Palliser Is a Canadian Furniture Company

Palliser is a Canadian based furniture company that has manufacturing facilities in Canada and Mexico. DeFehr, the company's president has lead Palliser to be one of the top furniture companies in North America.

Problem Statement

The rise of China a major producer of furniture has created an intense rivalry in the market, especially in North America. Palliser Furniture must reassess their operation, and adopt a new strategy if they want to continue to be competitive.

Symptoms

The rise of China as a producer and exporter in the last decade has led to increased competition, and has affected the furniture industry all together. This resulted in China gaining 40% of the furniture market. Cheaper labour and high quality workers enticed other firms to establish factories in China. Even then, Chinese firms continued to dominate the market with their similar designs and quality. Chinese dominance in the industry also led to substantial layoffs, drops in major companies' profit margins, and created an increasingly unstable and unpredictable economic situation for furniture companies.

External Environment

To test the external temperature of the external environment we used the Porter's Five Forces and PESTI analysis. To look at patterns of competitive success within a nation we looked at Porter's Diamond.

Porter's Five Forces

Using Porter's five forces model, we analyze the production and distribution pertaining to the furniture industry (seen in Appendix A). Palliser furniture is a leader in the wood and leather furniture business. However, a large majority of furniture companies are transitioning their manufacturing operations to Asia to achieve greater earnings and higher output at a lower cost. Palliser must evaluate the external environment to gain insight on how they can stay on par with the competition.

The threat of new entrants to the furniture industry is low. In order for a furniture business to make money, it needs to achieve economies of scale, where cost per unit decreases as the absolute volume produced increases within a certain time frame. In order for a new competitor to achieve economies of scale, there are large capital requirements. New competitors will need access or ownership to a manufacturing plant, invest in specialized machinery, source raw materials, and employing labour, which are all high fixed costs. Since the furniture industry is already dominated by a handful of large players such as Palliser, Natuzzi, DeCoro, Sealy and more, taking the time to source everything from a factory to employees to achieve economies of scale, to turn a profit, is a tough and lengthy process for a new competitor.

The bargaining power of buyers is high. Furniture buyers incur no additional costs by bringing their