Furniture industry in india


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Furniture industry in india

  1. 1. Section One Furniture Industry In India Furniture Industry in India 1
  2. 2. Meaning of Furniture Furniture is the collective term for the movable objects which may support the human body (seating furniture and beds), provide storage, or hold objects on horizontal surfaces above the ground. Storage furniture (which often makes use of doors, drawers, and shelves) is used to hold or contain smaller objects such as clothes, tools, books, and household goods. It indicates everything which is used while doing interior work. In a house, various things like sofas, bed, flooring, lighting, glass works, dining table, wall unit, chairs, bathroom fittings, carpet, ceramics etc. fall under the broad word ‘FURNITURE’. In an office also, things like workplace, table, chairs, designed structures, conference table lights etc is categorized under furniture. Furniture can be a product of artistic design and is considered a form of decorative art. In addition to furniture's functional role, it can serve a symbolic or religious purpose. Domestic furniture works to create, in conjunction with furnishings such as clocks and lighting, comfortable and convenient interior spaces. Furniture can be made from many materials, including metal, plastic, and wood. Furniture Industry in India 2
  3. 3. The Global Furniture Sector: An Overview Furniture has traditionally been a resource and labor- intensive industry that includes both local craft-based firms and large volume producers. Mass producing furniture became a viable manufacturing strategy with the advent of flat-pack or ready-to-assemble designed furniture. This product innovation paved the way for firms to design, manufacture and ship products in large quantities. Firms that mass-produce flat-pack furniture tend to supply products for the low- to medium-price markets. Solid wood furniture manufacturers have retained important niche market segments primarily for high-end, expensive and design-led products. These specialized products tend to be purchased locally while mass-produced; large- volume products are sold locally and for export. Furniture is big business. The global size of furniture market is estimated at $ 40 billion. Countries like USA, UK, Germany and Italy are the bigwigs in global furniture industry. They produce furniture products with latest technology which is not found in India. Today many companies like Durian, Godrej & Boyce, and Tangent import furniture from western countries and sell it in the Indian market. This low rank may be explained by relatively high import duties and low technological competency. Furniture Industry in India 3
  4. 4. Scenario of Furniture Industry in India Introduction India is a country with population over 1 billion The range of indigenous furniture available in India includes both residential and contract system furniture, with an increased concentration in office and household furniture. In the area of decorative residential furniture, India has a heritage of exquisite handcrafted furniture, made out of teak, rosewood and walnut wood, which has strong colonial roots. Currently in India, Indian manufacturers use a three-tier selling and distribution structure that is distributor, wholesaler and retailer. The most popular forms of Indian furniture include home and garden furniture, office furniture, kitchen furniture, bedroom furniture, upholstered furniture, seating, furniture parts and contract furniture in wood, metal, plastic, cane and bamboo. These furniture pieces are available in a variety of finishes. Choices range from antique or exotic looking furniture to painted furniture. Popular items of furniture export are mainly a large variety of cabinets, cupboards, ethnic settees, beds, partitions, chairs, tables, frames, boxes and bajots, and many other decorative articles. Another element is the greater attention that the local producers pay to include design and technological innovation in their supply. Although still bound to a product model that is typically of the British colonial style, the Indian industry is making great progress in offering furniture of a modern design to consumers who are increasingly demanding to standards of quality and design found in western countries. Furniture Industry in India 4
  5. 5. Impact on Indian Economy The total size of the Indian furniture industry is estimated by industry experts to be worth, approximately Rs. 30000 crores currently, with an estimated 85% of this falling into the unorganized sector. The share of the wooden furniture market is estimated at INR 600 million. The annual per capita consumption of furniture in India is not more than Rs. 1500. The furniture industry in India can still be considered as an unorganized sector. Handicraft production accounts for around 85 % of furniture production in India. The furniture industry employs around 3,00,000 workers in India. This sector has some 5,000 active companies of which 8% produce wooden furniture, 10% metal furniture and 82% manufacture accessories and furnishing items in plastic. The office furniture segment, particularly metal furniture, is much more advanced (in terms of size and technological innovation) than the home furniture one and a larger percentage of its production is exported. Over the period 1996-1999, the average annual growth in the Indian furniture industry reached 3 %. After four years of prosperity, the Indian furniture sector declined to 10% due to cyclical situation of the economy. In the last 4 years, this sector has recovered from the 1999 crisis and has shown 4 - 4.5 % growth annually. Despite the forecast growth, India is still a country with the furniture industry not particularly developed in comparison to western countries (U.S., Germany and Italy) and South East Asian Countries in terms of absolute value of the sector and percentage of GDP in the economy. The furniture sector in India only makes a marginal contribution to the formation of GDP, representing just a small percentage (about 0.5%). The principle cause of this situation is that furniture production is typically a craftsmen’s activity and the process of industrialization which is fairly advanced in other industries is yet to be implemented in this sector. India was the biggest furniture importer in 2004-05, with a 17 per cent share in furniture imports worldwide. In 2000, India ranked 48th among furniture exporters (€140 million) and 49th among importers (20 million). A total of 10,476 importers shipped furniture to India during this period. The current imports are mainly from UK, Italy, Germany, Spain, China, Korea, Malaysia, Indonesia, the Philippines and Japan. Furniture Industry in India 5
  6. 6. According to a survey by global consultancy firm KPMG, India has emerged as a key FDI destination as foreign investors earn higher returns in India than in other emerging markets like China, Brazil and Mexico. “The return on every dollar spent in India has a better return than is the case with other emerging markets that have a more favorable environment," it said. Furniture Industry in India 6
  7. 7. Forests and Woodworking Forests The forested area of India amounts to about 20% of the total country, equivalent to 64 million hectares. Roughly 38 million hectares are dense forests, 25 million hectares are open forests and a million hectares are covered by mangroves. The central state of Madhya Pradesh owns 21 % of the country’s forests, followed in order by the states of Arunachal Pradesh (11 %), Orissa (7 %), Maharashtra (7 %) and Andhra Pradesh (7 %). The seven states of the north-east account for 26 % of the country’s forests. India is one of the largest consumers of wood in South East Asia. Until a few years ago the country had considerable quantities of available tropical woods. The most common species in Indian forests are teak, rosewood, ebony, laurel, pine, cedar and rubber trees. These “ready to use” species were, until recently, freely exploited without recourse to particularly advanced technology. Subsequently supply became scarcer due to unconditional and inappropriate exploitation and also due to growing concerns about the environment that led to policies for the conservation of the forests. In the wood used for furniture in India, teak accounts for almost 5O%; while Sal and deodar for about 20% ; mahogany and balance 3O% between white cedar, silver oak and pinewood. In order to conserve the forests, the cutting of soft jungle wood has been banned by the Indian Government. Consequently there is a great potential for foreign companies to supply wood to Indian companies. Furniture Industry in India 7 Forest Consumption 1% 59% 40% Dense Forest Open Forest Mangrove
  8. 8. In India natural rubber plantations cover 520,000 hectares with another 6,000 hectares replanted almost every year since 1994. Kerala state (South India) produces 95% of the total supply of rubber wood in India. Woodworking Total production currently amounts to about 1 million cubic meters. However, almost 40% of the rubber wood is used as firewood, the packing industry claims a further 44%, and only about 16% is used for the plywood and panel industries. In the case of the round wood; construction, joinery and packaging consume 25% of the Indian round wood and the furniture sector uses only the 8%. Wood for fuel is the main use of the wood in India and other use as production of chipboards, MDF, pulp paper or saw wood account for marginal percentage in the total India Wood consumption. To serve the demand, India imports wood (logs) from countries like Malaysia, Indonesia, Myanmar, Ivory Coast, Nigeria, Ghana, South Africa, New Zealand and to some extent of South America. These logs are imported through various ports in India. However there are several infrastructural constraints, which may impede further growth in these imports in the near future. Therefore it is expected that over the next few years until this infrastructure gets built up, saw timber will also have a market in India. Production of Rubberwood There are reportedly over 40 factories manufacturing rubber wood in India, mostly in Kerala State (South India). Andamans Timber Industries in Andamans Islands is the largest manufacturer of rubberwood in India reportedly with annual turnover of over US$ 12 million. There are other companies like DEECO, Growell India, etc which produces rubberwood. Furniture Industry in India 8
  9. 9. Bamboo Material Boards In the recent years, India has developed a new kind of board made with bamboo these 4-by-8 foot mats are soaked in resin, then hot-pressed together in various thicknesses to form bamboo mat board, a substitute for plywood. These boards are generally as strong as or stronger than their plywood equivalent and are less expensive. The advantages of the bamboo board are:  The big advantage of producing bamboo mat boards is that since hardwood trees take 40 to 80 years to reach a worthwhile logging size, but bamboo is ready to harvest in just two to five years.  Using bamboo not only gives hardwood forests a chance to regenerate, it also fights soil erosion. This plant grows best in areas of heavy rainfall, which are prone to erosion after logging, and its shallow root system holds soil well.  One of the key benefits of bamboo mat board is that it can be manufactured by small factories right where the bamboo is grown. Technology Transfers Through the International Network for Bamboo and Rattan (INBAR), bamboo mat board is now being promoted beyond India’s borders. At a workshop that was organized in 1994, INBAR introduced BMB to seven other Asian nations: Bangladesh, China, Lao PDR, Malaysia, Nepal, Thailand, and Viet Nam. This technology could also be transferred to Africa and Latin America. In the India’s case BMB has already replaced about 20-25 % of plywood sales. This figure could increase through better promotion and new contracts, particularly from the Indian government, which is the biggest plywood consumer — for its offices and railway carriages. Currently more than 10 plywood factories have already started making the boards in bamboo- growing areas of India. Furniture Industry in India 9
  10. 10. Furniture Production Production for home use comprises mainly sofas, dining tables, and seating, professional production is destined for offices and companies and the institutional furniture sector serves mainly hotels, schools and hospitals. The non-organized sector is very strong in the Indian furniture industry 85 % of local production). This 85 % is linked to craftsmen working alone or as many two or three assistants. These craftsmen use exclusively solid-wood and produce furniture on request. About 65 % of the furniture produced in India is in wood, 25 % in metal and the remaining 10 % in plastic. On the other hand, there is furniture produced on a medium-large scale and intended for professional use, which is provided by the organized sector. Finished products are offered in modular systems in standard sizes and customized. The segment with the largest no. of medium-large companies is the office furniture. The plastic is the most used raw material mainly because it is a new raw material that has been introduce in India recently and also because it is a really cheap raw material. In the recent year also the chipboard, MDF and bamboo-board have become popular in the production of furniture. The most common solid woods used to produce furniture in India are: Teak wood (60°k) and Rose wood (15-20%). It should also be remembered that for the majority of companies the production of furnishing items is only a side line and besides often furniture producers import foreign brands. Furniture Industry in India 10 Raw Materials Used 25% 10% 65% Wood Metal Plastic
  11. 11. Production process and Value Chain Cut logs are carried to the sawmill, which obtains its primary inputs from the machinery sector. From there, sawn timber moves to furniture manufacturers who, in turn, obtain inputs from the machinery, adhesives and paint industries and also draw on design and branding skills from the service sector. Depending on which market is served, the furniture then passes through various intermediary stages until it reaches the final customer, who after use consigns the furniture for recycling or refuse. Furniture Industry in India 11
