 323 607 570 682 801 699 812
USA 333 127 217 180 202 225 235 240
Australia 47 24 52 53 80 99 111 79
Saudi Arabia 43 43 64 51 89 63
Spain 38 16 37 39 51 39
Hongkong 37 16 30 24 57 102
Japan 36 35 54 61 58 79 31 105
UAE 22 14
UK 21 25 40 37 66 54 41
Germany 17 14 32 49 45 51
Exhibitors/Buyers 2004 2003 2002 2001 2000 1999 1998 1997
Italy 16
France 9 37 53 53 56 47 40
Netherlands 44 46 42
Singapore 36 36 65 53 60
Malaysia 24 41 38
Taiwan 35 42
Canada 45
Korea 56
Ratio of Top 10 to Foreign
Buyers 64% 71% 62% 65% 65% 70% 63% 68%
Source: The Furniture Man, January – June 2004
The composition of the top 10 countries representing the buyers has likewise changed
through the years. There were six countries (USA, Australia, Hong Kong, Japan, UK and
Germany) that remained as top 10 buyers from 1997 to 2004. France, Singapore, Malaysia and
Korea, belonging to the top 10 PIFS buyers in 1997, were displaced by Saudi Arabia, Spain,
United Arab Emirate and Italy. Notwithstanding PIFS’ decline in sales, Cebu X does attract a
diverse set of foreign buyers (Table 22). For 2003 and 2004, 68 countries were represented, and
in contrast to PIFS, registered 11% and 14% increases in buyers and sales for the same period,
respectively. Average sales, unsurprisingly, went up by 14% from US$18,745 per buyer in 2003
to US$19,222 per buyer in 2004.
Table 22: Cebu X, 2004 and 2003
Statistics 2004 2003 % Change
Visitors 3,793 4,318 ‐12
Trade Buyers 1,363 1,227 ‐11
Non‐Trade Visitors 2,430 3,091 ‐21
Total 7,586 8,636 ‐12
Trade Exhibitors 139 173 ‐20
Sales (US$M) 26.2 23 ‐14
Average Sales (USD) 19,222 18,745 ‐3
D. Role of Foreign Buyers in Process Upgrading
Furniture Brands International is the largest residential furniture manufacturer and
retailer in the United States. It represents a group of six well‐renowned, branded companies in
the industry: Broyhill and Lane are dominant middle‐price brands; Thomasville caters to the
upper‐price market; Drexel Heritage, Henredon, and Maitland Smith are premium‐price
brands. Maitland Smith was the latest acquisition of the group in 2001.
Furniture Brands recently shifted from being a purely domestic manufacturer to a
vertically‐integrated manufacturer and retailer offering branded consumer products. This
change in business model led to the outsourcing of furniture production to countries with
cheaper production costs and the closure of 23 of its local furniture plants since 2001. As a
major global buyer of cost‐efficient but high‐quality furniture exports, it taps furniture
producers in Indonesia, China, Vietnam and the Philippines, among others.
It was pointed out earlier that foreign buyers conduct quality assurance tests before
furniture exports are shipped to importing countries. For instance, a product development
center and a quality assurance and testing laboratory Cebu has been set up by six foreign
buyers in Cebu through an agent with offices in Manila, Malaysia, Indonesia, Taiwan, and
China. The process proceeds as follows: Principal buyers furnish the agent with the furniture
design and product specifications. Depending on the media to be used, the agent then
approaches a furniture manufacturer to request a sample order. When the sample is completed,
the agent performs quality assurance tests, based on the standards set by the principal buyer,
before the purchase order is placed. All of the processes involved in furniture production are
tested, such as the packaging, the moisture content of the wood, the quality of the finishing, and
durability. A stress test is performed to determine whether the packaged product can
withstand the rigors of sea freight. Upon placement of the purchase order, the agent monitors
the production closely to ensure that the details of the sample specifications are followed. The
finished products are tested for quality assurance, this time on a random basis.
Rejection rates for this Cebu‐based agent was initially at a high of 20%, but has
significantly decreased as a result of the constant monitoring of the production process. This
process upgrading has improved the profitability of manufacturers, and has encouraged them
to acquire machineries. Also, the agent once outsourced buyers’ orders to as many furniture
manufacturers. Today, the agent maintains just five furniture exporters as regular producers for
the foreign buyer orders (Interview 9). In one instance, one of the five furniture exporters was
hired by a Board of Investments‐registered furniture manufacturer as a management consultant
to oversee the efficiency and quality of its operations.
