Furn Globalization

7/29/2019 Furn Globalization

1/31

Globalization and Regional Change in the U.S.Furniture Industry

MARK H. DRAYSE

ABSTRACT Furniture manufacturing has experienced rapid globalization in recent years. This

is mainly the result of global production networks established by large manufacturers and retailers

seeking to reduce costs in a highly competitive environment. The industrys globalization has been

facilitated by technological innovations and the global reduction of trade and investment barriers.In the U.S., furniture-producing regions are experiencing tumultuous change. Growing numbers

of firms are outsourcing production to China, which is now responsible for about half of all U.S.

furniture imports. Employment levels have plummeted. However, an analysis of spatial patterns of

employment, output, and capital investment in U.S. furniture manufacturing shows that regional

change is not uniform. Southern regions characterized by larger firms specializing in wooden case

goods production have been especially vulnerable to job loss.

Introduction

I n October 2003, a coalition of furniture manufacturers and unions petitioned the U.S.International Trade Commission for relief under the Tariff Act of 1930, claimingmaterial injury from Chinese imports. They argued that China was dumping furniture into

the U.S. market, taking advantage of its low wages and undervalued yuan. The petitioners

were supported by politicians from furniture-producing regions such as North Carolina and

Virginia. Virginia Business cried the onslaught of the Middle Kingdom is costing thou-

sands of jobs nationwide (Peters 2002).

The petitioners and their supporters were reacting to the dramatic growth in U.S.

furniture imports from China, which increased from $1.5 to $15.5 billion between 1996 and2005.1 Chinas share of U.S. furniture imports grew from 13 to 46 percent, and the U.S.

furniture trade deficit quadrupled from $7.5 to $28.8 billion (U.S. Census Bureau 2006a).

Chinese imports were the main reason that imports as a share of domestic shipments

increased from 17 percent in 1997 to 40 percent in 2005. Meanwhile, between 2000 and

2005, average annual employment in the U.S. furniture industry fell from 641,000 to

536,000, a 16 percent decline (U.S. Census Bureau 2006b).

Mark H. Drayse is an Associate Professor in the Department of Geography, California State

University, Fullerton, CA 92834. His email address is: [email protected]. The author thanks

Thomas Leinbach and three anonymous referees for their constructive comments on an earlier version

of this paper.

Growth and Change

Vol. 39 No. 2 (June 2008), pp. 252282

Submitted October 2006; revised January 2008; accepted February 2008.

2008 Blackwell Publishing, 350 Main Street, Malden MA 02148 US and 9600

Garsington Road, Oxford OX4, 2DQ, UK.
mailto:[email protected]:[email protected]


2/31

These numbers paint a picture of another U.S. manufacturing industry succumbing to

global competition. However, the antidumping petition obscures the real processes of

economic globalization in the furniture industry. The driving force behind rising furniture

imports is the development of global production networks by large U.S. firms. Manufac-

turers are outsourcing production to foreign subcontractors, and large retailers are circum-

venting domestic manufacturers and developing their own foreign supply networks. In fact,

the Furniture Retailers of America was created expressly to fight the antidumping petition,

since tariffs on furniture imports would result in higher costs for retailers and consumers.

They were joined by large U.S. manufacturers with Chinese supply networks, and Chinese

firms targeted for tariff penalties.

Union support for the petition underscores the tenuous situation of workers in the global

economy. The tension between global and local scales of economic activity is nowhere

more apparent than in the loss of jobs caused by corporations shutting down plants to

engage in a global sourcing strategy. From the workers perspective, the petition represents

a defense of place in an uncertain world.

Regional change has been a central theme in the evolution of the U.S. furniture industry.

First taking root in the metropolitan Northeast during the early nineteenth century, the

industry began shifting to small Northeastern and Midwestern cities in the latter half of the

century to take advantage of cheaper labor. The early twentieth century saw the growth of

regional furniture industries in the South and California. The current era of globalization

continues this spatial shift of furniture production to places with less expensive, unorga-

nized labor.

This paper addresses the following questions. How is the U.S. furniture industry reor-

ganizing in this era of rapid globalization? What is the impact of corporate reorganization

on patterns of regional employment change? Regional development outcomes in the U.S.

furniture industry are not uniformfor example, while North Carolina is experiencing

a precipitous loss of jobs, some smaller regional industries are holding their own and

performing better than the national average. What explains these different outcomes?

The paper proceeds by presenting a conceptual framework for understanding regional

development in an era of globalization. This is followed by a discussion of the changing

patterns of global trade and the emergence of China as a pivot for the industrys global-

ization. Patterns of regional change in the U.S. furniture industry are then compared and

evaluated using data on capital investment, output, and employment from the Census of

Manufactures and the Annual Survey of Manufactures. The connections between global

production networks and regional restructuring are highlighted in a case study of Furniture

Brands Internationals (FBN) global strategy and its impact on employment in the North

Carolina furniture industry.

Economic Globalization and Regional DevelopmentUnderstanding the connection between economic globalization and regional develop-

ment is a core research problem in economic geography. Economic globalization involves

intensified international flows of capital, commodities, labor, and information as a result of

GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY 253


3/31

converging technological, political, and economic processes operating at multiple geo-

graphical scales (Dicken 2007). Globalization is driven by firms developing global pro-

duction and distribution networks to take advantage of cheaper costs of production and gain

access to foreign markets. Governments in developing countries are inviting foreign invest-

ment to spur economic development, pursuing the strategy of export-led industrialization

pioneered by Japan after the Second World War. Barriers to trade and investment have been

reduced under the auspices of the World Trade Organization (WTO). Technological inno-

vations in transportation and communications have lowered the costs of economic trans-

actions and facilitated the globalization of economic activity.

