Furniture manufacturing: India's next cross-border B2B unicorn opportunity?

June 20, 2024

The global furniture manufacturing market has witnessed substantial growth in recent years, mostly driven by factors such as rising urbanization and increasing disposable incomes.

Furniture manufacturing: global overview

The global furniture manufacturing market has witnessed substantial growth in recent years, mostly driven by factors such as rising urbanization and increasing disposable incomes. The global furniture market was valued at around $537 billion in 2022 and is projected to reach $692 billion by 2027, growing at a CAGR of around 5.2% during this period. The Asia-Pacific region dominates the global furniture market, accounting for over 40% of the total market share, followed by Europe and North America. And 80% of this market is currently traded offline!

China is the world's largest furniture manufacturer and exporter, with a market share of around 38% in 2022. However, the US-China trade war and the subsequent increase in tariffs on Chinese furniture imports have disrupted global supply chains and created an opportunity for other nations to capture a larger share of the US furniture market. Indeed, the US imposed a 25% (up from 10%) tariff on Chinese furniture imports as part of the broader trade war between the two countries. This move has had a substantial impact on China's furniture exports to the US market: before the trade war, furniture accounted for around 6% of total US imports from China, but this share has now dropped to around 4%. China is still the US’s biggest exporter with $34.8Bn in value, followed by Vietnam ($5Bn).

What's interesting, though, is that while China's exports dropped by 30%, Taiwan surged by 50%. It needs to be noted, though, that this growth is in part driven by Chinese furniture manufacturers that have relocated some of their production capacity to other countries in Asia, such as primarily Vietnam, Taiwan, and other Southeast Asian nations. As a result, US imports of furniture from countries other than China have grown by a staggering 87%.

Why hasn't India capitalized on this opportunity? Let's dive in.

But before I do that, I'll run you through a quick overview of the market on the buyer side - it will be beneficial to better understand the opportunity, and how to tackle it.

Who's buying?

Major buyers of furniture like general retailers (e.g. Walmart) and specialized retailers (e.g. Ikea) constitute around one-third of the market. Similarly to large buyers in the chemical industry, these players already have established relationships and source their products directly from manufacturers in Southeast Asia.

However, a substantial remaining portion of the market, approximately two-thirds, is controlled by medium and small-sized brands and retailers. For these buyers, the supply chain is typically complex, involving numerous intermediaries such as sourcing agents, wholesalers, and importers. Indeed, for these SME buyers, finding the right manufacturers is a significant challenge: buyers need low minimum order quantities (MOQs) per product per design but often struggle to secure these orders at a competitive price.

In fact, the complexity of the supply chain and the involvement of multiple intermediaries can lead to increased costs and difficulties in maintaining efficient and cost-effective sourcing practices. Consequently, SME buyers face ongoing challenges in identifying suitable manufacturers who can meet their specific needs while offering competitive pricing.

Let's now dive into the Indian furniture manufacturing industry.

India's furniture manufacturing landscape

The Indian furniture market is predominantly dominated by the unorganized sector, which encompasses a vast network of small-scale manufacturers, skilled craftsmen, and local carpenters. These players typically operate outside formal business structures, accounting for a staggering 80-90% of the market share. We're talking 20k SME manufacturers! In contrast, the organized sector, which comprises branded companies and larger manufacturers, holds a much smaller portion of the market, controlling only 10-20% of the total share.

The former is characterized by its fragmented nature and numerous challenges, including a lack of standardization and inconsistent pricing. Additionally, the unorganized segment faces significant barriers to modernization, such as limited access to technology and process innovation, leading to varied product quality and safety concerns. Moreover, these constraints severely limit the sector’s ability to compete on the international stage, resulting in modest export capabilities and stunted overall growth.

Geographically, furniture manufacturing in India is concentrated in several regional clusters across the country, each with its specialization in materials and products - clusters are primarily located in states such as Gujarat, Uttar Pradesh, Punjab, Kerala, Andhra Pradesh, and West Bengal. For instance, Gujarat and Punjab are renowned for their high-quality wooden furniture, while Kerala and West Bengal are notable for their expertise in cane and metal furniture, respectively.

India's exports: state of affairs

On the global stage, India ranks among the top five furniture producers. As of 2022, the Indian furniture market was valued at approximately ~$23Bn and is projected to grow at a compound annual growth rate (CAGR) of 10.9%, potentially reaching ~$32.7Bn by 2026.