Quality assurance spans the in‐process and finishing stages and ensures that the entire
production process conforms to the specifications agreed upon by the foreign buyer and the
furniture manufacturer. There are also foreign buyers who would prefer to perform quality
assurance only during the finishing stage. If strict quality assurance is implemented from the
in‐process to the finishing stage, the rate of sales return is close to nil; only replacement parts
are requested. However, if the quality assurance is done only at the finishing stage, the sales
return could reach 20%. In these cases, some foreign buyers would offer to repair damaged
items and charge back the cost of repair to the furniture exporter, rather than have the products
shipped back to Cebu. Since labor cost is higher at the United Sates, there are instances when
the furniture exporter might stand to lose from the transaction (Interview 10).
There are also cases when U.S. buyers invite furniture exporters to the High Point, North
Carolina, and Las Vegas Furniture Shows. These events give furniture exporters a chance to
interact with furniture consumers and leading furniture retailers and wholesalers in the United
States.
A Cebu‐based global buyer, staffed with Filipino‐American designers, regularly visits
US‐based wholesalers and customers to select furniture designs which would be the basis for
purchase orders. In most instances, the global buyer presents a furniture design to the
wholesaler‐client, which would be altered according to the specifications of the clients’ in‐house
designers. Once the design specification is drawn, the client would issue a purchase order
covering its requirements for the coming year. Upon receipt of the purchase order, the global
buyer would farm out the orders to different furniture manufacturers worldwide, including
Cebu. The global buyer would then extend additional assistance to the furniture manufacturer,
such as purchase of duty‐free imported raw materials, provision of working capital
requirements of the furniture manufacturer, information‐sharing of product prices, and raw
material sourcing (Interview 11).
V. THE PHILIPPINES IN THE GLOBAL FURNITURE MARKET
Global furniture trade is big business. Between 1995 and 2000, it grew by 36%, faster
than the growth of overall world merchandise trade (26.5%), apparel (32%), and footwear. By
2000, it was the largest low‐tech trade sector, surpassing apparel and footwear. Out of the 15
major furniture exporters in 2000, six are developing countries (Brazil, China, Indonesia,
Malaysia, Mexico and Thailand) and four are transition economies (Czech Republic, Poland,
Romania and Slovenia). These 10 countries tend to be both large‐volume exporters and low‐
volume importers of furniture. Industrialized countries are large volume net exporters, led by
Italy (1st), Canada (3rd), Denmark (7th), Spain (10th), and Sweden (14th).
In 2004, global furniture trade reached $220 billion, with Italy and China each exporting
US$10 billion. There are indications that China has emerged from mass production of low‐cost
commodity‐style products to pioneering innovations in processing, products and business
systems. The Forest Products Journal claims that China is now the leading buyer of
woodworking equipment in the Asian region, cutting down production costs by 20% across‐
the‐board. The cost savings are then re‐invested in new equipment.
“Furniture has traditionally been a resource and labor‐intensive industry that
includes both local craft‐based firms and large, volume producers. Mass‐producing
furniture became a viable manufacturing strategy with the advent of flat‐pack or
ready‐to‐assemble designed furniture. This product innovation paved the way for
firms to design, manufacture and ship products in large quantities. Firms that
mass‐produce flat‐pack furniture tend to supply products for the low‐ to medium‐
price markets. Solid wood furniture manufacturers have retained important niche
market segments primarily for high‐end, expensive and design‐led products. These
specialized products tend to be purchased locally while mass‐produced, large‐
volume products are sold locally and for export” (Kaplinsky, Morris & Readman,
2003).
In 1998, the Philippine furniture exports totaled US$322 million, which peaked at
US$380 million in 2000. From thereon, it steadily declined to US$277 million in 2003, though
briefly rising to $305 million in 2004. What is alarming though is the drastic decline in the
Philippines’ share in the global furniture market. From being one of the top two exporters in
Southeast Asia during the 1980s, the Philippines now accounts for a negligible 1/5 of 1% of the
global furniture market—because of slow innovation.
Innovation is usually measured through inputs (R&D indicators such as number of
personnel engaged in R&D) and outputs (patents, bibliometrics, etc.). However, these measures
provide little insights into the effectiveness and productivity of inputs, the applicability of
output, and the efficiency of the innovation process.