The concept of global value chains is a useful starting point for describing and under-

standing the connections between economic globalization and regional development,

defined here as progressive improvement in the social and economic well-being of a

regions inhabitants. A global value chain is a linked sequence of activities involved in the

production and distribution of a commodity, from raw materials extraction to final con-

sumption (cf. Bair and Gereffi 2003). Manufacturers dominate producer-led chains, and

wholesalers and retailers dominate buyer-led chains. However, the site of corporate control

in different industries may be difficult to identify and can change over time (Leslie and

Reimer 1999). For example, Tewari (2004) suggests that the furniture industry is evolving

into a quasi-buyer-led value chain because of the growing influence of transnational

retailers like IKEA and WalMart, alongside branded manufacturers such as FBN.

Incorporated within and across global value chains are global production and distribu-

tion networks organized by corporations. These networks include horizontal and vertical

linkages that may encompass local to global scales and include lead firms, suppliers, and

retailers (Sturgeon 2000). While based on contractual relations between firms, global

production and distribution networks are influenced by nonfirm actors, such as govern-

ments, labor unions, and nonprofit organizations (Rothenberg-Aalami 2004; Smith et al.

2002).

The development and transformation of global production networks provides the crucial

link between globalizing processes and regional development. Even as corporations

develop global networks, production remains rooted in regional production systems where

firms benefit from agglomeration. Focusing on global production networks helps to break

down the false dichotomy between global flows and regional economic activity (Johns

2006), and highlights both the spatial extent (stretching) and territorial embeddedness

(deepening) of corporate activity. As Dicken and Malmberg (2001) point out, firms are

intrinsically spatial and territorial (7).

Coe et al. (2004) argue that the success of regions in the global economy is related to

their ability to create, enhance, and capture value through integration with global produc-

tion networks. Value creation involves training and educating the workforce, promoting

start-ups and supplier networks, facilitating venture capital formation, and encouraging

entrepreneurial activity. Value enhancement is a result of industry learning and upgrading,

and the promotion of regional assets. Regional assets include local labor markets, business

associations and other organizations, cultures of learning and innovation, and the provision

254 GROWTH AND CHANGE, JUNE 2008


4/31

of physical infrastructure (cf. Gertler 1995; Scott and Storper 2003; Storper 1997). Value

capture occurs when a regions assets are so highly valued by lead firms that they maintain

or increase their activity in the region. However, changes in technological and competitive

environments may result in the devaluation of regional assets by corporations, with atten-

dant disinvestment and job loss (Coe et al. 2004).

Upgrading of productiona key component of value enhancementinvolves innovat-

ing to increase value added (Giuliani, Pietrobelli, and Rabellotti 2005). Giuliani, Pietro-

belli, and Rabellotti (2005) identify four types of upgrading. Creating higher-value products

is an example of product upgrading. Process upgrading is a result of innovations in

production technology and more efficient organization of production. If firms concentrate on

higher value activities such as design and marketing, this involves functional upgrading.The

fourth type, intersectoral upgrading, occurs when firms shift industries, again resulting in a

move from lower value added to higher value added activity. Downgrading is the opposite

strategy, involving disinvestment or reliance on a cost-cutting strategy emphasizing low

wages in the absence of innovation. Downgrading may be a consequence of functional

upgrading, while product and process upgrading are complementary strategies.

While upgrading can be associated with the development of regional assets, it can also

result from learning that occurs within global production networks (the learning pipe-

lines described by Bathelt, Malmberg, and Maskell 2004). Sacchetti and Sugden (2003)

argue that globalization has promoted the development of long-term, collaborative sub-

contracting relationships that give lead firms a considerable degree of control over supply

chain logistics and product quality, while at the same time providing subcontractors with

valuable technological, managerial, and skills-related expertise that can allow them to

develop their own subcontracting and distribution networks (van Grunsven and Smakman

2001). Tokatli and Kizilgun (2004) argue that firms in peripheral regionsin their case, a

clothing manufacturer in Turkeyhave room for autonomous action in upgrading and

exporting their own brands. Upgrading firms may become sources of information spill-

overs, promoting innovation and growth within a regional industry (Scott 2006:1531).

However, as Knutsen (2005) cautions, latecomers in buyer-driven networks may experience

minimal upgrading, as lead firms exploit them for cheap wages. Growing external connec-

tions may result in regions becoming branch plant economies dependent on decisions made

elsewhere (cf. Kaplinsky, Morris, and Readman 2002).

Storper (1997) argues that regional competitiveness should involve increases in pro-

ductivity and market share that sustain the workforce by maintaining or increasing jobs

at decent wages. This is a clear indicator that firms in a regional industry are following

a high-road development path. However, upgrading may or may not result in positive

employment outcomes (cf. Bristow 2005; Kitson, Martin, and Tyler 2004). For example,

capital-intensive process upgrading may result in growing sales but falling employ-

ment. Houseman (2007) argues that increased offshoringconsistent with functional

upgradingcan result in increased productivity but reduced employment in the home

region, as foreign workers are substituted for local workers at considerably lower wages.

This can result in firms reporting growing output, while domestic employment and capital



5/31

investment are declining. In their study of the textile, clothing, and footwear industries in

Australia, Webber and Weller (2001) show that increased offshoring resulted in significant

declines in total employment, despite growth in nonproduction jobs. A region may also

experience production downgrading (plant closings, disinvestment) and consequently face

severe job losses. This can result from the extensive outsourcing associated with functional

upgrading, or industry decline (van Grunsven and Smakman 2001).

Regional economic development in the contemporary era of globalization is influenced

both by the intraregional development of industries and assets and the external connections

made by firms within global production networks. Competitive pressures may contribute

to different strategies of upgrading or result in industry disinvestment and decline. The

development path of an industry is not uniform but influenced by regional context (cf.

