A Market Study on Rattan Furnitures

A MARKET STUDY ON RATTAN FURNITURE PRODUCTS

A Research Proposal Presented to the Faculty of the School of Business and Economics University of San Carlos Cebu City, Philippines

In Partial Fulfillment of the Requirements for the course BUSINESS RESEARCH (BA 109N)

By ALSOLA, QUENNIE MARIE A. LAUREL, DEMI C. LEPON, LINDY JILL S. MANUEL, MARGIE R. TAN, STEPHANIE C.

Chapter 1 INTRODUCTION Rationale of the Study Hailed as the furniture capital of the Philippines, Cebu lives up to its reputation as it steadily enjoys a substantial percentage share of the country’s furniture export sales, which is over 60 percent of the total annual figures, yet Cebu manufacturers comprise only 20 percent of the entire Philippine furniture industry. Manifestations of the considerable strength amidst soaring prices was evident, when despite the plummet of the peso, the Cebu furniture still registered a positive growth. Most of the significant achievements in the industry were done in the last ten years. From the fledging start in the rattan pole trading, the furniture industry has grown into one of the major contributors to Philippine economy, with furniture classified among the top five export commodities in the country. Moreover, Cebu’s furniture industry is now the forerunner of the province’s thrust toward global competitiveness. Due to its rich tradition in furniture-making as well as its impressive track record both as a major export earner and net exporter, the Cebu furniture industry has long been considered as having one of the greatest potentials in the world market. True enough it has been included in the list of 15 export winners under the Medium Term Development Plan.

Cebu has all the potentials of becoming a major player in the international scene. At present it already served the European, North American, the Middle East, and the Asian markets, thus making it a furniture resource of great promise. The company gears towards product development to further keep its edge over their competitors. The scarcity of raw materials, also affecting the company, has anything but discouraged nor limited the very talented Cebuano furniture designers into creating beautiful furniture made from combinations of traditional and indigenous materials such as sea grass, abaca (Manila hemp), arorog, and butay (Coconut twig) mixed with wood, bamboo, rattan, stone, and wrought iron. These designs are expertly handcrafted by the finest craftsmen in the area, giving attention to the tinniest detail that make up the essence of each piece. Rattan furniture is well known to be very durable. We must also support locally made products. We should be proud that the Philippines, especially Cebu, is leading the furniture industry. This study will uncover ways on how to promote rattan furniture to people. This will explain why people should choose rattan furniture rather than furniture from other countries because comparing them doesn’t really bring out that much difference. We will describe here the features that rattan furniture has over imported furniture and the sources where the materials for making the product is taken. We will also identify the possible competitors in the furniture business.

THE PROBLEM Statement of the Problem The main purpose of this study is to know rattan furniture products better. Specifically, it will attempt to achieve the following research objectives: 1. To determine the competitive features of rattan furniture products. 2. To be acquainted with the sources and suppliers of rattan materials. 3. To classify the competitors. 4. To identify the possible customers. a. High-end customers b. Export and local market 5. To study how to counter barriers of new entry rattan products in the industry. Statement of Assumptions 1. It is assumed that there are no problems with the supply of rattan in making the furniture. 2. Products introduced by the companies engaged in rattan business have best quality and reasonable prices that can make buyers patronize their rattan furniture products. 3. Rattan business companies increased their attention to the most effective ways of marketing their furniture products such as branding.

Statement of Hypothesis The rattan furniture product will make a huge mark in the furniture business in the Philippines and in other countries. With its excellent features and usefulness, it is not impossible that it will boom the furniture industry. The demand for rattan furniture products will increase, here and abroad.

Significance of the Study This study will help the companies making rattan furniture know ways on how to making their furniture products attractive to the people and in order to sell them with quality. This will also help people know more about rattan furniture products and let them discover that they do not need to find for furniture from other countries because we have more furniture products that are of the same quality as the imported ones. This study will make you even want to buy products locally than those imported products. This study would be beneficial to the following: 

To the furniture companies that they may define competitive strategies and improve their existing marketing strategy.