Kaplinsky and Readman (2004) propose unit‐price and market‐share data as innovation
indicators. Unit prices were first used by Stout (1977) and pursued by Pavitt (1980) to assess the
competitiveness of UK industries (defense, textile machinery and electrical power tools).
However, this measure had three limitations, given the assumption that falling unit prices
reflect downgrading and loss of competitiveness. First, in the era of rapid productivity growth,
falling unit prices coupled with improved incomes may represent a form of upgrading (as in the
electronics industry) rather than downgrading. Second, unit prices may reflect exchange rates
rather than productivity performance, reflecting macroeconomic rather than firm‐determinants
of competitiveness. Third, trade growth may be both extensive (more of the same), or intensive
(more trade, but of different products). To address these limitations, Kaplinsky and Readman
(2004) complemented the use of unit prices with market share data: “Product upgrading (in
design or quality) will be reflected by a relatively good unit price performance (in that either
unit prices grow more rapidly or fall less rapidly than those of competitors) and a
complementary improvement in (or stability of) market share.”
Table 23 is an application of the Kaplinsky‐Readman schema to the furniture industry. A
product with increasing unit prices and expanding market share is thought to be a winner,
outranking its competitors (Quadrant 2). On the other end, a product faced with a combination
of falling unit price and shrinking market share is perceived to be a loser, or is starting to lose its
competitiveness (Quadrant 4). Ambiguous cases occur when the two indicators move in
different directions. For instance, a product with increasing unit‐price and a declining market
share (Quadrant 1), or a product with increasing market share but a declining unit‐price
(Quadrant 3).
Table 23: Upgrading and Downgrading, A 2 x 2 Matrix for Analysis
Market Share Decreases Market Share Increases
Unit Value Rises
Relative to Industry
Average
Quadrant 1: Ambiguous;
depends on degree of price
increase, the degree of falling
market share and the opportunity
cost of the resources invested in
exports
Quadrant 2:
UPGRADING
Unit Value Falls
Relative to Industry
Average
Quadrant 4
DOWNGRADING
Quadrant 3 Ambiguous;
depends on degree of rising
market share, the degree of
falling prices and the opportunity
cost of the resources invested in
exports
Figure 5 shows the value of global furniture trade and the quadrant placements, using
European Union data of 40 furniture products in the 1990s Although the Philippines was not
initially included in the data due to its low market share, other data obtained suggest that the
country would be in Quadrant 3: Downgrading, declining market share and declining unit
price. Joining the Philippines in this quadrant are Taiwan, Hong Kong, and some parts of
Europe.
Quadrant 2 represents countries with product upgrading capabilities, and this is
reflected by increasing unit price and increasing market share: China, Thailand, Malaysia,
Vietnam, US, and Canada.
Figure 5. Upgrading Position of Countries with at Least 1% Market Share in 2001
Quadrant 1
Source: Kaplinsky and Readman (2004)
Romania 3
Switzerland 3
Hungary 3
Italy 2
Sweden 2
Portugal 1
Spain 1
Bulgaria 1
Taiwan 1
Finland 1
Belgium‐Luxembourg. 1
Total 23
Poland 1
Switzerland 4
Lithuania 4
Portugal 4
UK 3
Latvia 3
Czech Rep. 3
Estonia 2
Hungary 2
USA 2
Thailand 2
China 2
Slovakia 2
Malaysia 1
Ukraine 1
Brazil 1
Vietnam 1
Bel.‐Lux 1
Sweden 1
Ireland 1
Belarus 1
Canada 1
France 1
Spain 1
Norway 1
Turkey 1
Germany 10
Netherlands 8
France 7
Italy 7
Belgium‐Luxembourg 6
Denmark 6
Spain 6
Sweden 5
Austria 5
UK 5
Slovenia 4
Czech Rep. 2
Croatia 1
Finland 1
Hongkong 1
Ireland 1
Romania 1
South Africa 1
Taiwan 1
Philippines <1
Total 79
Denmark 5
Austria 5
Poland 5
China 5
Czech Rep. 5
Brazil 5
Slovakia 5
Finland 4
Malaysia 4
UK 3
Spain 3
Slovenia 3
France 3
Sweden 3
Estonia 3
Norway 3
Taiwan 3
Bel.‐Lux. 3
USA 3
Italy 2
Thailand 2
Latvia 2
Croatia 2
Canada 2
South Africa 2
Vietnam 2
Switzerland 2
Lithuania 1
Russia 1
Hungary 1
Germany 1
Bermuda 1
Chile 1
Bangladesh 1
Laos 1
Brunei 1
North Korea 1
Romania 1
India 1
Total 103
Increasing unit prices
Decreasing unit prices
Decreasing market share Increasing market share
Quadrant 2
Quadrant 4 Quadrant 3
Tables 24 and 25 present a more detailed discussion of the product and market
performance of the Philippines, using the unit‐price index method of analysis. Table 24
summarizes export price changes by commodity for the 1995‐2003 period. On the whole, unit
prices of furniture products fell by 22%. Specifically, the following furniture products suffered
declines in unit prices: furniture fittings (‐62%), office furniture (‐52%), buri furniture (‐35%),
medical furniture (‐34%), bedroom furniture (‐34%), plastic furniture (‐19%), metal furniture (‐
18%), and stone furniture (‐16%). On the brighter side, the following furniture products showed
appreciation in unit prices: metal mountings (210), preparation for maintenance of wooden
furniture (95%), bamboo furniture (48%), furniture parts (15%), wooden furniture (11%), and
rattan furniture (3%).