Smith et al. 2002).

The Globalizing Furniture Industry

Causes of globalization. The furniture industry had the highest trade volume of any

low-technology manufacturing industry in 2001 (Kaplinsky and Readman 2005). Between

1980 and 2001, global furniture exports increased by an average of 11 percent each year,

compared to a 9 percent average annual increase for all manufactured exports (United

Nations Conference on Trade and Development [UNCTAD] 2004). The total value of global

furniture exports increased from $54 to $95 billion (current dollars) between 1999 and 2005

(UNCTAD 2007).

Compared with other labor-intensive industries, such as apparel and footwear, furni-

ture production has been less amenable to globalization. Although the labor-intensive

character of furniture production and relatively low barriers to entry have created a very

competitive industry in which firms have great incentives to seek out low-wage labor, the

material and cultural characteristics of furniture have mitigated long-distance subcon-

tracting. Furniture has one of the lowest value-to-bulk ratios of any manufactured com-

modity, and wood and upholstered furniture can be easily damaged in transit. Furnitures

status as a cultural product has influenced industrial organization and further limited

globalization. Furniture reflects the art and expressivity of consumers (Molotch 1996).

This helped to create a labor-intensive, batch production industry based on agglomera-

tions of small- and medium-size firms with limited capacity to develop long-distance

production networks.

The globalization of the furniture industry since the 1980s has occurred through a

convergence of technological innovations, the implementation of economic development

strategies and regulatory regimes favoring global investment and trade, and the emergence

of furniture manufacturers and retailers with the capacity to develop global production and

distribution networks. In recent years, a primary reason for the accelerated globalization of

the furniture industry has been the establishment of global production networks using

Chinese subcontractors.

Innovations in transportation, packaging, and logistics have reduced shipping costs. The

ability to ship furniture in containers that can be easily transferred to trucks and trains and



6/31

transported to the final destination has greatly reduced the costs of long-distance shipping.

The design and packaging of knock-down furniture was pioneered by the Swedish furniture

retailer IKEA. New packaging materials and product coatings reduce damage to furniture

in transit. Information technology allows firms to create complex logistics systems to track

orders, production, and shipments. Some firms are customizing factory-direct containers

(known as mixed containers) for individual retail outlets.

Political processes operating at multiple scales are promoting the globalization of

furniture production. At the global scale is the phase-out of furniture tariffs under the

auspices of the WTO. The integration of high-wage and low-wage countries within the

European and North American economic blocs has contributed to increased production in

countries such as Poland and Mexico geared toward the Western European and American

markets, respectively. National governments in developing countries are opening up their

borders to investment and trade in order to promote economic growth. Within countries,

state and local governments are establishing policies and incentives to foster favorable local

conditions for investment.

The center of corporate power in the furniture industry is shifting to large transnational

retailers and branded manufacturers. Since the 1980s, a wave of corporate mergers in

manufacturing, combined with the emergence of megaretailers such as WalMart and

Costco, created large corporations with the resources to organize global networks. After a

series of acquisitions of leading North Carolina manufacturers, FBN emerged as the largest

furniture manufacturer in the U.S., with $2.4 billion in revenue in 2005 (Fortune Magazine

2006). Other leading manufacturers included Steelcase and Herman Miller, both based in

the Grand Rapids region in Michigan. Many traditional furniture retail chains have gone

out of business in the face of stiff competition from megaretailers and manufacturers retail

galleries. Processes of corporate consolidation and globalization are mutually reinforcing:

intense competition promotes mergers and acquisitions, creating firms with greater capac-

ity to organize global production networks.

Changing patterns of global trade. Newly industrializing and transitional econo-

mies are responsible for growing shares of furniture exports. Between 1999 and 2005,

the global export share of advanced industrial countries fell from 70 to 53 percent.

Leading exporters were Italy, with $10.5 billion in furniture exports in 2005, followed by

Germany, Canada, and the U.S. (Table 1). On the other hand, the export share of newly

industrializing countries grew from 20 to 31 percent. Chinas furniture exports increased

from $3.5 to $16.6 billion between 1999 and 2005; in 2004, China surpassed Italy as the

worlds leading furniture exporter. In 2005, China was responsible for 54 percent of

furniture exports from all developing countries and 18 percent of global furniture

exports. Other leading exporters from newly industrializing countries included Mexico,

Malaysia, and Indonesia.

The eastern expansion of the European Union has integrated lower-wage countries into

the European market, resulting in greater subcontracting by firms based in Western Europe.

This explains why the global export share of transitional economies increased from 10 to

15 percent between 1999 and 2005. Poland led the way with $5.6 billion in exports in 2005,



7/31

TABLE1.

GLOBAL

FURNITURETRADE,

19992005.

Country

2005

exports

($millions)

Perce

nt

ofworld

Average

annual

percent

change,

19992005

2005

imports

($millions

)