  12. 12. Production Breakup The Indian furniture industry consists of various sectors in which the manufacturers are not as specialized in the production of a specific type of furniture as in other industrially advanced countries. The manufacturers, that are either industrialists or craftsmen, produce various types of furniture and it is difficult even using questionnaires and contacting them to get a real picture of the production by types of furniture. In addition, official statistics are not available either at the national or at the local level. Globally, domestic furniture accounts for 65% of the production value whilst corporate/office furniture represents 15% of the production, hotel furniture 15% and other furniture (mainly parts of furniture), 5%. The upholstered furniture and the bedroom furniture sectors are the largest ones within the furniture industry respectively representing 30% and 2O % of the total production. Two other sectors have almost the same weight: the kitchen furniture sector (6.5% of total production) and the dining room furniture one (6.5%). Other domestic furniture (garden, home office, small furniture) accounts for 4 % of the total production. Furniture Consumption Furniture Industry in India 12 Breakdown of Furniture Production 30% 20%15% 6% 6% 5% 3% 15% Upholstery Bedroom Hotel/contract Dining room Kitchen Parts Other Corporate Office
  13. 13. End user’s profile in India Obviously the purchasing power is completely in the hands of the upper segments of the Indian population. One study carried out by the World Bank attributed 33% of private consumption in India to the richest 10% of the population (in terms of per capita income), whereas the poorest decile of the Indian population claimed only 3% of consumption. If the richest 20% of the population are considered, the quota of total consumption attributable to this group is around 47%. Analyses carried out by important world researchers and the classification of Indian consumers conducted by research institutes are still not enough to provide an estimate of the size of the potential market. Having said that a quarter of the world’s poor lives in India and a not very large number of rich people, we still need to quantify that middle class of consumers that forms the potential market for foreign companies wishing to sell on the Indian market. Annual income range ($) Number of families (millions) Urban Rural Total Less than 490 5.3 27.7 33 490-676 7.1 36.9 44 676-1384 16.8 37.3 54.1 1384-6615 16.6 15.9 32.5 More than 6615 0.8 0.4 1.2 TOTAL 46.6 118.2 164.8 In India there are 33 million families, or roughly 200 million people, have an average annual income of over US$ 1,300. This section of the population is more or less the Indian market for consumer goods including furniture. Data for income distribution is however not sufficient to be able to determine the size of the market, which varies according to the type of goods considered. The number varies from 300 million people to 100 million according to the consumer good in Furniture Industry in India 13
  14. 14. question. This situation may be the result of a lack of uniformity within the middle class and of the huge differences in the prices charged in different areas of the country for the same product. Consumer purchasing power in India seems to be more closely linked to the location of the consumer than to the income. Family habits therefore play a greater role in determining the size of the market than the distribution of income. If only consumer durables are considered of an international level, an estimate, felt by many local observers to be rather pessimistic, put the number at around 50 million (which would still make India a larger market than any European country). Despite the increasing urbanization of the country, the richer section of the population does not necessarily live in the large cities. It is certainly true that in the four largest cities (Calcutta, Mumbai, New Delhi and Madras), which are home to about 60 million people, there is a concentration of the more “westernized” population in terms of tastes, but it is equally true that in the rural areas there is a large part of the wealthier classes Also the population that resides in the country is, in turn, 30% concentrated in villages that often have the same number of inhabitants. So far foreign investors and local companies have ignored this segment of the market, which remains firmly rooted in its own cultural and religious traditions and has not been affected by the consumerism typical of the urban population. But if this segment were approached with targeted marketing strategies, the number of people effectively making up the Indian market for consumer goods would increase significantly. Consumption Furniture Industry in India 14
  15. 15. Furniture Sales 15% 65% 20% Household Office Contract The Indian market for furniture is worth approximately 30,000 crores and roughly 85% of this comes from the non-organized sector (craftsmen). There are few Indian companies that produce or sell brand name furniture. The home furniture segment claims 65% of furniture sales, the office segment 20% and contract the remaining 15%. Marketing Furniture Industry in India 15
  16. 16. “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services, organizations, and events to create and maintain relationships that will satisfy individual and organizational objectives.” - Contemporary Marketing Wired (1998) by Boone and Kurtz. Dryden Press. Most people think that marketing is only about the advertising and/or personal selling of goods and services. Advertising and selling, however, are just two of the many marketing activities. In general, marketing activities are all those associated with identifying the particular wants and needs of a target market of customers, and then going about satisfying those customers better than the competitors. This involves doing market research on customers, analyzing their needs, and then making strategic decisions about product design, pricing, promotion and distribution. Market Segmentation Market segmentation is the process of dividing a heterogeneous market into homogeneous sub-units. In simpler words it means dividing the market into various sub- groups on the basis of different factors like age, sex, purchasing power, geographical locations, etc. To make the marketing decisions effective, it is essential that the market is segmented in such a way that the task of identifying the changing needs and requirements of different segments is made easier. Segmentation proves to be an important commandment of marketing since this helps in making and innovating the marketing decisions. All the users, of course have their own likes and dislikes; the expectations are different- The kids, teens, youths, men, women, married and unmarried, youth and grey, technocrats and bureaucrats, business Furniture Industry in India 16
  17. 17. executives and political representatives use furniture with different motives. Segmentation makes the ways for knowing their uniqueness and formulating the submixes in such a way that an optimal development of marketing resources is made possible. It is against this background that we go through segmentation for the furniture industry. Market Segmentation on the basis of product  Upholstered Seating Upholstered seating means sofa sets or armchairs. Nowadays upholstered seating offer comfort, relaxation, and also look stylist. High-end models use the latest technology and offer extra functions such as remote control or massage.  Kitchen furniture The performance of the economy has a stronger influence on kitchen furniture sales than most others. Replacing a kitchen is a costly item. TV cooking programmes and new cooking habits have stimulated the sales of kitchen furniture. Most contemporary kitchens are fitted and there is a trend towards removable free-standing items like cupboards, dressers, work surfaces which are made of solid wood  Dining and Living room furniture There is a variety of items under this segment and the distribution is relatively simple. Furniture retailers usually sell the complete range. However they tend to stock fewer items when taking the enormous diversity of choice in furniture items into account. Another reason is the intensified competition in the low-medium price market. Dining tables vary in appearance from lightweight to robust. Gate-leg, folding and drop leaf tables are popular for small dining areas, as they use space efficiently. Furniture Industry in India 17
  18. 18. Chairs vary considerably in style, from simple modern shapes to rustic, classic, baroque or colonial styles, reflecting the huge influence of exotic design in decoration. Chairs come in variety of colours and designs. The living room furniture is buoyant, unlike dining room furniture and includes sideboards, coffee tables, buffets, end tables, dressers, TV/DVD tables and room dividers. Now there is a variety in materials, forms and styles which are frequently combined. The latest items are light, well designed, transparent, removable, and multi-functional. The TV table segment could benefit from the growing demand for home entertainment equipment such as TVs, DVDs and complete home cinema sets. TV tables or occasional tables are often purchased on impulse and people experiment with a new style, which may result in a whole change in a whole change of the room. Less formal eating habits and the rise in the number of single households has resulted in eating in front of the TV at a low occasional table in the living room.  Bedroom Furniture This segment consists of bed and fitted bedrooms. Previously neglected as it is a less public room than other rooms in the home, the bedroom has taken on more of a fashion element. The definition of what ‘bedroom furniture’ should include is getting blurred increasingly. Computer desks, chairs, filing units now find their way into adult’s and children’s bedrooms. Fitted bedroom furniture is becoming more popular as a result of this trend. Comfort is more important than price while purchasing beds.  Children’s Furniture This segment has grown fast in the past few years stimulated by children’s furniture chains. Multi-functional and modular ranges of furniture which can be used longer have become popular. Another trend is that children and teenagers spend more time in their rooms for homework, watching television and computing. Hence, developing furniture ranges for specific age groups has been done with some success recently. This trend also encourages Furniture Industry in India 18
  19. 19. consumers to change their bedroom more frequently as they get older. In this segment, safety standards are important.  Office Furniture This refers to the organized sector in furniture industry. Today many companies thrive in this sector. Since the economy of India is booming, many corporate offices have seen their way. The furniture projects of these corporate offices are undertaken by the companies who are into office modular furniture. Market Segmentation on the basis of age and life phase Most potential consumers of furniture from developing countries in India are in the low to medium income range. They buy a wide range of contemporary, country or colonial style furniture. On a national basis, Indian furniture consumers nowadays are segmented by lifestyle, as is shown below, whereas in some metro cities, furniture consumers are more broadly divided into low income and high income groups, due to the absence of a middle class in most countries. A more general approach is to segment consumers by life stage. However, it is difficult to predict how each group will behave as there are still large differences by country: Furniture Industry in India 19
  20. 20. Furniture Sales Furniture Industry in India 20 Group Main Characteristics Singles (young) (16-29 years) People living alone usually spend more time out of their homes and have contemporary furniture which is practical, functional and in the lower price bracket. Many people have a computer or a small office corner in their living or bedroom in metro cities. Singles (older) (20-45 years) People whose circumstances necessitate the setting up of a new home. Independent career men or women are also included in this group. Initially they tend to buy furniture that is practical, multi- functional, easy to transport and up to the latest interior trends. Young parents/ Couples (25-40 years) A group that is increasingly sensitive to fashion. Their new interior ideas and furniture purchases are likely to be individual combinations of past styles with the latest decorative and colour trends. Many of them want to show their ‘unique interior’ to visitors and have a small office corner in their living, bed or study room. Middle parents (mainstream) (35-55 years) The largest group of consumers, who spend more time at home and to whom furniture is important. They tend to have contemporary furniture and buy new items either for a change, because they are needed for a growing household, or because they are moving to a larger house. Many of this group will want to follow interior fashion trends, usually to add interest to their home, or to show to visitors. Middle-late parents (40-60 years) They started adult/married life with a particular interior style (typically heavy hardwood furniture) and have changed little, except for functional requirements. Their furniture is solid and stylish and they opt for classic and increasingly for contemporary or modern style furniture. Seniors (65+ years) After their children have moved out, they like to re-furnish their home interior, suiting their own taste, which can be based on existing furniture, contemporary style, or a mix of the two. Important “senior furniture” items include higher seats, tables which comply with the latest ergonomic requirements.