Table 24: Summary of Furniture Export Prices, by Commodity, 2003 and 1995
(Price Expressed in US$ per metric ton)
PSCC Description 2003 1995 % Change in Price
8938500 fittings for furniture, coachwork/the like, of plastics 3.28 8.67 (62)
8213109 other furniture, nes, of metal, used in offices 131.03 (50)
8217904 furniture of buri 14.47 22.39 (35)
8724001 medical,dental,surgical/veterinary furniture 127.00 (34)
8215509 other furniture, nes, of wood, used in bedroom 86.96 132.01 (34)
8217100 furniture of plastics 20.72 25.63 (19)
8213909 other metal furniture, nes 44.43 54.02 (18)
6994102 helical springs for mattresses, auto seats & other
furniture, of iron/steel
1.28 1.54 (17)
8217901 furniture of stone/marble 40.25 47.90 (16)
8215109 other furniture,nes,used in offices 75.84 (15)
6354909 wooden articles of furniture not falling with div‐82 4.75 5.01 (5)
8217909 furniture of other materials, nes 37.18 37.97 (2)
8217903 furniture, rattan 41.81 40.66 3
8215909 other wooden furnitures,nes 77.93 69.95 11
8218000 parts of furniture of 8213, 8215 & 8217 1.70 1.49 15
8217902 furniture of bamboo 49.94 33.78 48
7243909 parts,nes,machines and furniture falling within subgroup
724.3
4.10 2.51 64
5543209 other polishes,creams & similar preparation, for
maintenance of wooden furniture
3.14 1.61 95
6991700 other mountings,fittings&similar articles for furniture,
base metal
9.74 3.14 210
8217905 furniture, glass 25.37
8724004 identifiable parts of medical, dental, surgical/veterinary
furniture
25.79
6991103 locks for furniture, of base metal 31.80
8215309 other furniture,nes,of wood,used in kitchen 135.19
Total 15.65 20.07 (22)
Source: www.tradelinephil.dti.gov.ph, NSO processed by Bureau of Export Trade Promotion (BETP)
Table 25, meanwhile, shows that Philippine furniture exports have had some success in
Asia, Europe, and the Middle East, but not in Japan and Europe. These markets have turned to
Thailand and East Europe, respectively, to service their furniture requirements.
Table 25: Summary of Export Prices, by Country, 2003 and 1995
(Price in US$ per metric ton)
2003 1995
Country Value
Market
Share
(%)
Price Value
Market
Share
(%)
Price % Change
in Price
Japan 20,532,591 10 6.31 42,870,875 20 22.23 ‐72
Asia 5,591,810 3 3.9 8,725 0 12.13 ‐68
USA 134,405,244 66 18.89 137,525,194 63 21.13 ‐11
Middle
East 10,055,896 5 64.4 2,844,696 1 56.51 14
Europe 29,093,836 14 32.19 40,500,536 19 21.5 50
Total 202,439,523 100 15.65 217,435,738 100 20.07 ‐22
Source: www.tradelinephil.dti.gov.ph, NSO processed by Bureau of Export Trade Promotion (BETP)
1. Value‐Chain Related Issues and Concerns
The furniture cluster is confronted with many issues on production, markets, and local
cooperation of stakeholders. Six decades of global trade saw the depletion of raw materials, the
exodus of trained workers to competitor countries, and the temerity of entrepreneurs to invest
in capital equipment. The Cebu furniture cluster has experimented with various raw materials,
from the rattan poles, buri, wood, stone, metal, plastic, and more recently, mixed media.