Percent

ofworld

Average

annual

percent

change,

19992005

China

16,5

71,8

14

17.5

29.8

UnitedS

tates

34,0

17,71

5

32.9

11.8

Italy

10,5

38,4

93

11.1

3.8

German

y

9,1

32,91

6

8.8

4.5

Germany

7,5

74,1

19

8.0

6.9

UnitedK

ingdom

7,3

05,79

0

7.1

15.2

Canada

5,6

41,6

50

5.9

3.4

France

6,5

58,81

3

6.3

10.6

Poland

5,5

51,0

47

5.9

19.0

Japan

4,9

01,56

4

4.7

8.7

UnitedStates

5,1

90,3

59

5.5

3.0

Canada

4,6

14,01

1

4.5

8.6

Mexico

4,5

59,8

05

4.8

12.2

Belgium

3,0

09,31

1

2.9

6.4

France

2,9

70,6

09

3.1

3.2

Spain

2,7

09,57

9

2.6

20.0

Denmark

2,6

50,5

78

2.8

5.4

Netherla

nds

2,5

81,67

9

2.5

4.4

Belgium

2,1

41,7

69

2.3

2.4

Switzerland

2,3

06,24

7

2.2

5.2

Malaysia

2,0

24,6

95

2.1

6.4

Austria

1,9

54,36

2

1.9

5.3

CzechRepublic

1,9

02,9

76

2.0

16.7

Italy

1,9

14,54

3

1.8

12.5

Spain

1,8

74,5

10

2.0

4.1

Sweden

1,6

60,60

7

1.6

9.4

Indonesia

1,8

56,0

60

2.0

7.0

China

1,5

33,48

1

1.5

2.5

Austria

1,8

04,6

20

1.9

9.0

Australia

1,4

99,47

8

1.4

17.3

CountryGroup

Country

Group

ADVANCED

INDUSTRIAL

50,5

92,1

83

53.4

5.1

ADVANCED

INDUSTRIAL

91,6

82,32

5

88.5

10.1

TRANSITIONAL

13,7

30,4

57

14.5

17.5

TRANSITIONAL

5,1

20,74

5

4.9

19.3

NEWLY

INDUSTRIALIZ

ING

29,4

23,8

65

31.0

18.6

NEWLY

INDUSTRIALIZING

5,5

54,82

3

5.4

5.7

UNDERDEVELO

PED

1,0

78,4

30

1.1

7.9

UNDERDEVELOPED

1,1

85,15

9

1.1

8.9

WORLD

94,8

24,9

35

WORLD

103,5

43,05

2

Source:UnitedN

ationsConferenceonTradeandDevelopment(UNC

TAD)(2007).

TradedataforSITC(StandardIndustrialTradeClassification)821Fu

rniture.



8/31

making it the fifth largest furniture exporter in the world. Other major exporters in this

group were Czech Republic, Slovenia, and Romania.

The advanced industrial countries absorbed 89 percent of global furniture imports in

2005. The U.S. alone imported $34.0 billion of furniture in 2005, 33 percent of total global

imports. Other major importers, with much smaller volumes, were Germany, UK, France,

and Japan. China was the leading furniture importer outside of the advanced industrial

economies; its $1.5 billion in furniture imports in 2005 represented 13 percent of all

furniture imports by developing and transitional economies. The massive scale of Chinas

furniture production allows it to meet most domestic demand internally while generating an

enormous trade surplus.

The emerging giant: the Chinese furniture industry. What explains Chinas revolu-

tionary impact on the global furniture industry? Production costs are certainly lower.

Average hourly wages in Chinese furniture factories are between $0.50$0.75, compared

with $13.33 in the U.S. (Bryson et al. 2003; U.S. Census Bureau 2006b). Chinese firms also

enjoy much lower overhead costs than their American counterparts. These cost savings

more than compensate for the cost of shipping a container of furniture across the Pacific

Ocean. For example, one study estimated that labor, overhead, and shipping costs for

Chinese furniture firms are approximately 5060 percent of the cost of labor and overhead

alone for U.S. furniture firms (Bryson et al. 2003). A Wisconsin manufacturer stated that he

can ship Indiana oak halfway around the world, have it made into furniture and sent back

to the Midwestall for about 40 percent less than the cost of production here (Schmid and

Romell 2003).

However, lower production costs are only part of the answer. The foundation for the

industrys modern development was laid by the strategic shift in Chinese industrial policy

in the post-Mao era. Following the lead of successful Pacific Asian economies, China

embarked on a strategy of export-led industrialization (cf. Naughton, 1996). The country

channeled foreign investment to special economic zones in the coastal provinces. This

helped the government concentrate infrastructure investments while containing foreign

investment in the coastal ports that were Chinas traditional gateway to the outside world.

Foreign firms were allowed to invest in Chinese firms and establish joint ventures and

subcontracting relationships and under certain conditions can now establish wholly owned

subsidiaries (Wei 2000).

Dynamic furniture manufacturing agglomerations emerged in new industrial cities such

as Shenzhen, where firms have access to a growing, inexpensive labor force, massive

infusions of capital and technology, and networks of suppliers and subcontractors. Annual

trade marts bring together local producers and foreign firms. Furniture centers are being

created to provide technical expertise and marketing services. In Shenzhen, two universities

supply graduates in furniture and interior design (Carroll 2003). The significance of

agglomeration is recognized in official proclamations. For example, Dayong has been

designated the Specialized Town for the Production of Redwood Furniture; Dachong is

the Specialized Town of Mahogany Furniture Production. The high degree of agglom-

eration in the Chinese furniture industry is borne out by comparisons with other industries.



9/31

Of 29 Chinese manufacturing industries analyzed by Fan and Scott (2003), furniture

manufacturing ranked third in geographical concentration of establishments, and seventh in

geographical concentration of employment.

Today, there are an estimated 50,000 furniture firms in China, employing five million

workers. The core of the industry, including the major exporters, consists of more than

2,000 large state-owned companies and joint ventures (Union Europenne de

lAmeublement 2000; Xu, Cao, and Hansen 2003). The Zhu Zhiang (Pearl River) Delta

in Guangdong province is the center of the Chinese furniture industry. The province

accounted for 30 percent of Chinas furniture output in 2002 and 51 percent of exports in

2003. Just north of Guangdong, Fujian was the source of 22 percent of output and 10

percent of exports, and the Lower Yangtze Delta region (including Shanghai, Zhejiang, and

Jiangsu) was responsible for 21 percent of both output and exports (Xu, Cao, and Hansen

2003).