  21. 21. An Indian home is usually made up of three rooms (including kitchen and bathroom). While 25% of the population lives in homes with more than 5 rooms, 4S% lives in houses with fewer than 3 rooms and 16% lives in just one room. With regard to the furniture itself, in the upper-middle class homes some rooms are furnished in the Indian style and others in typically European furnishings. The upper classes are very attentive to design and quality, and the price is rarely a discriminating factor in the consumption of top range consumer durables (and therefore also in the consumption of furniture). Colonial furniture is still very common in India, but the fashion seems to be declining slowly. In general European style furniture is only found in the homes of the urban upper classes, and the rest of the population relies on shelves and chests. Demand for furniture of international standards is limited to the larger cities. It is also estimated that the wealthier classes do not change furniture very regularly: the average life of a piece of furniture is about 20 years, and some craftsmen’s pieces are used for as long as 50-70 years. Further growth in the furniture market should be boosted by the forecasted growth in the construction sector. Similarly the contract segment should benefit from the anticipated development in the tourism sector. There are about 1,000 hotels in India. 10 % of these are 5 star and still many 5 star hotels are being built. The remaining segment consists of hotels having less than 5 stars. As well as the international chains present (such as Radisson, Holiday Inn, Intercontinental, Hyatt, Sheraton, Kempinski, Quality Inn and Le Meridien) there are hotel chains that wholly Furniture Industry in India 21 Furniture Sales 15% 65% 20% Household Office Contract
  22. 22. in the hands of Indian companies: Taj, Oberois, Park, Siddartha, ITDC (Ashoka), Centaur and ITC. This will increase by 2,860 rooms over the next two years. A further 6 hotels with 1,600 rooms will be built over the next 5 years, with investments from Grand Hyatt, Taj Group, Leela Group and Hiranandanis. Almost all the new hotels will be built in the northern area of Mumbai, around Sahar international airport. Distribution and Sales Channel Furniture Industry in India 22
  23. 23. Indian companies operate directly on the market and through distributors. A number of companies, especially those with a predominance of local customers, sell direct to customers without passing through distributors. The majority of these companies are involved in the production of office furniture and in some cases they have dozens of free-lance salesmen working on a commission basis. The larger companies have their own commercial offices and showrooms in all the larger cities in India. Many organizations prefer, however, to operate via organized outlets. This enables them to reduce sales costs and to concentrate on productive aspects and on improving productivity and quality. In many cases the companies that sell through commercial organizations rely on the same for customer services and are only directly involved in the case of large quantities.  Introducing foreign products to India’s markets requires careful analysis of consumer preferences, existing sales channels, and changes in distribution and marketing practices that are continually taking place.  India is a very big country in terms of area and a new company should in a first approach forget spread its product in the whole India. Besides huge distances separate the most populous cities, as example, from Delhi to Calcutta there are more than 1.500 Km and almost the same distance there is between Delhi and Bombay. In India it is easily to talk about two kinds of consumers.  On one hand there is the urban population, which is widely dispersed and rather has higher buying power than the rural areas.  On the other hand there is the rural India, which constitutes 70 percent of the country’s population; this is more than 700 million people. Usually the rural India habitants have Furniture Industry in India 23
  24. 24. low incomes than the urban areas. Nevertheless relevant figures show how in the rural market has been a rapid growth in last years. The main reason for such growth, apart from awareness created by various media channels (TV and radio), has been the adaptation of distribution channels to the needs of the rural market. Certainly there are still hurdles to be crossed in order to penetrate this market.  First problem is one of logistics, the huge differences at an economic and cultural level among the various areas of the country.  Secondly the distribution system that is not yet sufficiently structured. But if these are tackled with marketing policies that are targeted and attentive to the internal diversities (thus not only directed at the part of the population that inhabits the large urban centers) and based on an understanding of the traditions, habits, and lifestyles that evolve from “being present” in the country, in the not too distant future the Indian market could be a source of satisfaction for many sector companies. Distribution Distribution coverage is the prime key point for a company pretending sells its products in India. Indian consumers are dispersed. They are serviced by an efficient, but fragmented, trade system consisting of over 4 million retail and wholesale outlets, spread over many urban and rural population centers. The ability to physically deliver one’s goods to the consumers, therefore, remains a source of significant competitive advantage. Currently in India, Indian manufacturers use a three-tier selling and distribution structure, which are distributor, wholesaler and retailer. A typical company operating on an all-India basis could have between 400-2300 distributors, always depending of the product and the final consumer. The retailers served directly by a company’s distributors may similarly be between 250,000-750,000. Depending on how a company chooses to manage and supervise these Furniture Industry in India 24
  25. 25. relationships, its sales staff could vary between 75 and 500 in number. Typical gross percentage margins for a distributor, wholesaler and retailer, are 4-5, 3-4 and 10-15 respectively. Wholesaling is profitable by maintaining low costs and turnover high. Many wholesalers operate out of wholesale markets and serve the final consumer. India has approximately 4 million retailers, mostly family-owned or family-run businesses. In recent years, there has been increased interest by companies in improving their distribution logistics in their effort to address a fiercely competitive market. This in turn has led to the emergence of independent distribution and logistics agencies to handle this important function. Marketers are increasingly out-sourcing some of the key functions in the distribution and logistics areas, and looking for more reasons to reach the consumer better. Recent years have also seen innovative trends by companies in utilizing distribution channels for products with synergy. While there are no major national store chains, departmental stores and supermarkets are mushrooming in many of the cities, as well as in other towns all over India. Most cities have well known market districts and retail sales outlets are almost always locally owned. Buying and selling is often a process of bargaining and negotiation. Outside the major metropolitan areas, India is an intricate network of rural villages. Poor roads make many rural districts inaccessible. India has both organized and unorganized channels for selling goods. Smuggled goods such as computer parts, cellular telephones, gold and a vast range of imported consumer goods are routinely sold through the thriving “unorganized” sector or black market of the economy. By avoiding taxes and customs duties and using cash transactions, unorganized merchants offer better prices than those offered by the organized sector. However, with liberalization and more and more foreign companies coming to India, the volume of business in smuggled goods has fallen significantly. Most products being sold through the smuggled channel are now sold in India through direct channels. In selecting a distributor, the following considerations are important: Furniture Industry in India 25
  26. 26.  Business reputation and business standing;  Business capacity and salesmanship;  Expertise and previous experience in the line;  Financial capacity and willingness to invest in the line;  Creditworthiness. In addition, an ideal distributor will have the capacity to offer customers the required assortment of products and services and a willingness to extend credit. The distributor will be able to provide storage facilities, showrooms, shops, service workshops, salesmen and service commensurate with the expected volume of business. Use of Agents and Distributors as Partners When a company wants to sell its products or services in India before establishing a branch office or a subsidiary, it can enter the market by appointing an agent or a distributor. If the product has a wider and a specialized market, it would be appropriate to appoint agents region-wise.  At first glance, many agents appear to have excellent industry and customer contacts. They will have typically developed and nurtured contacts over time, and their primary interest in a distributorship is to sell to these contacts. These agents may have little motivation to develop new markets or new customers. It is important to gauge your prospective agents’ aggressiveness in developing new networks and contacts.  Some potential agents will provide long lists of foreign principals, covering dozens of products. Although such lists may seem impressive at first sight, some of them may be outdated, and some of the relationships may no longer exist. An agent with many principals and product mandates could find it difficult to devote management and resources to every additional relationship that he takes on. Furniture Industry in India 26
  27. 27.  A company needs to make sure that “what you see is what you get”. The company should be sure that its product will be strongly represented among the agent’s product mix. The company should be sure that the prospective distributor is committed to actively promoting your product. Companies should avoid the temptation to establish a relationship with an agent or distributor merely because this individual appears to be the most persistent or the most enthusiastic out of several candidates. These attributes will not necessarily make the best agent or distributor, because additional factors need to be considered before making a final choice of agent or distributor. First, determine who the customers are and where in India these customers will make their buying decisions. Agents with fewer principals and smaller set-ups can prove to be more adaptable and committed than agents with a large infrastructure and a bigger market reputation. A small agent could be ideal where a flexible strategy is called for. A company should examine all distributor prospects and thoroughly research the more promising ones. Credit and reputation checks will be easier, with a number of private organizations now providing these services in India. Even established distributors are known to have exaggerated their capabilities. To check the real capabilities of an Indian agent, it is possible reach information in local industry sources, industry associations, potential clients, bankers, other foreign companies and the agent’s competitors. These steps will ensure that selection of an agent or distributor is not left to chance alone. After performing a credit check of the proposed partner, contract details can be negotiated and a memorandum of understanding or agency agreement finalized. Franchising Franchising has been used to do business in India since several decades. The most franchising businesses in the recent years in India have been: healthcare, foods, education, entertainment, fitness clinics and courier services. Franchising is poised to spur economic Furniture Industry in India 27