However, this production switch has not arrested its declining share in the world furniture
market and its declining unit price. As pointed out by Kaplinsky and Reader (2004), this could
be indicative of the onset of downgrading.
The retention of skilled workers is also an area of concern. Firms invest in upgrading
the skills of its workers through various means. Due to relatively low industry wages, furniture
technicians and designers are weaned away by competitor countries such as Indonesia, China,
and Vietnam. These skilled workers become consultants in competitor countries, and
sometimes function as recruiters of Filipino furniture engineers and designers. The coping
mechanism of some furniture firms is to maintain the control of product development within
the family. Thus, sons and daughters are sent to expensive design schools in Italy and New
York. Save for short training courses offered by the Designers’ Guild, there is no School of
Design in Cebu.
Institutional factors are commonly cited as reasons for subcontracting. Business
outsourcing has serious implications on quality, cost and delivery. In the Cebu furniture
cluster’s case, it is largely done by home‐based workers, so product quality is highly uneven.
The lack of knowledge of basic accounting and untimely deliveries are also concerns, though
there have been subcontractors who have gone on to become big furniture exporters. Still, there
is a need to address the training and financing needs of the business outsourcing sector.
Technical consultants and product assurance managers lament entrepreneurs’ hesitation
to invest in furniture machinery. Machines assure uniform quality, cut production costs by 30%
to 50%, and allow firms to ship deliveries on time. Indonesia, China and Vietnam, on the other
hand, immediately chose to pursue mechanized furniture production. In give years, China is
expected to transform its furniture export profile; Indonesia remains the world’s largest rattan
producer.
There are a variety of explanations for this. The literature suggests that the firm owners
are mere proprietors, setting out to maximize current consumptions, rather than entrepreneurs,
who are motivated to maximize their investment (future consumption). Another reason is the
uncertainty in the business environment. Investment in machinery requires skilled technicians,
who may decide to go on strike or leave the firm for a high‐paying job with a competitor. Firm
owners are also wary of the government’s changing policy stances. Lastly, the lack of access to
cheap credit makes capital acquisition a financial burden amid an extremely volatile world
furniture market (e.g. decline in furniture exports due to 9/11, SARS and Bird Flu).
Except for CFIF, the contribution of local support organizations—local governments,
national line agencies, and educational institutions—are wanting. The furniture industry has
survived six decades with little or no support from the government.
There is a need to steadily expand into the Asian, American, and Middle Eastern
markets—especially in China and India, where demand for high‐end, luxury furniture should
rise. Similarly, furniture exporters should be able to market directly to retailers so as to realize a
higher profit. Direct contact with retailers should help product development engineers and
designers meet overseas consumers’ specification requirements to a much better degree.
Refining traditional accounting practice to reflect supply chain costing should also help
the industry. This costing method allows firms to determine the overall effectiveness of the
supply chain, identify opportunities for further improvement or reengineering, measure
performance of individual activities or processes, evaluate alternative supply chain structures,
select supply chain partners, and evaluate the effects of technology improvements [30].
VI. SUMMARY AND RECOMMENDATIONS
Local cooperation among industry stakeholders and global buyers is important in the
upgrading of the Cebu furniture industry. For a resource‐based industry such as furniture, it is
interesting that the industry, located in a resource‐scarce cluster, has been able to compete in the
international market for over five decades. In retrospect, it has been well‐served by its
proximity to raw materials via its location in a trans‐shipment point in the Visayas and
Mindanao. The industry, in turn, stimulated the export growth of complementary industries
such as Gifts, Toys, and Houseware (GTH), fashion accessories, woodwork, resource‐based
products, and industrial manufactures. (e.g. excess shavings of furniture raw materials are used
in fashion accessories, and the stone inlay, which was first introduced in GTH, is now used in
the furniture industry). On a broader level, inter‐firm cooperation has been manifested via
subcontracting, borrowing and lending of surplus materials, sharing of buyers, consolidation of
small shipments, and the bandwagon effect. Local support organizations, especially the Cebu
Furniture Industry Foundation (CFIF), have had modest successes in lobbying for the industry
and in organizing trade shows and study forums. Mandaue City has allocated space in its North
Reclamation Area to house the proposed Cebu International Trade and Exhibition Center
(CITEC) for the benefit 265,619 SMEs. Statistics, however, show a decline in the number of
exhibitors and average sales generation in trade fairs during the past decade.