The Chinese furniture industry has benefited greatly from Taiwanese investment. This

has been a critical factor behind the countrys growing furniture industry, providing

infusions of capital and technical know-how, as well as connections with customers in the

U.S. and other developed countries. In the 1980s and early 1990s, Taiwan was the major

source of U.S. furniture imports. As a result, Taiwanese furniture firms were experienced in

producing high-quality furniture to meet the demands of U.S. customers. Once the main-

land economy was opened up, Taiwanese entrepreneurs crossed the strait to take advantage

of much lower production costs. The Taiwanese benefited from the relative autonomy of

local authorities in Guangdong, Fujian, and other provinces eager to attract investment and

create jobs (Hsing 1995; Lin 2001). Chinas largest furniture manufacturer, Urumqi-based

Markor Corporation, was founded by two local entrepreneurs allied in a joint venture with

a Taiwanese firm (Urban 2002).

The large Chinese furniture firms operate megaplants that employ thousands of

workers living in company-owned dormitories. For example, Lacquer Crafts 2.5 million

square foot plant in Dongguan employs more than 5,000 workers. Its original brand

production has been shifted to a new four million square foot plant in Shanghai (Russell

2004). Yihua International, a fully integrated firm with its own forests, is building a

3.6-million-square-foot complex in Guandong that could employ 20,000 people (Russell

2005). Lacquer Crafts Taiwanese founder, Samuel Ko, states that Americans have no idea

how big and well-equipped these plants are (Becker 2003). By contrast, FBNs 25 plants

in 2005 ranged in size between 103,000 and 899,000 square feet (FBN 2006).

Several large Chinese firms have established alliances with manufacturers and retailers

in North America and Europe. For example, most of Lacquer Crafts Dongguan plant

output is destined for FBN and other U.S. customers (Urban 2002). While providing U.S.

contractors with significant cost savings, these alliances also benefit Chinese firms through

the transfer of technology and expertise.

As a result of their growing capabilities, several Chinese firms are marketing brand-

name furniture in the U.S. For example, about 90 percent of Lacquer Crafts U.S. sales are

channeled through its own Universal Furniture and Legacy Classic divisions (Russell



10/31

2006). In May 2006, Lacquer Craft established a manufacturing base in the U.S. by

acquiring North Carolina upholstery manufacturer Craftmaster Furniture Corporation

(Evans 2006). Yihua International Group recently opened a distribution center in Rancho

Cucamonga, California (Russell 2005). The Hong Kong manufacturer Simplified is build-

ing a distribution network among independent U.S. retailers and establishing its own

licensed stores to sell branded products (Slaughter 2005). Xilinmen Group, which produces

furniture for New Jerseys Excel, plans to build a plant in the U.S. to manufacture bedding

(Perry 2004).

The growth of the modern Chinese furniture industry has resulted from the convergence

of labor and capital in coastal cities, supportive local and national government policies, and

the dynamic local and external networks established by Chinese firms. This has reoriented

the geography of the global furniture value chain. For example, the forests of Siberia are

being tapped to augment lumber supplies for the Chinese industry (Hashirimoto, Castano,

and Johnson 2004). Foreign component and finishing suppliers are moving to China to

fulfill growing demand for their products.

The opening of the Chinese economy has accelerated the industrys globalization, and

connected regions and workers across the Pacific Ocean. Chinese production and American

consumption is the dominant economic axis in the global furniture industry today.

Regional Employment Change in the U.S. Furniture IndustryBefore the current era of globalization, employment in the U.S. furniture industry was

predictably cyclical, tracking trends in housing and office construction that ebbed and

flowed with economic recessions and expansions. But in recent years, employment has

fallen precipitously in the midst of an expanding housing market because of growing

reliance on Chinese suppliers by U.S. furniture manufacturers and retailers. The emerging

global division of labor for the U.S. furniture industry has unhinged the connection between

overall economic activity, furniture consumption and production, and domestic furniture

employment. For example, between 2000 and 2005, annual housing permits in the U.S.

increased 35 percent, and consumer spending on furniture grew 17 percent (U.S. Census

Bureau 2006c). However, total output in U.S. furniture manufacturing increased only 2

percent between 2000 and 2005, while employment fell by 16 percent. New capital

expenditures by U.S. furniture firms also declined, from $2.3 billion in 2000 to $1.4 billion

in 2004 (U.S. Census Bureau 2006b).

The globalization of the U.S. furniture industry is readily apparent from trade statistics.

The total value of U.S. furniture imports tripled from $11.5 billion in 1996 to $34.0 billion

in 2005 (Table 2). The furniture trade deficit ballooned from $7.5 to $28.8 billion

(Figure 1). While Chinas share of imports grew from 14 to 46 percent between 1996 and

2005, Taiwans import share fell from 11 to 2 percent as Taiwanese investors shifted

investment to the mainland (Figure 2). The import share of Southeast Asian countries fell

from 11 to 10 percent despite a rising value of imports. Vietnam is the only Southeast Asian

country experiencing a growth in import share, as its furniture imports skyrocketed from a



11/31

negligible $392,000 in 1996 to $850 million in 2005. Vietnam now accounts for more than

25 percent of U.S. furniture imports from Southeast Asia.

Import shares from developed economies are falling, although volumes are generally

increasing. For example, although the total value of imports from Canada increased by an

average annual rate of 4.8 percent between 1996 and 2005, Canadas share of U.S. furniture

imports fell from 30 to 15 percent. Italy and Germany, the major European sources, also

saw their shares of U.S. imports decline.