To the rattan-made furniture that they will be promoted locally, nationally and globally.



To the local rattan furniture makers that they may maintain their standing in the export market.



To those who are primarily dependent on the rattan furniture products for income and employment that they will improve their socioeconomic conditions.

Organization of the Study Chapter 1 tells about the rationale of the study, the statement of the problem, the statement of assumptions, the statement of hypotheses, and the significance of the study. Chapter 2 focuses on the theoretical background of the study. It shows the review of related literature and the theoretical and conceptual frameworks. Chapter 3 is mainly about the field work of the study. It states the research environment on where we will conduct our study, the research respondents to whom we will give the surveys, the research instruments used in the study, and the research procedures in gathering the data and how these data is treated. Chapter 4 entails the presentation of the data, the results of the study and the discussion on how to solve the problem. Chapter

5

consists

of

the

summary,

recommendation based from the results of the study. Definition of Terms

conclusion,

and

the

1. Abaca – a strong fiber obtained from the leafstalk of a banana (Musa textilis) native to the Philippines —called also Manila hemp 2. Bamboo – any of various woody or arbores cent grasses of tropical and temperate regions having hollow stems, thick rhizomes, and shoots that are used for food 3. Furniture – consists of large products such as tables, chairs, or bed. 4. Rattan – made from woven strips of stem of a plant which grows in Southeast Asia. 5. Sea Grass – any of various grasslike plants that inhabit coastal areas. 6. Wrought Iron – a commercial form of iron that is tough, malleable, and relatively soft, contains less than 0.3 percent and usually less than 0.1 percent carbon, and carries 1 or 2 percent of slag mechanically mixed with it.

Chapter 2 THEORETICAL BACKGROUND Review of Related Literature Manufacturers use rattan to make umbrella handles, walking sticks, furniture, basket, ship cables, and chair bottoms. Rattan is strong, bends easily, and lasts long. His statements regarding rattan show us reasons why

people prefer rattan furniture. Furthermore, rattan palms have strong, tough, slender, many jointed stems of uniform diameter (Seigler, 1991). In a rattan-based small scale cottage industries in urban and semiurban, most of the entrepreneurs (70%) managed their capital from their own sources and the remaining entrepreneurs (30%) usually took capital from large-scale rattan-based industries to which they were compelled to sell their products with fixed and nominal prices. Processing is the key issue for further development and utilization of rattan. All types of well decorated furniture like sofa set, chair, table, rocking chair, bed, Mora, cradle, decorative partition, bookshelf, different types of basket, and walking stick, were copiously produced in the industry. Productivity depends on the availability of raw material which means that if raw materials are available throughout the year then, the production per month throughout the year remains constant. Profitability varies depending on quality of finished products, which in turns depends mostly on the quality of the raw material and the efficiency of the tools used. Scarcity of rattan was the leading constraint in the rattanbased small scale cottage industries, which were struggling for existence. To ensure a sustainable supply, rattan should be regenerated and cultivated in the forests and outside the traditional forestlands. Prospects of any industry depend on availability of raw materials, its cheapness and proper marketing facilities (Miah and Rahman, 2002).

In tourism marketing, it states, “In recent decades, the world economy has experienced from the primary (agrarian) and secondary (industrial) sector to the tertiary (service) sector.” In this fast changing environment, rules in all circles of life do not stay constant. Experiences are more customer-involved than services. In customer experiences, some relevant concepts

are:

