Essay, Research Paper: Summary Of The Canadian Furniture Industry

As late as 1996, a total of 1406 firms comprised the furniture industry at a value of over 5.6 billion dollars. Household furniture warehouse sales totalled 2.1 billion dollars in 1997, and is expected to increase at 1 percent annually into the next century. This figure, however, is lower than the overall goods increase, which is expected to be 1.5 percent annualy, and also much lower than the 3 percent annual increase which is expected in the U.S. household furniture market. Canada makes up only 2 percent of the world furniture market, compared to 28 percent in the U.S., 15 percent in Japan, and 10 percent in Germany. 95 percent of Canadian exports ended up in the U.S., which was 15 percent of their total imports. On the contrary, Canada imported $816 million of furniture, 60 percent of which came from the U.S. The Canadian market is definately reached it's potential as seen by a much lower growth than the rest of Canadian goods(1.5%) as well as a much, much lower growth than the furniture industry in the U.S.(3%). Another comparison indicating a lack of international competitiveness is that of the two main furniture companies in Canada. Palliser generates 85 percent of it's revenues in Canada, a low growth and mature market, whereas Dorel Industries, Ltd., it's rivals, generates over 80 percent of their revenues internationally, in which a much higher growth exists. Asia and Europe also were going to have an advantage in terms of importing furniture parts, etc., becuase of the expected reduction in tariffs in the not-so-distant future. The Canadian furniture industry is labour intensive, and employs mostly immigrants who are skilled and semi-skilled workers. The industry is becoming more high-tech and there is going to be a shortage of qualified labour supply. The wage costs in Canada are much higher then they are in the U.S., which is another reason for the company to look at going international. The Canadian industry is generally focussed on product quality, quick delivery, innovative design, customer service, and price. The U.S. market on the other hand is more focused towards the quality of raw materials, product design, location, quality of showrooms, extent of marketing activity, and price.

Mexico and Palliser's Strategy
The effects of the FTA and NAFTA on Palliser have resulted in decreasing prices in their domestic market. This is another reason that Palliser must look into expanding into other growing markets, like Mexico. Palliser since then have decided to change their strategy to include more of the international markets because the company realized that the Canadian companies would be no longer able to compete. Palliser wanted to protect its Canadian sales base and then to grow through exports to the U.S. This is why the expansion into Mexico would be a good decision for the company. Moving to Mexico would allow the comapny easier access to the U.S. market while protecting their Canadian sales. It would also at the same time allow for them to penetrate the Latin-American market for which they were also seeing as a great opportunity in the near future. Palliser is also currently emphasizing products which commanded value, quality, and most of all timely delivery in medium price categories. This was another reason that the Mexico plant was considered, being central to the southern U.S. as well as Latin-America. Developing a plant in Mexico would also be congruent with the company's goal to get it's people to think "outside of Winnipeg".
Leather furniture was going to be a big seller in the not to distant future, which resulted in the need for Palliser to get a jump on the competition in that market. This Mexico plant was an untapped resource waiting for the first company to come in and take advantage of the emerging leather market. Palliser has constantly attempted to enter into the American market due to the increased productivity and the lower wage rates which are consistent with the U.S. The major drawback for Palliser, however, has been the intense competition from these larger U.S. based manufacturers, who have driven Palliser from their smaller plants, eg. Fargo. This is where Mexico again becomes a major benefit since imports to the U.S. are made easier and the wage rate is even lower, while avoiding the problem of saturation of manufacturing facilities that occurs is the majority of the U.S.
The issue of unions is another which has been taken into consideration by Palliser. In Canada, their has been an increasing threat for unions to form in this manufacturing industry, which could cause the wage rate to increase dramatically. If Palliser were to open a plant in Mexico, they wouldn't have a total reliance on goods made with Canadian, were there to be any unions formed. This would minimize risk for Palliser's continued success.