Production and employment change. How has the globalization of the U.S. furniture

industry influenced patterns of regional production and employment? To describe regional

change in production, I draw on the framework presented by Kaplinsky and Readman

(2005) in their study of upgrading in the global furniture industry. They used two indicators

of production upgrading: unit prices and market share. Successful upgrading was indicated

by above-average change in each indicator, suggesting that firms were producing higher-

quality products and gaining market share. To analyze production upgrading in the U.S.

furniture producing regions, I used state-level capital investment and value-added data

from the Census of Manufactures andAnnual Survey of Manufactures. Unit price data were

not available due to the suppression of state-level shipment volume data. To analyze

TABLE 2. US FURNITURE IMPORTS, 1996 AND 2005 (MILLIONS OF 2005 DOLLARS).

Country Imports2005

Percent Imports1996

Percent Average annualpercent change,

19962005

China 15,479.9 45.5 1,478.6 12.8 29.8

Canada 5,202.6 15.3 3,411.4 29.6 4.8

Mexico 4,334.0 12.7 1,779.3 15.4 10.4

Italy 1,185.8 3.5 858.9 7.4 3.6

Malaysia 908.0 2.7 500.2 4.3 6.8

Vietnam 850.1 2.5 0.4 0.0 134.8

Taiwan 801.9 2.4 1,213.2 10.5 -4.5

Indonesia 729.5 2.1 311.8 2.7 9.9

Thailand 531.7 1.6 220.7 1.9 10.3

Brazil 529.9 1.6 74.6 0.6 24.3

Germany 365.5 1.1 157.8 1.4 9.8

Philippines 330.7 1.0 222.1 1.9 4.5

United Kingdom 254.2 0.7 195.5 1.7 3.0

France 237.3 0.7 82.1 0.7 12.5

India 233.4 0.7 28.5 0.2 26.3

WORLD 34,017.7 100.0 11,544.3 100.0 12.8

Source: US Census Bureau (2006a).



12/31

regional employment change, a time series was created for 19972005 using state-level

data on employment, capital investment, and value added. To dampen annual fluctuations,

I compared change between 19971999 and 20032005.

Regional trends are an aggregate outcome of corporate strategies and actions. As

described by Giuliani, Pietrobelli, and Rabellotti (2005), upgrading strategies include 1)

product upgrading, 2) process upgrading, 3) functional upgrading, and 4) intersectoral

upgrading. The first three strategies are evident in furniture manufacturing. To these

strategies, we can add 5) low-road growth based on cutting costs and 6) downgrading and

disinvestment.

FIGURE 1. THE GROWING U.S. FURNITURE TRADE DEFICIT, 19962005.



13/31

Successful product and process upgrading should be associated with above-average

growth in capital investment and value added, providing evidence that firms are reaping the

benefits of innovation through increased market share. Failed upgrading can be identified

by increased capital investment but below-average growth or decline in value added.

Functional upgrading, which may involve significant offshoring of production and

concentration on design and marketing at home, is likely to result in deep cuts in capital

investment. Impacts on output will vary depending on the extent of cuts in domestic

production relative to the volume of imported goods. In any case, the share of a regions

FIGURE 2. U.S.CHINA FURNITURE TRADE, 19962005.



14/31

output accounted for by domestic establishments will decline as a result of widespread

functional upgrading. If value added increases at an above-average rate but capital invest-

ment is well below the industry average, firms in a region may be trying to compete through

price competition, a low-road approach unlikely to be sustained.

The following hypotheses regarding corporate strategy and employment change can be

proposed:

1. Successful product and process upgrading can result in different employment outcomes,

although at a minimum employment change, even if negative, should be more positive

than the national rate of change. On the other hand, failed product and process upgrad-ing is likely to result in employment decline.

2. Functional upgrading should result in significant employment decline as domestic

production is reduced.

3. A low-road competitive strategy may result in stable employment in the short term,

although the industry is likely to decline due to lack of innovation and intense

competition.

In the case of a rapidly globalizing industry such as furniture, the best-case scenario

may involve growing market share and above-average change in capital investment and

employment, even if the latter two indicators are declining. In the case of employment, a

region able to maintain stable employment levels or experience only moderate employment

loss might be considered successful in the changing competitive environment.

Changes in capital investment, value added, and employment are shown for the 18 major

furniture manufacturing states based on employment in 2005 (see Table 3). Table 3 also

includes an Upgrading Index (UI) based on percent change in value added and capital

investment, where VA = value added, K= capital investment, t2 = 20032005, and

t1 = 19971999:

UI VA VA K K t t t t= ( ) + ( )[ ]2 1 2 1100 100 2

Upgrading trends in the furniture-producing states are displayed graphically in Figure 3.

The upper right-hand quadrant corresponds with product and process upgrading, while the

upper left-hand quadrant is associated with failed upgrading. The bottom right-hand quad-

rant could indicate low-road growth or functional upgrading, while the bottom left-hand

quadrant could represent a failed low-road strategy, aggressive functional upgrading, or

simply industry decline. Looking at the dashed axes, which indicate change in value added

and capital investment for the U.S. furniture industry, we can see that the center of gravity

of the industry is in the bottom right-hand quadrant. Growing output and falling capital

investment is consistent with both functional upgrading and low-road growth, suggesting

that these are dominant trends in the industry.

Different patterns were identified for three groups of states: a top tier with above-

average change in capital investment and value added, a middle tier also experiencing

growth in value added but greater declines in capital investment than the top-tier states, and



15/31

a bottom tier with above-average decline in capital investment, combined with below-

average growth or decline in value added.