customer

expectation,

customer

perception,

customer

satisfaction, and customer value. To define more about the relevant concepts of customer experiences, first will be customer expectation. It is what an individual expect from a manufacturer in exchange for the payment made. Ergo, customers expect a good quality (strong, tough, and durable) of rattan furniture and even less expensive. Second, customer perception is based on customer’s subjective evaluation of what they gain in exchange for what cost involved. An example is the payment made. Third, customer satisfaction is the end state of a psychological process based on customers experienced. To apply, if the customer gets satisfied with the product, then they’ll most probably spread their experiences and opinion to others. A customer’s promotion will lead other people to be your customer which began from customer satisfaction. It is believed that satisfaction depends on the comparison of the customer expectation and perception. Lastly, customer value can be defined as the difference between benefits that a customer gains and costs to the customers from the consumption process. A company should take effective measures to maximize customer value in the delivery of services and

experiences by enhancing perceived benefits or reducing perceived costs (Hsu, Killion, Brown, Gross, and Hurray 2008). Theoretical Framework Michael Porter of the Harvard Business School presented five forces analysis which serves as the framework for industry analysis and business strategy development. These are the 1) bargaining power of customers, 2) bargaining power of suppliers, 3) threat of new entrants, 4) competitors and 5) threat of substitute products and services. These are shown in the illustration below.

Figure 1: Porter’s Five Forces Model Threat of New Entrants This measure how easy or difficult it is for new entrants to enter into the industry. This will include economies of scale,

capital requirements, access to production inputs, financing and distribution channel. Increase in the number of firms and expansion of capacity in response to the growing demand for rattan products suggests that the industry is not characterized by high entry barriers. However, this does not imply that entry or exit is completely easy. High capital, skill requirements and scarcity of raw materials are the major considerations in establishing a rattan manufacturing firm. Large capital is needed to put up factory, pay workers and obtain raw materials. The skill requirement is related to the high degree of product differentiation and the pressure to maintain quality standards for rattan products. (Pabuayon, 1988) Bargaining Power of Buyers This includes the number of customers, the buying volumes, differentiation, price elasticity, brand identity and switching costs. According to Porter (1988), buyers most of the time influence cost and investment for powerful buyer demand costly service. In rattan production the type, design and quality of the products produce by manufacturers are based on the purchase order made by the buyer.

Some

manufacturers,

especially

having

continuous

production

considered their past sales record and market surveys. Buyers are also able to establish preference for certain rattan variation in quality, design, packaging, reputation and the services provided. Bargaining Power of Suppliers This relates to what your suppliers can do in relationship with you. This will also determine the costs of raw

materials and other inputs. This will typically involve the number and size of suppliers, switching costs, unique service or product and the ability to substitute. Raw materials are one of the biggest factors that rattan manufacturers consider. Different studies have found out that there are scarce for raw materials. In order for the rattan firms to continue to produce they have rattan concessions to assure the availability of the materials. Some also have their local suppliers and some large firms have to import to meet their large raw material requirements. Threat of Substitute Products and Services This includes relative price performance of substitutes, switching costs and buyer propensity to substitute. On a free market, buyers always have the choice if there is a viable alternative. Substitution means the same product is sources by two or more distributors. Product differentiation occurs in rattan manufacturing. Furniture products vary in terms of kind, function or use, design, size, shape, and quality. Other rattan products substitutes are wood, bamboo, plastics and metals. Variations also arise upon the form of rattan used and species as well as other materials are used in combination with rattan, the type of finishing touches like color, whether natural or dyed. Competitors It is the major determinant of the competitiveness of the industry. This involves the competition online and offline companies, the

level

of

advertising,

powerful

competitive

strategy

and

competitive

advantage through innovation. There are a lot of rattan furniture companies in the Philippines that are available. These companies are located in major urban areas produce rattan furniture for the domestic market and for export. Rattan furniture nowadays is no longer involved in the use of advertising but instead they adopt innovation through the use of technology by the use of internet and having it on-line. Rattan manufacturers are now patronizing the other Philippine furniture products.

Conceptual Framework Using the four P’s we will be able to find ways on how to properly promote rattan furniture products. The diagram follows:

Figure2: Conceptual Diagram (Four P’s of Marketing)

Price It will determine the affordability of the product. It will also be helpful in determining the price strategy to use. It will be very helpful in assessing the right price rate to use.

