Indonesia's wood, labor lure industry
Thomas Russell -- Furniture Today, September 24, 2012
SURABAYA, Indonesia - As furniture manufacturing has evolved in Asia over the past few decades, it has pursued a familiar route: Follow the low cost labor.
The same could be said of the shift to Indonesia, one of the more recent hot spots to emerge in the realm of Asian source countries. Furniture workers there earn an average of roughly $150 per month, compared with $430 in China and $200 in Vietnam, according to one industry source with furniture plants in all three countries.
Yet while its labor rates are low, sources say that Indonesia has come to represent much more, particularly in medium to upper-priced case goods.
Throughout its history, Indonesia has developed a wealth of talent in handicraft production that has been passed down from generation to generation. More recently, that talent has found its way into wood furniture, ranging from carved headboards and chair frames to the application of multi-step finishes on dining tables and other wood pieces.
Indonesia also has access to a large supply of plantation-grown mahogany, as well as other woods such as teak and mindi.
What's more, the furniture industry has received indirect support from the government, in the form of infrastructure investments such as airports and roads. Secondary roads to plants may be crowded with daily scooter, truck and car traffic, but many appear well maintained. Port facilities also are relatively close to furniture plants located in three distinct regions on the island of Java - Jakarta, Surabaya and Semarang.
Perhaps most importantly, Indonesia is one of the world's most populous countries, with access to a large and young labor pool. Most of the nation's 240 million residents are working age and live on Java, which is considered one of the most populated islands in the world.
It's hard to say how many furniture producers are in Indonesia - the official Indonesian furniture manufacturers association, Asmindo, has a bout 2,060 company members, up 72% from about 1,200 a decade ago. Roughly three quarters of them produce wood furniture and the rest specialize in rattan furniture. Eighty percent of the membership exports product to major markets including the United States.
Indonesia's furniture industry collectively shipped $520.8 million in furniture to the U.S. in 2011, according to figures compiled by Furniture/Today's research department. That's down from $618.5 million five years earlier, in 2006. But shipments from some other Asian furniture producing countries also have declined, and total U.S. furniture imports were $21.4 billion last year, down from $23.4 billion in 2006.
To its credit, Indonesia has remained in the Top 10 countries exporting furniture to the U.S., ranking number eight for most of the past six years.
Part of Indonesian manufacturers' success stems from their experience in making a wide variety of furniture.
Among the best known manufacturers is Jakarta based Ligna Furniture, which started in 1975 as a producer of doors. Later it shifted into ready-to-assemble furniture, producing Scandinavian style dining room and also bedrooms and some sofas. In the 1990s, it moved more into veneer and solid wood case goods.
Today 40% of its sales are for export, with 90% of that going to the United States, primarily through Ligna USA, its U.S. marketing arm. Most of the bedrooms it produces for the U.S. market retail from $1,299 to $1,999, according to Susilo Alexander Hadinoto, director.
Ligna represents one of Indonesia's more middle priced vendors. It also operates in an area of the country that observers say has a high concentration of RTA producers, compared with furniture manufacturing areas farther east in Semarang and Surabaya.
In those areas, producers Furniture/Today visited in August are largely in the upper medium to high end of the market. They range from Harrison & Gil, an upper-end producer of contemporary accent furniture, case goods and upholstery for Christopher Guy, to PT Panca (pronounced Poncha) Wana, a producer of mostly high-end case goods. More than 80% of Panca Wana's capacity is dedicated to Ethan Allen. It also produces case goods for Century, Baker and the upper part of Lexington Home Brands line.
Christopher Guy Harrison, CEO of Christopher Guy, was an early proponent of Indonesia. He started his manufacturing operations around 1994 in Jepara, an area in north central Java that is home to many of the country's carvers. (The name Harrison & Gil includes the name of a former girlfriend involved with the business, who returned to Spain after deciding she didn't want to stay in Indonesia.)
Today Christopher Guy remains entrenched in Indonesia with three plants in the Semarang area, about 60 miles southwest of the carving capital.
Harrison moved his first plant to Semarang in 1997, after the Asian financial crisis and a related shift in currency valuation made land there extremely inexpensive for investors. He said the rules also changed in his favor since they no longer required him to have an Indonesian business partner.
"There were a lot of advantages," he said.
Recently Harrison opened his third plant in the region and today, has more than 1 million square feet of production and employs more than 1,700 workers.
"The reason anyone is in Indonesia is the wood supply, the abundance of wood that is reasonably priced," he said. "You also have a huge labor pool, and the other reason was carving."
Panca Wana got its start in the late 1980s manufacturing doors. It still sells doors to the U.S. but for the past 10 years has also made indoor residential furniture, including bedroom, dining room and occasional.
Over the years it has heavily invested in its 1.2 million-square-foot plant in Surabaya, spending $7 million on equipment since 2005, for example. It now has 30 CNC machines, up from 12 around 2005.
"If you don't keep investing back into your factory, you can't compete internationally," said Kristanto Siswanto, vice president of marketing, noting that the company has plans to add another three to five CNC machines. "It has been our philosophy to try to find a way to improve all the time. We are not afraid to make a change. It doesn't mean that it will be better, but we have to try."
Other large case goods factories in the Surabaya area include PT Iga Abadi, PT Tjakrindo Mas and Integra, all of which have operations that are more than 2.5 million square feet.
Tjakrindo has produced residential furniture for the U.S. market since the mid-1 990s. Initially, its line included mostly lower-middle-priced case goods for Rooms To Go, Ashley and The Bombay Company. By the early 2000s it had shifted much of its emphasis to upper middle priced goods, including Lexington's licensed Tommy Bahama collection. By 2004, it also began doing whole collections for Pulaski, said Kurnia Wan, export marketing manager. Today its main customers include Lexington, Stanley and Bernhardt, he said.
In addition to its wood processing facilities, the plant has capabilities with mixed media elements such as metal and seagrass. As of midsummer it had 10 CNC machines, three finishing lines and 18 kiln dry chambers that keep moisture content in the 7% range for finished goods.
Case goods producer Integra has been in business for about 23 years and got its start as a maker of RTA and later rattan products. It evolved into wood furniture production about 10 years ago, and now sells to retailers such as Value City, American Signature, Rooms To Go and Havertys. It also has had a steady flow of business to importers such as Stanley, Lexington, Palmetto Home, A-America, BK Home, Casana, Coaster and American Woodcrafters.
Company marketing executive Widjaja Karli said the plant has done well in recent years due to its ability to bring in new business. He also attributes the company's success to its diverse product line - two sister plants produce hospitality and outdoor furniture - as well as its access to labor and raw materials such as plantation-grown mahogany.
"We have a lot of wood supplies and a lot of workers, so I don't think it will be easy to displace Indonesia," he said.
How that success for his company and others plays out could depend on how well they continue to manage their businesses and what type of future investments occur within the country to support and grow the industry.
"They have the work force, the materials and the local talent to run the factories, so they can be competitive against China and Vietnam," said J Jewett, a furniture industry consultant and sourcing specialist, who has done business in the country since the early 1990s. "So this is the time for Indonesia to capture the market."
Top 5 products for Indonesia
In $ millions
Misc. wood furniture
Wood bedroom furniture
Wood dining tables
Teak chairs, non-upholstered
|Source: U.S. Customs Service, U.S. Census Bureau, U.S. International
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