  28. 28. growth because it encourages private enterprise with no danger of flight of capital, and because it offers the potential to establish products and services that meet global standards. A legal framework for new franchisers interested in setting up master franchises in India already exists, in terms of brand protection and rules regarding payment of franchise fees. However, there is also a growing need to smoothen this regulatory framework. Following the economic liberalization of 1991, several foreign companies with strong brand names have established a presence in India through the franchising route. In the hospitality and service industries, this has been the preferred method for starting operations in India. Companies that operate through franchises include Hertz, Avis and Budget for car rental; Radisson, Best Western and Quality Inns for hotels; Kentucky Fried Chicken, Domino’s Pizza and Baskin Robbins for food. Also some Indian companies with strong brand recognition are using the franchising route to expand business volumes. Some examples are: MRF for automotive tires, NuT for computer training schools and Apollo Hospitals for hospital. While franchising has mushroomed in India, the concept has initially worked mainly on an agent basis. It is still evolving and being refined, so that interaction between franchiser and franchisee is limited, and the two sides have yet to learn to share business prospects. Also, franchising in India is often perceived as a tool to cover the high cost of real estate that a company that is interested in retailing would have to bear. With minor variations, in a typical franchise operation, a company approaches an owner of prime commercial space to provide the real estate, to invest in interiors and inventories to run a franchise business, and to hire staff for the operation. Franchisees prefer to recruit staff directly. Usually, the two parties work out an arrangement by which the franchisee agrees to sell the company’s products on an exclusive basis. Typically, the company’s investment is reduced by about 15 percent if the same operation is run by a franchisee. Also, the company has no worries about hiring and dealing with staff or worker unions. Furniture Industry in India 28
  29. 29. Some points to consider when a European company wants to open a franchisee in India are:  Check the solvency of your partner.  Space location and availability.  High ethical standards.  Similarity of goals and values. The most usual way to pay the fees is:  Some companies offer franchisees a percentage of commission on sales.  Others provide a fixed percentage of the retail price of the product as a profit. In any case the costs of promotions and advertising are usually shared between franchiser and franchisee, with some companies assisting franchisees in specific promotional activities to help increase product sales. The franchise agreement is a comprehensive document that specifies everything from the franchise location to the finer details of operating the franchise. There is no standard franchise contract since every company is different and as well since the range of product is also different. Nevertheless normal clauses that should be on the checklist of every franchiser include:  Protection of intellectual property.  Conflict of interest, indemnity.  Business promotion.  Termination. A potential franchisee must submit a proposal for a franchise operation to the government ministry that regulates the particular industry sector. Among other details, the proposal must contain the amount of franchise fee that will be paid to the franchiser. The proposal moves from the relevant ministry to the Ministry of Industry and the Foreign Investment Promotion Board if the company has multinational presence. Reserve Bank of Furniture Industry in India 29
  30. 30. India approval of the franchise fee is automatic when the Ministry of Industry clears the proposal. In India the royalty payments range from 3 to 8 percent. And it is calculated on total turnover for the year for the franchise operation. Joint Ventures / Licensing A joint venture company is generally formed under the Indian Companies Act, and is jointly owned by an Indian company and a foreign company. This type of arrangement is quite common because India encourages foreign collaborations to facilitate capital investments, import of capital goods and transfer of technology. The joint venture can be:  Financial  Technical  Techno-financial. India is an attractive investment destination with a large consumer base. It is a big- league market that requires a careful approach because mistakes can be quite costly and local entrepreneurs yield to no one in terms of business acumen. Once a decision to go with a joint venture is made, the following practical tips should be used:  Define each partner’s roles and expectations  Experience is a key ingredient; there is no substitute for thorough research; and look at the long term. A foreign company, which plans to invest in India, needs an automatic approval by the Reserve Bank of India (RBI) or an approval of the Foreign Investment Promotion Board (FIPB). Automatic approval by the RBI is available if the foreign direct investment in the equity of the joint venture company does not exceed 51 percent in Annexure III and IIIB industries; 50 percent in Annexure lIlA industries; and 74 percent in Annexure IIIC industries. FIPB approval is required for all investment proposals that are not eligible for automatic approval. Furniture Industry in India 30
  31. 31. Steps to Establish an Office There are some practical guidelines that new companies establishing offices in India should consider:  Identify the right decision-makers.  Keep these decision-makers and other key players briefed about your project.]  Avoid getting into the land acquisition process from private sources.  Handle local labor issues carefully, because Indian laws essentially prohibit firing workers.  Take the opposition seriously, whether it is local politicians or residents. The most important parameters in choosing a location in India are:  Physical infrastructure;  State government support and flexibility;  Cost and availability of power;  Law & order situation.  Other factors to take into account include labor availability and cost; labor relations and work culture; and proximity to resources and/or markets. Furniture Industry in India 31
  32. 32. Selling Factors & Techniques As in all markets, selling techniques are dependent on the product and market and the Indian market is not an exception. Generally speaking, India offer high economic growth rates in the last years and a potential market of 1 billion people, what makes India one of the most attractive markets around the world. However, selling techniques in India differ from other countries because of varied consumer behavior when compared with Europe. Besides an important factor when a foreign company reaches the Indian market for first time, it should not forget adapt their products to Indian preferences and conditions. According with a recent survey, the Indian market can be classified as follow:  There are a one million strong super-rich class, who has emerged at the top.  The middle class actually comprises 3 different segments.  Consumer durables are purchased by up to 28 million households, while non-durables are bought by up to 90 million households.  Comfort and personal transport are the two most important priorities. In the case of rural India:  The number of households exiting the low income groups is rising; rural and urban shares of many consumables purchased are equal  Urbanization is creating rural demand for urban products  Lack of credit facilities and electrification are choking demand. At first sight the bulk of the purchasing power in India would appear to be concentrated in its urban markets. However, a significant majority of the Indian population lives in the rural areas distributed over some 627,000 villages. The balance lives in 3,700 towns of which approximately 300 have a population of more than 100,000 inhabitants. It is Furniture Industry in India 32
  33. 33. said that the real India lives in the villages. Currently in the villages, there has been a change in the purchase behavior due to increasing literacy levels and explosion of media. Significantly, most purchases are made from the household’s own income. Hire purchase schemes and loans account for only 10 percent of rural buying. Indian consumer habits are changing rapidly and this subtle slow change is difficult for several marketers to perceive. Unlike the west, there are very few malls in major cities and town in India. There is a teeming marketing layer of major and minor retailers. In addition, several companies are offering promotional schemes and discounts during numerous Indian festivals to boost sales. Recently, road shows have been used effectively to sell products. For consumer durable products, which are relatively expensive, financing and buy backs, are used as incentives to promote sales. The middle and higher middle class Indian consumer, general speaking, has some common characteristics:  They have more loyalty to the stores where they shop and not to any particular brand.  75 percent of people like revisit the shop where they last made purchases for apparels.  The non-store retailing has caught the attention of the Indian consumer.  Although aware of the existence of non-store shopping, very few people actually shop in this manner in India.  72 percent of consumers were aware of home/TV shopping; just 5 percent had used it. Direct mailers fared slightly better, with 54 percent respondents saying they were aware of this method, and only 8 percent used it. In addition to the traditional selling techniques, the Internet is also now gaining importance as a selling method. As the number of Internet users continues to increase due to reduction in the cost of Internet access, the Indian e-tailing market will also expand. Although E-tailing currently constitutes only 10-15 percent of the value of e-commerce in India, e- commerce is projected to grow by 30 times in the next three years, which will lead to a substantial growth in e-tailing in India. Similarly, industry experts believe that online business-to-business (B2B) commerce is set to take off in India because it meets a genuine need and portals offering such services are based on strong revenue models. Furniture Industry in India 33
  34. 34. The National Association of Software and Services Companies estimates that web- based B2B trade will grow to USD 2.2billion Euros in 2002-2003. There are currently more than a dozen B2B portals in place and half have persuaded about 6,000 companies to list goods on their websites. Although India’s rapidly growing population presents limitless opportunity, many Indian and foreign companies have discovered that for a handful of product categories, only a fraction of India’s population can be regarded as potential customers. Many companies have been disappointed with the response to products that they have launched in India over the past three years. The causes are:  Some companies grossly over-estimated the depth and size of the Indian market for their products.  They fell in the projections for the growing middle-class ranged from 150-200 million. They offered global brands at global prices, without any customization. Merely transposing brands and products from other markets did not work.  A final mistake was to enter India without an efficient distribution network, forgetting that India is a market with poor infrastructure and logistics. A successful sales strategy will recognize and deal with the existence of strong local competition - this exists in many products and service categories and should not be under- estimated. Foreign firms must also carefully compare customer needs and the quality of latent demand with the level of service that they want to offer in India. India is not a wealthy country. Even among the affluent middle class, much of the money is spent on need-based consumption rather than on luxury goods. So to introduce foreign products successfully all the comments below should have in consideration. Furniture Industry in India 34