Place This will help us know on what location there are abundant sources of raw materials, where we will place the warehousing, the plantation, and the company and the proper location to put up the business, where the products will be saleable. In the export aspect, it will help us determine the countries to where rattan furniture products will be demandable in the market. Product This will give us the features of rattan furniture, its advantages and disadvantages against other furniture. This will tell us on what to develop in the product for it to be saleable. The rattan furniture products should be durable and strong for it to boom in the market. Promotion This will help us find ways to how we sell the rattan furniture. It would be very helpful to the company if there is a very good advertising for the product.

Chapter 3 RESEARCH METHODOLOGY Our study will use the descriptive method in coming up how rattan products reach the market and the manner to which it is promoted. The data needed for this study will be obtained through the use of survey and interviews as well as questionnaires. Research Environment The group identified some rattan users within the Cebu area and will conduct our research on the vicinity to complete the study.

For the

condominium, we chose, Crown Regency Residences Cebu Hotel located near V. Rama Avenue in Guadalupe. For the hotel, we chose Marco Polo Plaza Hotel at Cebu Veterans Drive Nivel Hills, Apas. For restaurant, we chose SumoSam at Ayala Center Cebu. For the resort respondents, we chose Cebu white sands at Maribago Beach. And for the export local markets, we chose

Rattan furniture Philippines Cebu located in Liloan. We chose these markets because they use rattan furniture in their business.

Figure 3 : Crown Regency Location

Figure 4: Marco Polo Location

Figure 5: Sumo Sam Location

Figure 6: White

Sand Beach Resort Location

Figure 7: Rattan furniture Philippines Cebu Location

Research Respondents Our respondents are classified in three types, high-end costumers under which are hotels, condominiums, resorts, bar and restaurants, and subdivisions; export local markets and company advertising departments. Chosen high-end customers must have used in their furniture or fixtures rattan made products that adds beauty and attraction to their structure and have continued patronage from the aforementioned companies products. In random, some of the manufacturer’s staffs will be made to answer the questionnaire base on their gained experience and knowledge on the promotional aspects of the rattan products in their respective companies. Lastly, the export local markets are rattan industries aforementioned whose primary customers are global. Their

unbiased

comments

and

observations

are

taken

into

consideration especially in terms of customer satisfaction and feedback.

Comments are mostly based on the expected service provided by rattan product suppliers. Our respondents would consist of 3 administrators from the five companies we enumerated earlier. From these respondents, we will choose 3 of them in which we will focus the data we will use in analyzing the study. The sampling method used in this study is convenience sampling. Convenience sampling is non-probability sampling which allows the researchers to gather date from respondents who are currently available. The researchers will identify five market areas in this research environment. The researchers count a total of 15 customers of rattan furniture products specifically, 3 each from condominiums, hotels, restaurants, resorts, and export local markets. From which a sample will be taken using this formula:

n=

Nz2p(1-p)___ NE2+z2p(1-p)

Where: Total population (N) = 15 Confidence level (z) = 1.96 Promotion (p) = 50% Margin of error (E) = 5% Table 1 Allocation of sample size n=2.89

MARKET

No. of customers (N)

Percentage

Sample size

Crown Regency

3

20%

2.89

Marco Polo

3

20%

2.89

Sumo Sam

3

20%

2.89

White Sand Beach Resort

3

20%

2.89

Rattan Furniture Philippines Cebu

3

20%

2.89

15

100%

14.44

TOTAL

Computed as follows: n=

15(1.962)(.5)(.5) 15(.052)+(1.962)(.5)(.5)

=14.406 0.9979

=2.89

Research Instruments We

will

use

survey

questionnaires

in

a

checklist

type.