The top tier, with a UI greater than 97, includes five states: Florida, Missouri, Wiscon-

sin, Minnesota, and Pennsylvania. These states accounted for 14 percent of furniture

manufacturing employment and production in 2005 and do not include the major furniture

producing agglomerations. Florida was the only state with growth in both value added

TABLE 3. REGIONAL CHANGE IN U.S. FURNITURE MANUFACTURING, 19972005(STATES RANKED BY UPGRADING INDEX).

State Employment(thousands)

Percentchange in

employment

Percentchangein valueadded

Percentchange in

capitalinvestment

UpgradingIndexa

2005 199799 to200305

199799 to200305

199799 to200305

Florida 16.0 -10.4 20.0 52.3 136

Missouri 11.7 -2.2 17.7 -9.0 105

Wisconsin 12.8 -12.8 14.8 -12.4 102

Pennsylvania 23.2 -7.6 9.2 -13.7 98

Minnesota 11.9 -2.7 4.4 -7.7 98

Indiana 25.6 -3.9 15.9 -30.4 93

Texas 26.0 0.9 16.3 -32.8 92

Ohio 21.7 -2.6 17.3 -33.4 92

California 59.4 -8.5 8.7 -29.7 90Mississippi 26.5 -17.7 4.8 -25.2 90

U.S. 535.8 -11.0 10.4 -31.9 89

Alabama 13.4 -14.6 4.5 -30.4 88

New York 22.9 3.4 16.4 -45.2 86

Illinois 19.0 -3.9 -7.8 -29.6 81

Georgia 13.5 -10.5 2.0 -48.0 77

Michigan 25.9 -15.5 5.2 -61.0 72

Virginia 17.4 -26.4 -1.0 -55.2 72

Tennessee 19.8 -24.4 -7.7 -50.7 71North Carolina 57.5 -26.8 -10.3 -58.3 66

a The Upgrading Index = [(VAt2/VAt1 100) + (Kt2/Kt1 100)]/2, where VA = value

added, K = new capital investment, t2 = 20032005 and t1= 19971999.

Source: Derived from U.S. Census of Manufacturers; 1997 and Annual Survey of

Manufacturers, 19981999 and 20032005 (U.S. Census Bureau 2006b).



16/31

(+20 percent) and capital investment (+52 percent) between the two time periodsthe one

unequivocal case of production upgrading. In the other four states, capital investment

declined but at a much slower rate than the national average of-32 percent, suggesting a

mix of production upgrading and low-road growth. Missouri and Wisconsin firms experi-

enced increased market share, with 18 and 15 percent growth in value added. Between

19971999 and 20032005, employment fell slightly in Missouri (-2 percent), and at an

average rate in Florida (-10 percent) and Wisconsin (-13 percent).

The middle tier includes states with changes in capital investment and value added close

to the national average: Alabama, California, Indiana, Mississippi, New York, Ohio, and

Texas. The UI in these states was between 86 and 93 (the U.S. average was 89). This group

includes some of the countrys largest furniture agglomerations, in Los Angeles, Southern

Indiana, Northeast Mississippi, and DallasFort Worth, and accounted for 36 percent

of the industrys employment and 35 percent of its output. These industries are likely

FIGURE 3. UPGRADING OF REGIONAL FURNITURE INDUSTRIES IN THE U.S., 1997

1999 TO 20032005.

Note: Dashed axes represent U.S. industry average.



17/31

experiencing a mix of functional upgrading and low-road growth. The furniture industries

in Indiana, New York, Ohio, and Texas appear to be growing without upgrading (the

low-road approach), because above-average increases in value added corresponded with

significant decline in capital investment and stable employment levels (including modest

growth in New York and Texas). However, considerable employment losses were recorded

in California (-9 percent), Alabama (-15 percent), and Mississippi (-18 percent). These

three states also experienced below-average growth in value added and falling capital

investment, suggesting that functional upgrading may be prevalent.

The bottom tier, with an UI below 82, includes Georgia, Illinois, Michigan, North

Carolina, Tennessee, and Virginia. This group represented 29 percent of the industrys

employment and 30 percent of its output. The countrys leading center of household furniture

manufacturing is in North Carolina, while the major office furniture agglomeration is in

Michigan. North Carolina,Tennessee, andVirginia were the only states in which greater than

average decline in capital investment was combined with falling value added. This trend is

consistent with functional upgrading. In Georgia and Michigan, equally severe contraction

in capital investment corresponded with below-average growth in value added, while in

Illinois, value added declined and capital investment fell at a rate close to the national

average. Employment fell considerably in each of the bottom-tier states, with the exception

of Illinois. Substantial job losses occurred in North Carolina (-27 percent), Virginia (-26

percent), and Tennessee (-24 percent), while Michigans employment fell 16 percent.

Regional shift. There is an unexpected regional shift occurring in the U.S. furniture

industry, with the lower-wage, nonunion South faring considerably worse than the higher-

wage North and Westin 2004, average annual earnings in furniture manufacturing were

$33,900 in the U.S. North, $30,190 in the U.S. West, and $27,736 in the U.S. South (U.S.

Census Bureau, 2006d). Unlike the manufacturing sector as a whole, in which Southern job

change closely paralleled the national trend (annual change of -2.8 and -2.7 percent,

respectively), the South absorbed most of the job loss in U.S. furniture manufacturing

between 1997 and 2005. The Southern furniture industry experienced a net loss of 53,700

jobs between 1997 and 2005 (mostly in North Carolina, Tennessee, and Virginia), com-

pared to 14,100 jobs in the rest of the country. Table 3 and Figure 3 show that the Southern

states (with the exception of Florida and Texas) tend to have low scores on the UI, while

Northern states (with the exception of Michigan and Illinois) tend to have higher scores.