  35. 35. How to Promote Furniture Sales in India  Advertisements in important national / regional news papers, interior and furniture magazines, participation in furniture trade shows and organizing workshops and product seminars will make a company stand out in the competition.  It is not necessary to have an all India distribution network of dealers / franchised shops from the very beginning. Instead of thinning out, it is better to concentrate in same regions / zones and to consolidate before expansion.  No Indian or foreign company has held product display shows in India except to some extent Gautier (France). A furniture company should take lead in this direction and hold shows in good hotels of India for the consumers, it will become a big hit.  Companies can have a design studio in India. There is complete vacuum, a sort of dearth of good designers in India, especially for hotels, office and kitchen industry in India.  In fact the Indian companies can consider opening a design school in India for aspiring students, which will generate big business (financial gains) for them in India, besides giving them strong brand equity. Furniture Industry in India 35
  36. 36. International Trade In 2003, the main exports were to the countries like US, Germany, UK etc. Although the growth rates show that there is definitely a greater propensity to opening the local market to the influence of foreign producers, incoming and outgoing trade flows are still modest. The export is much higher than the imports but slowly the gap is bridging. Furniture Industry in India 36 Indian Exports 15% 10% 5% 2% 2% 4% 5% 5% 14% 14% 24% US Germany UK France Italy Denmark Canada Greece Belgium Netherlands Others
  37. 37. India was the largest importer of furniture goods in 2003. The main imports were done from European countries, UK, US etc. The demand for furniture items manufactured in these countries is slowly rising in India. Duties Structure While importing furniture in India, the following duty structure is applicable. The goods may be imported by a company, institution or private individuals. Duty Percentage Import Duty 20 % Counter Veiling Duty (CVD) 16 % Education Cess (2% of 0.32 % Furniture Industry in India 37 Indian Imports 4%8% 11% 6% 5% 5% 8% 8% 12% 14% 19% Germany Italy Korea UK US Denmark Irish Rep. France Japan Poland Switzerland
  38. 38. CVD) Total Duty 36.32 % While exporting, there is no duty to the Indian exporters. The duty is nil. Hence the government is also favoring Indian Exporters by encouraging exports which has resulted in increased exports from last few years. Problems Faced by Foreign Companies in India Problems from Indian Government Side  Poor labor laws v/s. Quality of workers - Outdated labor laws makes it a bit difficult to sack I dismiss I retrench surplus or staff.  Power generation shortages and steep electricity prices – More consumption - more the tariff bracket. Power cuts have forced most organized companies to have their own in- house captive power plants/ diesel generator sets. Furniture Industry in India 38
  39. 39.  Investment & resources constraints — Attitude of Indian banks /financial institutions, besides 12% to 15% high lending/interest costs.  Outdated and primitive banking systems  Poor infrastructure - Bad quality of roads cause delays in shipment deliveries.  Dirty industrial areas - No maintenance is done for years.  Corruption - Causes delays and irritants.  High and varied taxes – Which country would have so many types of taxes: Customs/import duties, countervailing duties CVD ), Special additional import duties, excise duty ( manufacturing tax ), Central Sales Tax, State Sales Tax, Octroi/municipal tax, turnover tax, Income tax, corporate tax etc. Problems from Indian Business Community side • Poor communication systems - Many SME’s don’t acknowledge or respond to urgent mails in time. The quality of letter writing is outrageous and subservient. • Disregard of Brand valuation - For many Indian companies selling products at cheapest possible price is the only criteria rather than brand building exercise. • Dirty industrial areas - Poor roads, unclean and unhygienic. Furniture Industry in India 39
  40. 40. • Quality apprehensions and attitude - Although due to exports and China threat many Indian companies have incorporated 150/ UL etc., the attitude is still primitive. • Transparent in financial issues - Due to high taxation policies of Indian government (see above noting) many companies sell their goods to end consumers without any recorded invoice. This generates black money. • Poor reporting systems - Most things are controlled by owners’ family and reporting system is non-existent in small companies. • Unsure of requirements - Many Indian companies want foreign alliances / technical collaborations/joint venture without even bothering to know what it means to them. • Unfocused approach - They want to do it all, have it all, have strange attitude. Lack of professionalism — closely held companies wants to run the show their way and lose out in national and international markets. • No importance of R&D and Market Research Study (MRS) - For them just copying a design / product and selling it cheaper than the original itself is a great achievement. • Regular delays in supplying the end products to consumers - This leads to legal and commercial complications. The attitude is too casual. • Poor pay masters to employees - Want to have quantity not quality in employment. This leads to poor quality of workers and production. “No problem” attitude has created all the problems. . They cannot and it leads to poor taste. Action Plan For The Furniture Industry The action plan for the industry could be on the following lines:  Benchmarking performance: Enterprises need to develop a mechanism to compare performance with competitors in other countries. Benchmarking with most efficient Furniture Industry in India 40
  41. 41. producers on all cost parameters is a must to improve the performance and remain competitive in the globalized scenario.  Better value chain management: Improved value chain management can reduce costs and increase flexibility. A wide sourcing base can increase flexibility when it comes to securing raw material from the cheapest source with the quality and design the buyer expects. Such flexibility will be a critical competitive factor in the future. By optimizing the supply chain, lead-time will also be reduced.  Increase productivity: Investment in human capital and high-tech machinery to increase productivity and production of internationally cost and quality competitive goods.  Quality consciousness: To survive in the integrated world market, the industry has to focus on the international standards of quality and excellence. To achieve internationally comparable and quality standard finished goods, it has to be ensured that quality parameters are maintained at each level of production from raw material to the finished product. Introduction of latest technology can provide world class quality in this industry.  Design & Trend: There should be a constant watch on the design trends in the furniture market in the country as well as worldwide. The design preferences of the consumer changes often. Hence the companies should strive hard to be in par with the latest design trend  Modern management practices: Alongwith technology upgradation, adoption of modern management practices is also very essential to acquire that essential competitive edge. Management practices like JIT, TQM, supply chain management etc form an important link between technology adoption and acquisition of competitiveness. Adoption of such practices will result in cut-down in manufacture and delivery lead time, improving product and process quality and improving plant Furniture Industry in India 41
  42. 42. equipment maintenance. Management accountability through stricter code of corporate governance is also necessary for balanced corporate growth.  Innovative products: The industry has to focus on innovation for surviving the stiff international competition. ‘Production innovation’ should be considered as a dynamic process and not as a one time process. Continuous innovation in the product is the sure way to win the race in the global market. Companies should have a research and development team who constantly look out for innovating the products since the taste of the consumer changes frequently.  Develop ‘e-application: E-applications can be employed not only to sell, but also to exchange information across electronic networks at any stage of the supply chain. E- applications facilitate sourcing and supply chain management; production planning, design and forward integration, including internet sales. The main goal of e-application is to increase flexibility and to shorten the overall value chain, thus reducing lead-time. A shift to e-applications also highlights that a company is both competitive and willing to adjust to the demands of the market. Alliances Between Indian And EU-USA Companies Since the economy in India is booming up, it has become a land of opportunities for foreign investors. Many foreign furniture companies have realized the potential of furniture market in India and have started investing in India and have entered into tie-ups with Indian companies. The agreement between Gautier France and the Birla Group of India from Chennai gave rise to Gautier India, which offers the models of the French parent company. Chairtech (France) is preparing a joint venture with a local seating producer, Vishal Chairs (Mumbai). Furniture Industry in India 42
  43. 43.  The Swiss company Lista (office furniture) has signed an agreement for product development with Matrix, a Voltas Ltd company that produces modular office furniture.  The Germans Wilhelm Bolt & Co. KG and Erich Bolte have technical agreements with Arvind Furniture for on-the-spot production of furniture.  Steelcase (USA) sells its products in India through the most important Indian producer of office furniture, Godrej & Boyce.  Another US company, Herman Miller, chose Featherlite as its Indian partner. Sauder (USA), a specialist in RTA furniture, has set up a joint venture and a technical agreement with the Indian company Sammarth Overseas & Credits Pvt. Ltd (Hyderabad).  The Italian companies Arrital Cucine and Divani Chateau d’Aux both have Indian partners to sell their goods on the local market.  Another Italian company, Saporiti, specializing in upholstered furniture, has built a productive plant in Pithampur in collaboration with a local company Pinnacle Industries. Western companies are already present on the Indian market, but greater satisfaction is undoubtedly in store from the local market with the economic development of the country and, most importantly, with the involvement of larger groups of urban and rural residents in this development. The improvement in living conditions, which is not confined to the large urban centers, will definitely produce a further increase in the demand for furniture of western style. Furniture Industry in India 43