This

questionnaire is will be used to gather data of how rattan furniture products be promoted. It consists of 16 questions which are about how customers assist rattan furniture products and how competitors’ strategies affect customers. Research Procedures Gathering Data This is a research that is utilized by survey and observation methods. The questionnaires will be given to each respondent. After presenting the

questionnaire and after the respondents answered it, it is then collected and interpreted. Treatment of Data From the results of the survey, we have to come up with the marketing practices of the selected rattan company.

Chapter 4 PRESENTATION OF DATA, INTERPRETATION, AND ANALYSIS

The study uses primary and secondary data to know competitive features, competitors, sources and suppliers, possible customers, and how to counter barriers for new entrants. After conducting surveys in different establishments, we found out the answers to some of our questions that are essential for the study. With this we will be able to give solution to the problem and give recommendations on how to make rattan furniture better and more attractive for the customers.

In this chapter, we will show primary and secondary data gathered while making the study. Some of the data are based on the answers of the respondents from different establishments. While some are from different articles, books, and websites. Some of the data that we have gathered will be shown in graphs and tables. In this way, the reader will be able to comprehend better. Furthermore, the confidentiality of the respondents will be ensured by not disclosing their names or personal information in the research. Only relevant details that helped in answering the research questions are included. Competitive features and systems Rattan furniture is old fashioned as some may say. But to others it is not. It has features that people will like to have in their place of comfort. According to some websites, rattan furniture is eco-friendly furniture, it is easy to clean, it has a human-centered design, and most especially, it is comfortable. Customers would look out for factors that would help them in deciding on whether to buy rattan furniture or not.

Figure 8: Factors that people consider before buying rattan furniture. As shown above, many rated satisfaction 5 (as 5 being the highest). This means that people will see if they will be satisfied by the furniture if

they buy it. Satisfaction will be followed by quality and style. These factors will be considered side by side. Many of us will really look for quality furniture for our homes and at the same time stylish enough to satisfy our desire. Others factors are the price and who made the furniture (manufacturer). These are the factors that people usually think about before buying rattan furniture.

Figure 9: Competitive areas of rattan furniture in lieu of the market. Rattan furniture is really known because of its features. Customers will always look for good features in a product, features that will satisfy both their needs and desires. Pricing is second as a competitive area. One of the features of rattan furniture is that it is a product that has high quality and best price. What you pay is what you get. When it comes to promotions, many rated it 4, but by looking at the graph some are not satisfied with the promotions for rattan furniture. Sources and suppliers Most people are familiar with rattan baskets and woven rattan furniture – the classic tropical or "bamboo" look. However, Rattan is actually a type of climbing palm that can grow hundreds of feet long. Highly durable, we are excited to develop rattan products to include in our product offering next year. In fact, the rattan baskets we use to contain our dyed leaves have just

now started to break, after years of use and abuse. Shown at left picture are rattan seedlings. (http://www.nativeleaf.com/Materials.html)

Figure 10: Rattan (Calamus) Agusan province is the largest rattan-producing area in the country with 4.9 million linear meters production in 2003. It is also the major supplier of rattan to the furniture industry in Cebu. (FRAME Philippines Rattan Value Chain Study, February 2006) Competitors There are three major furniture-making areas in the country: Cebu, Metro Manila, and Pampanga. Study surveys were conducted in Cebu and Metro Manila. Metro Cebu, which is a conglomeration of four cities: Cebu City, Mandaue, Lapu-Lapu, and Talisay, has the largest-sized rattan, stone craft, and metal furniture industry in the country, whereas the furniture cluster in Pampanga is the second largest. Cebu province accounts for more than 60 percent of the country’s annual furniture export sales.