For an industry which caters to the global market, it is surprising to note that the Cebu
furniture cluster mainly employs home‐based subcontractors with little formal training; males
earn slightly more than females in supervisory positions, but this advantage is reversed in
skilled work. With regard to ownership structure, most furniture companies are family‐owned
and controlled, meaning there is a tendency to under‐invest in machinery for personal
consumption.
A global buyer introduced Cebu rattan furniture to the world market in the late 1940s,
initiating a breakthrough in rattan production through process and product upgrading.
Maitland Smith, a global buyer and furniture manufacturer, is especially notable for
professionalizing the industry and exposing it to mixed media use and an international market.
The creative use of indigenous material in producing Western‐style furniture has eventually
become the cluster’s distinctive advantage, and it is hoped that this will lead into original
design and original brand manufacturing. In this context, global buyers are important in
funding the working capital requirements of producers, assisting them in the duty‐free
importation of raw materials, in the sourcing of raw materials, and sharing price information.
Global furniture trade is big business, generating $220 billion in 2004 and even
surpassing world merchandise trade. Out of the top 15 furniture exporters, six are developing
countries (Brazil, China, Indonesia, Malaysia, Mexico and Thailand), four are transition
economies (Czech Republic, Poland, Romania and Slovenia), and five are industrialized
countries (Italy, Canada, Denmark, Spain and Sweden).
Traditionally, furniture has been a resource and labor‐intensive industry including both
local craft‐based firms and large, volume producers. Cebu furniture has long catered though to
the premium, design‐driven market. Nonetheless, China’s aggressive growth—becoming the
leading buyer of woodworking equipment in Asia, cutting down production costs by 20%
across‐the‐board, and re‐investing its cost savings in new equipment—has become worrisome
to Cebu.
Unit price and market share analysis indicate that the Philippines experienced declining prices
and falling market share in furniture exports.
Process and product upgrading are necessary to sustain the competitiveness of the
furniture industry. Pietrobelli and Rabelloti (2004) argues that “in buyer‐driven chains, global
buyers facilitate the link with the international market by signaling the need (and the modes) of
the necessary upgrading. However, global buyers do not normally foster and support the
SMEs’ upgrading process.” If the furniture industry is to be truly considered an important
contributor to the Philippine economy, then there is a need to increase the scientific base of this
activity by investing in R&D. Given that R&D pursuits are crucial to constant innovation, are
considered public goods and are high‐risk undertakings, then the burden of R&D investment
falls on government and international funding agencies.
Since furniture firms generate jobs and contribute substantially to the local coffers,
LGUs could offer business export services similar in concept and administration to the Mactan
Export Processing Zone, where business permits are processed quickly and issues are
immediately addressed by zone administrators. If LGU finances permit, a Product
Development and Design Center could be set up locally so that furniture workers, technicians,
designers, accountants and managers could be trained. Retrenched or retired skilled workers
could team‐teach with a furniture consultant so that the knowledge center becomes self‐
sustaining. For the national government, it has to consider more carefully the effects of its
erratic, uneven actions toward the industry. CITEM should continue assisting emerging
furniture exporters; the Designers’ Guild should be given more serious funding, instead of
relying on seminar fees, and can evolve into a cluster skills center with active multi‐sectoral
partnerships.
The raw material chain can be improved if procurement could be done at the inter‐
industry level. If industry leaders or business associations could consolidate forecasts of raw
material requirements, then bulk purchases could be made, or other firms could be encouraged
to locate in the Cebu cluster to ensure just‐in‐time delivery for these raw materials.
Attracting more foreign investors like Maitland Smith to eventually transfer designs and
technology to the furniture cluster strengthens the global value chain. CFIF could encourage
furniture exporters to acquire international certification so that purchase orders would continue
streaming in. More importantly, more aggressive marketing and promotion programs should
be undertaken. There should be an effort to know the tastes and the lifestyle of the global
consumer, instead of relying on trade magazines as a design resource. Toward this end,
perhaps CFIF or a foreign sponsor could enable video conferences between buyers, designers,
and product engineers.
There is a need to have one national furniture association to lobby for industry issues
and against insufficient investment, the high cost of doing business, the lack of access to
financing, and threats of power shortage and product certifications. Most importantly, industry
and academe should work closely to draw up a suitable, lifelong learning‐oriented training for
the furniture industry.
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