  44. 44. Furniture Industry in India 44
  45. 45. Section Two Case Study Tangent Furniture Private Ltd. A visit was conducted by me to Tangent Furniture Mall in Vashi to study in depth the operations of a furniture company and a retail outlet. I met Mr. Kunjal Thakkar, the manager of the the showroom at Vashi Branch and asked him various questions regarding the operations of the company to understand the industry in depth. Introduction Furniture Industry in India 45
  46. 46. Tangent Furniture Pvt. Ltd. was established in 2002 by Nenshibhai L. Shah, chairperson. It was the first entrant in the Indian furniture market with exclusive imported furniture along with its competitor Durian. The company opened its first exclusive showroom at Link Road, Malad, Mumbai which was the biggest furniture showroom in the whole of India sprawled over 55,000 sq. feet area. This was followed Mulund Branch, then Pune, Vashi, Worli, Ahmedabad, Surat, Bangalore, Gurgaon, Chandigarh. A new branch is also expected to open up at the end of this year in Chennai. Tangent has the largest chain of stores of exclusive imported furniture. It is also the largest importer of furniture in India. The list of clientele of corporate projects of Tangent includes Reliance, D Lloyd, Pfizer, PSF chemicals, Deguza and various BPOs. The main imports are from the Far East Asia and Europe. Out of the total product range, 99 % of the products are imported and only 1 % is Indian. Sales and Disribution Channel All the branches except the Mulund branch is owned by the company. The Mulund branch is a franchise under the name Manish Pvt Ltd. Tangent does not entertain too many franchises like Durian. According to Mr. Kunjal, “We have created a brand image from the past few years and to preserve this brand image we do not allow franchise”. Product Range The length of product range in tangent is very long. It mainly focuses on residential furniture but it also undertakes corporate projects. According to Mr. Kunjal, the size of market of residential furniture is very large because furniture is needed in each and every house. It has an exclusive range of sofa sets, dining sets, wall units, bed sets, workplace units, office chairs, residential chairs, glass works, children’s furniture etc. Furniture Industry in India 46
  47. 47. Operations The operations of all branches of Tangent are controlled by the Malad branch. It is the main branch. The records of bills and accounts of every branch is to be submitted to the Malad branch. The purchase of furniture products is done by this branch and the supply to other branches is also controlled by this branch. The price is also fixed centrally b this branch. Inventory Furniture Industry in India 47
  48. 48. There is one central warehouse of Tangent Furniture Pvt. Ltd. in Mumbai. The imported stock is directly carried from the port to the warehouse. Tangent has an office where all enquiries and orders can be placed by every branch and the reply also comes from the same office. When the order is placed, the product comes to the branch in 24 hours if in Mumbai. Outside Mumbai, it takes more than one day to transport the products. It believes in selling off the shelf which means if a customer likes a product, the same can be dispatched immediately. Marketing and pricing strategies Tangent has an in house sales team for the whole company. It does not have marketing team for each branch. It does not participate in Trade Fairs or exhibitions. It frequently advertises in furniture magazines, daily newspapers, other magazines. Furniture magazines include INDEX, Inside Outside and Architecture. It also promotes its products through way of hoardings. It believes that when you enter into corporate project, you are referred by that company to other Corporates too which is called as Word of Mouth Publicity. The average monthly turnover of one branch of tangent is Rs. 30,00,000. On an average the profit margin on the MRP is around 40%. The price of the product is decided by the Malad branch. They also provide discount offers periodically. Currently they are giving discount of flat 21 % to its customers. After Sales Service Since all the furniture is imported, there is no warranty or guarantee received. So we can not pass the warranty or guarantee to our customers. If there is any damages in hardware as in screws, nuts it can be repaired but if there is damage in the material, Tangent can’t help it since such material is not found in India. Furniture Industry in India 48
  49. 49. The Position of Furniture Industry then and now When tangent opened its first showroom in 2002, it got a negative response because an average Indian consumer found it costly. In 2002, very few companies had entered the market of exclusive imported furniture and now hundreds of such companies exist in the market. The government also favours this industry and supports the growth. According to Mr. Kunjal Thakkar, an average common man is not able to buy imported furniture. But the scenario will change in coming years. It is very costly to Furniture Industry in India 49
  50. 50. manufacture furniture of world class quality made from machines in India. The labour costs are very high and the raw materials is also found in some specific countries. Hence it is feasible to import such furniture instead of manufacturing it. The customers are shifting from hand made furniture to machine made furniture because carpenters can not make furniture of such quality and design which is made by machines in other countries. “In 8 – 10 years, this industry would definitely boom, since the consumer is increasingly being conscious about looks, design and budget”, says Mr. Kunjal Thakkar. Section Three Furniture Industry in India 50
  51. 51. A special snap shot…. Modular Office Furniture Overview New paradigms now define the design of workplace furniture. The human factor is no longer the incidental element. Having acknowledged the link between productivity and well- being, the path was set for what is now called “ergonomics” or furniture design as if people mattered. The understanding of form and functionality developed into a more scientific Furniture Industry in India 51
  52. 52. approach to designing the workspace and changed the way corporate India looks. Quick to follow the trend set by the corporate world; small business too has adopted the new look and in so doing, created an enormous market for workplace furniture. The manufacturers’ story is lighting to retain the Indian pie. This recent dramatic change is driven by the changing profile of business, and the pace of twenty-first century life. The cost of rental and the fact that most offices need to be occupant-ready yesterday ‘have necessitated the quick solution — offices that can be put together fast, with minimum fuss and maximum efficiency. In addition, the development of specialized niches in the corporate function, has created whole new office environments such as communication (call) centers, while the older “new” sectors — information technology (IT), banking, FMCG and telecom are sprawling displays of the versatile, new office look While this look incorporates all the right elements of ergonomic design, its also the new corporate signature. Stuffy cabins with boring, often ugly, functional furniture are out. An open conversational setting, complemented by elements of elegance and style, is the pretty new face of the business world. The explosion in the market has pushed the Office furniture majors - Godrej, Blowplast India, Featherlite, PSL Modular Office Systems, N R Jasani and Shapoorji Pallonji. I gained knowledge from some key players of this industry, who provided valuable insights into what are available, trends and materials, to illuminate the dynamics of the market, but could only confirm that the exact proportion of office furniture to the total furniture industry is hard to assess. They manufacture significant numbers and cater to an enormous market, but the manufacture of office furniture is not their core business. Furniture accounts for a fraction of Furniture Industry in India 52
  53. 53. the total range of manufacturing of the INR 18 billion Godrej group, at INR 4 billion (400 crores), while the INR 7.5 billion Shapoorji group has a turnover of INR 350 million in the office segment. Similar proportions hold true for the INR 5 billion PSL group, whose office furniture accounts for just INR 100 million. This recent focus on office furniture saw most companies starting manufacture after 1990 or in the early 2000s. Even Godrej, who are perceived as being in the “Business Forever”, set up their office furniture division only in 1992. This period also saw the entry of smaller, more focused manufacturers into the offi6e furniture market such as Steel & Woods and V3 Engineers. Manufacturers appear segmented at opposite ends of the office furniture spectrum, with the larger furniture majors offering complete office solutions (desking, storage, seating, cubicle structures), including design and layout, and a group of chair specialists (Amber, Eurotech, Euromic,) sticking to their core competence. Behavioral scientists tell us that matchbox structures enclosing individuals and cutting out visual and other communication, decrease productivity. Open offices improve teaming, eliminate non value added activity, and are the new design mantra. Leading manufacturers have developed variants of this system. Godrej, for instance, offers five variants of the open plan office with panel, tile, column, desk and combination spine and fin based systems. Such systems are modular, flexible, and upgradeable and can address needs for acoustics, privacy and cable management while making it easy to configure offices to suit different work profiles. Not withstanding the change in trend towards integrated workstations, freestanding desks continue to remain an important element of office furniture. Senior executive tables have become more stylish and functional, and may be upgraded with side or back units for an independent work place. Furniture Industry in India 53
  54. 54. Most manufacturers offer a range of products at varying price quality levels. A mid- range executive suite consisting of desking and storage, would vary in price between NP 35,000 to INP 150,000, while the upper ranges would start at about INR 200,000 and zoom upward,depending on the design component and the degree of customization. The enormous demand for call center modules has inspired manufacturers to offer systems ranging from INR. 7,000 to INP. 25,000.The continuous enhancement in information technology has made an impact on conferencing equipment as well, leading to a range of pre-wired, modular conference tables of varying contours and finishes. Chairs too have undergone a major metamorphosis, with the maximum research and studies being carried out on seating systems. Prices for chairs range from NP 3,500 for regular seating, with CEO level seating going up to INR 150,000. The middle range of seating at the INR 13,000- 14,000 is most popular. “The current trend is for office furniture that is not only functional but also aesthetic. A few decades ago, the ‘people’ factor, played almost no role in determining the design of the office. Offices are being increasingly designed by professionals who, apart from seeing that the spaces work with optimum utilization, are able to add an aesthetic touch. The atmosphere in the office can greatly influence work output and an increasing emphasis is being placed on making the modern office as pleasant as it is functional, This is not always easy, given the increasingly smaller workspaces to contend with. In such a set-up, going modular is a great idea.” Ranjit Bakshi - Head, Marketing BP Ergo Furniture Industry in India 54