Upon going some of the studies about rattan products, competition is on the international side. Based on research questionnaires we gathered, many believe that rattan furniture here in the Philippines, especially Cebu, can really compete internationally. But despite this belief many still said that exporting our rattan furniture is the only way for it to be in the market. According to the survey, 67% of the respondents have bought rattan products. And 60% of them rated the product 5 (being the highest) and 40% rated it 4. Some of them even said that it is practical to have rattan furniture in the house. Because of its durability, it can last long and can even be inherited through generations. It is estimated that 80 to 90 percent of raw rattan poles go into exported furniture. A decade ago when cheap, low quality furniture started to flood exports markets from China and Indonesia, the Philippines successfully positioned its furniture with customers who care more about quality and fashion than price. The Philippines enjoys having skilled craftsmen who are reputed to be among the world’s best. Through excellent design flair, the Philippines is considered to be a trendsetter among furniture-producing countries in Asia earning the title “Milan of Asia.” (FRAME Philippines Rattan Value Chain Study, February 2006) Possible Customers High-end Customers. Hotels, condominiums, beach resorts are some of the establishments that use rattan furniture. They usually buy rattan

furniture because of the comfort it gives to their valued customers. And because rattan furniture can blend in easily with any motif they have. It has many designs, may it be vintage or modern. Export and local market. As said a while ago, rattan furniture can and is competing internationally. Many countries like the United States, Japan, and many more are buying rattan furniture here in the Philippines.

Figure 11: Main export destinations of Philippine furniture New entrants It is difficult for new entrants to enter the rattan furniture industry. According to the survey results, 33% rated it 5 (very difficult), 40% rated it 4 (difficult), and 27% rated it 3 as moderate. Many of the respondents would consider the manufacturer of the rattan furniture. If you are new in the industry many may think that your furniture is not as good as the pioneering ones. A growing number of manufacturing firms have started selling directly to

retailers

and

agents

in

international

markets

and

are exploring

nontraditional markets (e.g., the Middle East, Spain, and China) to complement existing markets in North America and Japan. This enhances traditional channels and brings new sources of value addition for the products. An organized marketing information system would help this strategy be more successful. The Center for International Trade Expositions and Missions (CITEM) is also helping manufacturers through marketing campaigns, trade missions, and participation in prestigious trade fairs abroad. The Cebu Furniture Industries Foundation (CFIF), in particular, has a very sophisticated marketing program and exhibit (see box). The Chamber of Furniture Industries of the Philippines (CFIP) creates incentive-based programs that support member manufacturers who pioneer in expanding global markets. In connection with this strategy, CFIP also suggests that new products introduced in the market be exclusively produced, first by the firms that created the products, until these have been fully accepted by the market. This strategy is intended to bring appropriate returns to developers of the new products and encourage others to also develop new designs and products. (FRAME Philippines Rattan Value Chain Study, February 2006)

CHAPTER 5 CONCLUSION AND RECOMMENDATION Conclusion After gathering all data, we conclude that the market is no that ignorant about rattan products. Therefore, rattan manufacturers need more to dwell on rattan products be improved in terms of pricing, features, styles or designs and the promotion. The study suggest to be more focus in terms of prices and be aware of the different substitutes and how rattan products could be the first choice among other substitutions. Upon thorough investigation on the data, the researchers have gathered and compiled that leads us to a conclusion that rattan products are sellable and can compete both locally and internationally. 67% of the respondents answered that they have bought rattan products; 40% of these buy/will buy rattan furniture, 26% buy/will buy rattan home decors and 26%

buy/will buy souvenir items. Despite the price 53% of the respondents answered it is practical to own rattan products for it has good quality, style and the satisfaction it can bring to them. This data gathered says clearly that majority of the respondents patronize rattan products and promoting it won't be much of a problem. For the competition in this line of business 73% answered there is a strong competition between the existing companies and this makes it difficult for the new entrants to survive. Rattan furniture shows prestige and pride thus local market may not afford but it doesn't mean that exporting is the only market.There are a lot of Filipinos that is willing to buy good quality rattan products despite of it's expensive price.

Recommendation We suggests that we should only not do or sell our rattan products for exports but also let the Filipinos buy and experience the beauty of our own rattan products.