This can be explained by differences in regional industry specialization and structure

that have influenced corporate globalization. As furniture manufacturing evolved in the

Piedmont South through the twentieth century, firms capitalized on the regions lumber and

textile supplies and woodworking skills by specializing in wooden case goodse.g.,

bedroom and dining room furniture, bookcases, and desksas well as upholstered house-

hold furniture. As it turns out, case goods today are especially prone to offshore production.

Even some upholstered products are being imported in higher volumes, as foreign firms

master the details of motion mechanisms for recliners. On the other hand, some industry

segments remain based on domestic production, including kitchen cabinetry, custom

upholstery, custom woodwork and millwork, and mattresses. These industries are well



18/31

represented in metropolitan furniture-producing regions, where firms have access to large

household and business marketsespecially in the Northeast and Great Lakes states.

Regional industry specialization and the distribution of furniture manufacturing

employment based on the import sensitivity of the industry are shown in Table 4. Industry

specialization was determined based on the share of a states furniture employment in an

industry segment, compared with the share of the nations furniture employment in the

same industry segment. In furniture manufacturing segments classified with high import

sensitivity, imports as a share of value added were greater than 60 percent in 2002.

Industries with medium import sensitivity had 1530 percent import shares, and those with

low import sensitivity had import shares below 15 percent. The share of a states furniture

manufacturing employment in industry segments with high and medium import sensitivity

is shown in Figure 4.

The major Southern furniture producing states, with the exception of Texas, tend to

specialize in industry segments with high to medium levels of imports. For example, in North

Carolina, Mississippi, Tennessee, and Virginia, between 70 and 95 percent of furniture

manufacturing employment in 2002 was based in highly import-sensitive industries, espe-

cially wood household, institutional, and upholstered furniture. These four states accounted

for 61 percent of all Southern employment in furniture manufacturing. By comparison, in the

rest of the U.S., 55 percent of furniture workers were employed in industries with high to

medium levels of import sensitivity, while the rest were in low-import industries, including

kitchen cabinets, custom woodwork and millwork, and metal office furniture.

Also, the Southern furniture industry is dominated by major corporations operating

large factories. For example, while only 1.7 percent of U.S. furniture manufacturing

establishments employed 250 or more workers in 2004, the corresponding figures for

Mississippi and North Carolina were 10.6 and 6.0 percent (Table 5). Virginia and Tennessee

also had an above-average number of large establishments. This is significant for two

reasons. First, larger firms and plants are able to exploit scale economies and produce more

standardized furniture in longer production runs. These product lines are more readily

outsourced than those made in customized, small-batch production runs. Also, larger firms

are in a better position to make high-volume orders and provide managerial and technical

expertise to offshore suppliers than smaller firms.

Outside of the South, the most significant employment decline was in Michigan. This is

despite the fact that Michigan specializes in office furniture (except wood), an industry

segment with a low import share in 2002. Michigans furniture industry is based in Grand

Rapids, which gained a reputation for high-quality furniture in the nineteenth century.

However, the labor-intensive wood furniture industry declined in Grand Rapids and other

northern centers by the mid-1900s due to competition from Southern producers. This led to

a significant regional divide, as the Grand Rapids industry shifted its focus from household

to office furniture, led by companies that would become industry giants: Steelcase,

Haworth, and Herman Miller. Today, these firms are developing global supply networks and

closing down domestic facilities. For example, Steelcase has aggressively expanded its

global supply chain since 2002, and owns factories in 12 countries in North America,



19/31

TABLE4.

REGION

ALINDUSTRYSPECIALIZATIO

N,a

U.S.

FURNITUREMANUF

ACTURING.b

State

Industry

Segment

Highimportsensitivity

c

Mediumimportsensitivityc

Lowimport

sensitivityc

337122

337124

337127

337121

337211

337215

337920

337110

337214

Florida

0.9

5

2.76

1.4

4

Missouri

1.3

4

1.2

9

1.1

5

1.0

2

Wisconsin

1.3

1

0.9

0

Pennsylvania

1.0

1

1.6

0

Minnesota

2.0

0

1.5

8

1.6

0

Indiana

0.6

9

3.5

7

1.2

1

1.2

0

Texas

1.4

3

0.6

6

0.9

9

1.7

2

Ohio

1.0

4

1.2

1

1.7

1

California

1.0

5

2.0

9

0.8

8

Mississippi

0.7

0

4.3

0

Alabama

1.0

5

4.6

7

1.1

6

1.4

8

NewYork

1.6

5

1.3

5

0.6

7

Illinois

2.6

2

1.0

5

Georgia

0.7

5

1.3

5

1.3

8

Michigan

1.2

0

8.2

3

Virginia

2.5

6

0.7

1

0.7

3

Tennessee

0.5

8

2.1

1

2.9

0

0.9

9

NorthCarolina

1.8

7

2.4

9

U.S.

a

Industrialspecialization:cellvaluesshowIndex

ofIndustrySpecialization:=(Esr/Er)

/(Esn

/En

),whereEsr=

stateemploymentintheindustry

segment,Er=

totalstateofemploymentinthefurnitureindustry,Esn=

rationa

lemploymentintheindustry

segement,andEn=

national

employmentinthe

furnitureindustry.

b

Stateindustryse

gmentswithmorethan10%

ofstateemploymentinfurnitu

remanufacturaing.

Shadedcellsindicateindexofindustry

specialization>

1.5

0.

c

Importsensitivity:High(>60percentimportsin2002):woodhouseholdfurn

iture(NAICS337122),metalhouseholdfurniture(337124),

industrialfurniture

(337127);medium

(1530pe

rcentimportsin2002):upho

lsteredfurniture(337121),woodofficefurniture(337211),

showcases,shelvings,partitions,

lockers(33721

5),blindsandshades(337920);low(

Documents

Furn Globalization