  55. 55. Offices are trying to move away from airless, box-like rooms to better-ventilated, well-lit, ergonomically sensitive spaces Like any other furniture, office storage needs have changed. With office space becoming more and more expensive, it has become imperative to develop storage systems that store more in less footprint space. A clear demarcation of personalized and centralized storage, which could be modular and integrated with system furniture to stand above centralized storage, is the trend of the day. Multipurpose storage facilities incorporate the facility to store a variety of material (box / flat files, books, ledgers) in predetermined, easily identifiable areas. The change in the design and planning of office spaces has been complemented by changes in what makes up furniture and systems. The old standard of wood and steel has been replaced by more technologically advanced and ecologically friendly fiberboard, glass and metal. A combination of materials like wood and steel break the monotony of one material, Furniture Industry in India 55
  56. 56. while the use of technologies like membrane pressing has led to the development of stylish desking systems at affordable prices. “Materials used in manufacture tall into two categories”, according to Rajan Bahri of PSL, “core material and finishing material’. The core materials need to be sturdy and supportive by definition, steel or aluminum as framework materials, supporting particleboard, MDF and pre-laminated board. Finishing materials span the gamut from laminate, veneer, fabric, glass and PVC edge lipping” New needs and new patterns of manufacturing have engendered a new activity - the design of office furniture. Designing of storage, for instance, is a science that involves a study of the flow of documents, frequency of their use, the type and size of document binders before designing a proper solution. As Anil Mathur of Godrej sees it, “No more is the emphasis only on aesthetics or engineering, today’s designs integrate not only aesthetics and engineering but material services, ergonomics, and human behavioral sciences.” So who brings this basket of varied skills to the table? “A product designer trained in ergonomic norms” according to Amber’s K D Nirmal, “An engineer” says Manjit Shandil of Steel and Woods, “An architect”, says Shapoorji’s Chabbra. Several manufacturers have their own in-house design teams, who work in tandem with the architect and design community to create products that are a contradiction in terms - customized system furniture. In reality, the large volumes required by each project make it Furniture Industry in India 56
  57. 57. feasible to create products that vary within a band, offering a degree of customization to each project. Large manufacturers like Godrej push out the boundaries of the concept with a fully integrated design center and knowledge center where their design cell directly interfaces with the architect and design community. Anil Mathur of Godrej tells , ‘The world over, furniture manufacturers are moving towards being solution providers - right from designing the layout and furniture to execution of the project. Their experience and research in office furniture and designing have made them expand their horizons into the area of interiors. Working in tandem with the A&D community, the large manufacturers today offer a ‘Single Window Concept’ to customers.” With several global majors selling up communication centers in India, industry pundits foresee enormous growth in the demand for call center and software industry modules, and have started manufacturing need-specific modules for these industries. The need to stay on top of things in a large, but increasingly competitive market, has inspired manufacturers to add value or maintain their stance various ways, starting with quality control. The bigger players have international certification on quality norms. For Furniture Industry in India 57
  58. 58. instance, Blowplast follows ANSI & BIFMA norms and has received ISO 9001 certification by BVQI, Belgium for ‘design, manufacture, supply, installation and servicing of office furniture systems’. Similarly, Godrej boasts ISO- 9001-2000 and 180-14000 certifications as well as manufacture in accordance with BIFMA standards. In addition, several of the top 5 manufacturers have turned overseas for inspiration, buying technology, or products, or both from the market leaders of Europe, the USA and Oceania.( See box Above) All roads, both Indian and international, lead to the design of office spaces as if people mattered. This is the new marketing mantra. And it works. Ergonomics is the driving concept of the new office. The importance of ergonomic seating is underscored by the fact that an average office worker spends approximately 80,000 hours seated, during his career. By adopting unique communication strategies, companies attempt to create an edge over competition as well as carve a niche for themselves in the market. While ergonomics became the buzzword in industry circles, some went a step further, as did Godrej who made the “Health-Seating” platform their own. Group President P D F Lam puts it succinctly, “Furniture is an essential part of good health. We do not merely sell pieces Furniture Industry in India 58
  59. 59. of furniture, like chairs or tables, w sell health”. So while Godrej cornered the niche on health, BlowPlast explored the pleasure principle. As Ranjit Bakshi, Head Marketing Blow Plast Ergonomics explains, “Workstations are designed in a manner that facilitate teamwork and allow free flow of information, while at the same time respecting the employee’s privacy. The underlying philosophy being to create a healthy work environment that raises the motivation level of employees creating ‘Pleasure at Work’ Mere mantras don’t do the trick. Indian manufacturers have their marketing plans in place, coupled with a game plan to target market their products to their main clients - corporate or the main decision makers. In most cases, this is the specific architects and designers who work with large projects and are responsible for the design and layout, including the interiors, of large office projects. Manufacturers have various strategies to attract and directly interact with the specifier. Some organize custom mockups of furniture especially for individual architects; a procedure which J K Chabbra of Shapoorji says is both tedious and expensive. Others offer the architect a range to choose from at showrooms or specialized design centers, such as the Godrej Knowledge Centre. Large manufacturers with a serious scale of operation have an all India network of showrooms or franchisees. All manufacturers also have partners and tie-ups with retailers across the country, gaining visibility without the burden of showroom costs. BlowPlast have over 1000 installations across India, with showrooms in 8 metros, complemented by a tie-up with 40 business associates across India. PSL has a presence in the 10 largest markets, while Godrej is India’s largest office furniture manufacturer employing more than 800 employees, a distribution network of over 640 dealers, 24 branches and 31 showrooms, all - India. The smaller companies usually have a regional focus, with national aspirations. Steel & Woods with a focus on the Mumbai market relies on a marketing team to ensure the product reach across the country, as does Amber which sees 60 percent of its material being absorbed into the Mumbai / Pune market, and the rest being dispatched to other regions via its marketing network. Furniture Industry in India 59
  60. 60. Several manufacturers export a part of their production, mainly to Europe and the USA. The base support to the marketing plan is their promotional plan, which, on overview, appears conventional rather than adventurous, with all companies favoring advertising and trade fairs in approximately a 70 30 or 60: 40 ratio of ad spend. What has been the government response to all this frenetic activity? Rajan Bahri of PSL says the recommendation of the 5th Pay Commission to incorporate modular structures into offices was a step in the right direction. However, most manufacturers agree that the burden of excise and other taxes diminishes the attraction of manufacturing. A glance around the country confirms the dominance of the big five manufacturers, who account for most office furniture retailed in the secondary markets. An educated guess at the size of the office furniture market in New Delhi puts it at about 10 billion INR, where branded products account for between 10 and 20 per cent of the total. Market leaders Godrej control an estimated 60 percent of this. Regional manufacturers also handle a significant share of the pie. These include the Continental Group (LineA furniture) in Delhi, Ergotek and Eurost Products in Bangalore and Steelco in Kolkata. Recent Developments As Discussed At Index Furniture Fair In Mumbai, Sept. 2006 Furniture Industry in India 60
  61. 61. What the world at large glibly refers to as ‘call centers’ encompasses the entire BPO and call center industry. As one might expect, it’s hardly as simple as that. The gamut of back office operations falls into several segments, some of which are voice based (real call centers) and those that provide non-voice- based back office services including data processing, transcription, pay roll processing, legal analysis and software development for specialized uses. These include call centers and BPOs for data processing, KPOS involving a more specialized and better educated staff including scientists, doctors or lawyers, ITES and IT offices. Icapil Agarwal says the profile of outsourcing to India has itself changed, “As the importance of India’s quality labor and talent pool is widely being recognized, we will go higher up in the value chain.” “We don’t treat all software companies the same way and all BPO5 the same way. Each company has an inner cultural preference which is different from other companies and which we try to understand.” Ar. Jessy Jacob (Jessy Jacob associates) Each niche has its special design requirements. Discussing the differences in profile, Ar. Jessy Jacob, Jessy Jacob Associates, Bangalore adds, “The average age group in a typical BPO ranges from 17 to 24 years and 22 to 30 years in a software company, while in corporate offices the age group is 40 to 50 years. A BPO or a call center has a college campus atmosphere, so the offices have to be fun, young and happy so that it can cater to that age group.” The reputation and scale of operation of the service provider or manufacturer is a factor in who initiates the buyer-seller dialogue. Large architect firms are directly contacted by the client who then continues the interaction with the architect, while the project management consultant joins the equation further down the line. In other cases, the project management consultant assumes a more pivotal role, coordinating and initiating activities starting from the architect to all service and product suppliers. The next point in the interaction is the design brief, which varies in length and detail, depending on the experience of the client. The novelty of the industry itself means that several clients are first-timers who require a high degree of hand-holding including visits to offices with a similar design profile as a familiarization exercise. Architects then confer with their Furniture Industry in India 61