Despite its substantial production capacity, India's position in the global export market is relatively modest, ranking 16th with exports valued at $2.86 billion for the fiscal year 2021-22. Fortunately, India's furniture export market is experiencing robust growth, with an anticipated annual increase of 20%. A significant portion of these exports (~90%) are wooden furniture destined for the United States. In terms of global contributions, India's furniture exports to the U.S. are in the $1.25Bn ballpark, making the U.S. the largest destination for Indian furniture exports. Within this segment, the demand is predominantly for wooden office furniture, comprising 85% of the exports. Following closely are furniture demands from the home and hospitality sectors.

Other key export markets for Indian furniture include Germany and the United Kingdom. India exported $154 million worth of furniture to Germany and $130 million to the UK.

So, what's stopping India from doing more? Let's dive in.

Not yet ready for global markets?

While India has the potential to emerge as a major furniture manufacturing hub, it currently faces several challenges that make it less competitive compared to other Southeast Asian countries vying for a larger share of the global furniture export market.

One of the primary challenges faced by Indian SME furniture manufacturers is the relatively higher cost of raw materials, particularly wood, compared to countries like Vietnam and Malaysia, which have better access to timber resources. This cost disadvantage partially extends to other inputs such as labor, energy, and transportation. Fragmentation also limits economies of scale, access to finance (much needed in cross-border trade, to extend credit), and the ability to invest in modern technologies and processes, hampering overall competitiveness.

Indeed, many SMEs in India's manufacturing sector do not follow process-driven practices, which often results in quality control problems and extended turnaround times for sample approvals. Additionally, insufficient knowledge in planning and scheduling can lead to delays, affecting the reliability and reputation of Indian exporters. Moreover, Indian SME furniture manufacturers generally do not utilize data-driven practices for inventory forecasting. This absence of data-driven inventory management causes inefficiencies in production planning, stock management, and supply chain coordination.

Finally, manufacturers often struggle to provide buyers with new products that align with current trends. As a result, new product development is often ad-hoc and reactive instead of being proactive and in tune with global market demands, limiting the attractiveness of Indian furniture in international markets.

What a winner needs to do (in my opinion)

You guessed it: there is a case to be made for a cross-border B2B managed marketplace here. But I argue it is the extent to which this needs to be managed that makes it interesting.

A marketplace needs to first get involved in the sourcing of inputs/raw materials to manufacturers, for two key reasons: first, price competitiveness driven by lower cost inputs (due to bulk buying, economies of scale, better procurement); second, quality and standardization of inputs, and therefore standardization of output. Both are necessary to be price and quality-competitive in a global market. Sourcing inputs also gives a marketplace short-term supply lock-in, and a very interesting wedge/GTM in creating a strong supply base.

Second, it's important that the marketplace "upskills" factories. How? Through process improvement and software. Process improvement means improving the plant's operations, with simple modifications such as revising the plant layout (e.g. changing input and WIP storage location, reorganizing machines, etc.) and applying TPS logics to furniture plants. Software should follow: I'm talking about basic ERP that allows manufacturers to do better inventory management and procurement, planning, scheduling, monitoring, and tracking. The software needs to be provided for free by the marketplace - think of it like a supply-side acquisition cost. To make sure that software is adopted, it's crucial that the marketplace books capacity from the manufacturers, effectively making them their own cloud factories (which also plays in the marketplace's favor, as it can ensure better prices). Clearly, this is a step process that takes time.

But it's equally important that the marketplace owns the downstream as well. Specifically, it's crucial (in my opinion) to build a strong cross-border brand catered to the Western markets, in which India’s furniture manufacturing reputation needs to be improved. And this brand-building can happen since quality is assured through better inputs, supplier selection, and factory upskilling.

I also would not discount the tech component here. I believe tech could be a strong enabler, first of all in digitizing the entire supply chain, from design to delivery, ensuring transparency in costing, documentation, material availability, lead times, quality control, order tracking - something that other marketplaces use tech for as well. But I believe that in this case, the extent to which technology benefits the marketplace is bigger than in other B2B marketplaces. For example, in-house technology could also help the marketplace identify furniture trends by analyzing customer data and online sources, generate new designs using AI-powered generative design software and 3D modeling tools that integrate customer preferences, check for manufacturability, and match new designs to capable manufacturers.

Moreover, to provide a more holistic offering to buyers and increase their share of wallet, the marketplace could expand its offering to adjacent products such as home textiles, home decor, etc.

I acknowledge that, from an operational standpoint, it’s a quite challenging plan to execute. I've been tracking the space for some time now - some companies have already made moves in the space and have raised funding, so it's exciting to see founders taking advantage of this opportunity already.

So, yes: I believe furniture has the potential to be India's next cross-border B2B unicorn opportunity.

Well, that's it! Feel free to reach out if you want to share thoughts, or leave a comment - I'll be happy to get your perspective.

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