  62. 62. clients to understand their corporate culture after which they work out several design options, one of which finally selected by the client. 3D images and mock-ups follow and the job enter the execution stage. The issues peculiar to this industry have also necessitated sector-specific solutions. Ar. Brinda Somaya, Somaya & Kalappa Consultants, says, “The biggest change has been in terms of the services that go into any one of these commercial spaces. When I began many years ago, it was furniture, accessories, flooring, ceiling, lighting and air conditioning. But today it is the communication system, the security system, the data cabling and the computer systems that are very important. I think the skill of the architect lies in how they are able to integrate all the services.” Ar. Sanjeev Mehta, Director, Ethique, Mumbai adds, “The heart of a BPO is data cabling and the server room plays a major role.” While architects say design does not change drastically from a regular software development or other IT office to a BPO, issues like space and the schedules that BPO staff work, become factors in designing these spaces. Ar. Asha Kushalappa says, “BPOs are more intense as we fit in 1000 employees into a limited space, while in the IT sector, the same amount of space houses only Furniture Industry in India 62
  63. 63. 500 employees.” The space crunch is balanced out by efficient HVAC, as the conditioned air must be well circulated to combat oxygen- deprivation and the lethargy it induces. The fact of employees working shifts creates a bottleneck which architects must factor in. Ar. Jessy Jacob says, “Employees have to record their log in and log out time. There could be 400 people waiting to go out and another 400 waiting to come in, so we have multiple access control with biometric log—in and out systems.” Broader (6 foot) passages reduce congestion and claustrophobia. Issues arising out of repetitive work such as fatigue and frustration are addressed by creating ‘break out’ spaces ranging from interesting cafeterias to in-house gymnasia and chill out zones where employees can re- energize before they get back to the grind. Architects must also accommodate the fact that shift continues in to the night and the atmosphere of the bpo must replicate a day time environment making lighting a central issue. “The biggest change has been in terms of the services that go in to any one of these commercial spaces. I think the skill of the architect lies in how they are able to integrate all the services.” –Brinda Somaya The new industry segment has brought a whole new ethos of work culture with it. An interesting anomaly that’s everywhere in the BPO related construction and interiors industry is that there is a lot of business, but no one is taking anythingfor granted and competition has become frenetic. As in most things, the fallout has been of both kinds; while professionalism has certainly improved, the competition is sometimes gruesome, with aesthetics and design being the first casualties. The industry that turned time on its head for the staff of the BPO services industry has also had an effect on the timelines associated with set up. Architects and builders across the board exclaim over how quickly projects are put together. Regarding the fit out, Ar. Ashish Gupta, Senior Architect, Design Plus, Delhi says, “The time taken to set up a BPO is 35 days to 3 months, and Completion to an extent depends on the size of the project but not much. If it is about 500,000 to a million square feet, it can be done in 3 to 4 months.” “BPOs hove completely changed the landscape of interior construction industry. The scale of projects has gone up tremendously in terms of area and the budgets available have Furniture Industry in India 63
  64. 64. increased. BPOs, call centers and such big projects demand different kind of office buildings which comply with their requirements.”- kalhan mattoo,planet 3 studios pvt ltd The explanation lies in another outcome of the BPO industry. Manufacturers and suppliers of furniture have become far more organized as well as professional; several have set up large-scale mechanized manufacturing facilities using German or Italian machinery to do the job better. Prakash Gurbaxani, CEO, TSI Ventures (India), Bangalore says, “Deregulation in imports of material has helped. Today, things like furniture and high-end equipment can be easily imported. There are Indian companies who are in collaboration with foreign manufacturers and manufacturing in India; so there is an efficient technology transfer.” “Things have changed dramatically over the years in the construction industry. The quality of workmanship and equipment used has changed drastically. Today we use laser technology to level the ceiling which was not there twenty years ago.- prakash gurbaxani tsi ventures (India) Furniture Industry in India 64
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  66. 66. The Markets & The Future The way it works for the greater part of the industry is that builders set up a complete building and thereafter lease out parts of it, floorwiseorotherwise, to SPOsorcall centers for a period of between three and five years. Ar. Venkatesh says, “We have a healthy mix of both in the south. We did almost a million square feet of fit outs last year and we are doing two million square feet of new shells.” SANDOZ PVT LTD : EURO OFFICE SYSTEMS LTD,MUMBAI Builders and developers with a highly diversified portfolio are still focused to the residential and commercial project market, with the upstart SPO industry quickly growing within the portfolio. The share of this industry in the portfolio of a well-established developer with a much diversified range would be in the region of 18 to 20 per cent. Newer entrants like Regenesis, Pune move this up to 30 to 40 percent of their portfolio. Architects too have seen a rise in the importance of the BPO segment in their portfolios, with the older and larger architect firms putting this figure around the 10 per cent mark ,and the newer firms (dwp interics, Ethique) seeing the segment account for almost half their business. Kshitij Limaye, Director, Sankalpan, Mumbai says the last two years have seen a drastic increase in the proportion of BPOs in their portfolio from between 25 and 30 percent to over 48 percent. Furniture Industry in India 66
  67. 67. Commenting upon the constitution of the BPO segment within the larger IT arena, Ar.Venkatesh says; “BPOs and call centers form 10 percent of the projects that we do, because we have a pretty diverse portfolio. We do lot of data centers, software development companies, labs and testing facilities and hardware assembling facilities. The percentage of the IT sector would be about 50 to 55 percent.” Ar. Sunil Gambani of Architect Hafeez Contractor also says they have a highly diversified portfolio, including residences, commercial complexes and airports, making their BPO-centric business a small proportion, but important part of the total. lnspite of the huge volumes of business, industry experts have only short term expectations for what’s called the call center boom. Some put the figure atjust three years; others let the wave ride to five, while few expect it to last much longer than between three and five years. Bangalore-based furniture manufacturer Manohar Gopal, Director, Featherlite Products, has seen the diversification within the IT industry at first hand and he predicts that there will be more specialized IT enabled services coming in, which will generate the need for their own specific furniture. Furniture Industry in India 67
  68. 68. Materials and Manufacturers Materials available on the market include the entire gamut of plywood, marine ply, veneers, glass and steel. High wearing materials like vitrified tiles, ceramic tiles, wooden flooring, granite flooring, laminated flooring, vinyl flooring, Italian marbles etc. are preferred for flooring. Areas which are higher circulation zones normally have hard flooring and areas which are more cozy have wooden or vinyl flooring and the office areas have carpeting. In call centers normally glass is not widely used as it’s a non acoustical material. Solid partitions made of gypsum, laminate, plywood or MDF are common. Newer materials like column cladding and innovations like glazing partitions are in over the last couple of years. Wooden worktops have given way to the range of options offered by membrane press technology. “Nobody uses wood nowadays. MOE and rubber wood are common. Tables are tucked with aluminum and MS traming,”says Ar. Sanjeev Mehta. Others innovate with local materials. Ar. Jaisim mentions wood and clay products, while Ashwin Utturkar, Wood Culture, Pune says materials and panel-based industry has not changed in the recent past, but the real advances have been madein furniture hardware, which makes for a superior product. According to Adurthi S. Rao, Director, Form Design, Mumbai, materials can vary according to the weather conditions in different cities in India. Aluminum is highly recommended in cities like Mumbai, Chennai and Kolkata where humidity is high. We source it from jindal and also from a local supplier from Gujarat,” he says. Kamal Charan, Managing Director, Ergotek Seating Systems, Bangalore, says that all the component parts of the chairs they manufacture are available on the Indian market, with only the gas lift mechanism being imported from Korea, Thailand or China, whereas Ganesh Kudva of Pentavision Pvt. lid., Bangalore, says, they always import components tram countries like Malaysia and China. Praveen Bohara, Ergomaxx India Pvt. Ltd., Chennai, says the Indian market services all their requirements. Furniture Industry in India 68
  69. 69. FACTORY OF EURO OFFICE SYSTEMS AT DAMAN Furniture as the single largest component of the interiors budget (8O to 70 percent) commands a healthy respect in the industry as is evident by the number of mid sized companies who have either entered the manufacturing industry or diversified into the manufacture of BPO specific products or re-organized themselves to better service the industry. The rampant growth in the industry has attracted several smaller manufacturers or interior contractors of varying scale to enter the lucrative ITES furniture market. Firdaus Chindhy, Chindhy’s Interiors, Pune, active in turnkey projects for residential furniture began manufacturing to cater to this new segment of the market four months ago and plans to expand further through a tie up with an Italian brand soon. Similarly, Pan Office Systems Pvt. Ltd., Pentavision Pvt. Ltd., Bangalore; Magnaa Modules and Systems Pvt. Ltd. and Ergomaxx India Pvt. Ltd., Chennai who were earlier supplying finished products to renowned branded players, have moved away to create their own brands. Among the manufacturers, several medium and small players say they import almost all their machinery from Italy and Germany; still others buyall their requirementof pneumatic machinery in India from dealers of imported machinery and tools. Large players in the industry pay attention to quality to match international standards for manufacturing facilities. “All the equipment that we have is either German or Italian. The investments are getting very heavy. If we have to retain the position that we are in, we need to invest more in the business,” says Manohar Gopal, Director of Featherlite Furniture Industry in India 69
  70. 70. Products, and Bangalore. Constant investment in upgrading technology or adding on new operations seems to be an imperative for the larger players. K.A. Parameswaran, COO, Style Spa, Chennai, says, you have to invest in (to service) certain segments because they will have some specific requirements in terms of machinery and support activities; we have invested in a paint shop where we undertake various kinds of painting like powder coating on metal as well as on wood bases.” “If India has to really come up in furniture market, all furniture manufacturers should came together and put up their furniture far world exposure, so the world market knows that India is also capable of giving good furniture at a reasonable price.” kamal charan - ergotek seating systems. Furniture Industry in India 70