Question

furniture industry do the national or international market analysis of trading of the furniture industry,
Write a report (not less than 3000 words) about importing and exporting of the furniture industry.

Answer 1

Furniture Industry - Economic Analysis of Export Prospects

Furniture Industry is one of the essential providers of daily need durable goods such as chairs, table, cupboards, sofa sets, beds, decorative upholstry and is found in every room of the house, office and every aspect of daily life. Furniture industry has a long history beginning from Romans, Egyptians, Greeks and every civilization that ruled the world. Export Import of furniture industry is a lucrative business and hence economic analysis will be essential for analyzing the economic factors and variables. Impo in Determinirts are also crucial for the economic growth and development of nations. While exports make a country richer, imports drain the national exchequer if not monitored properly.

Economic Variables Impacting Exports

1. Furniture Production Rate - The national productivity of furniture impacts the overall supply of furnitures. In case of high productivity, it would result in over supply, reduction in prices. This would ultimately increase exportability of furnitures from host country to the importing country

2. Growth Rate of the Economy - Higher growth rates would result in high emploemnt of resources - Land, Labor, Capital and Entrepreneurship. High income levels initiate good expectations. These positive expectations enhance the producer's ability to invest. High growth rates will result in a swell in domestic market. Profits of firms increase; which expands production. Ultimately, these developments are the factors that push market for exports

3. Trade Relations - For exporting any good or services, global trade relations should be favourable. A closed economy may not export at all. Whilst an open economy may provide opportunities of exporting. Overall trade relations, micro and macro economic situation is essential determinant of exports

4. Availability of Factors of Production - Factors of production and their productivity is essential for export and exportability. Cheap labor, motivated workers, production facilities, capital and business leaders are required for a vibrant furniture industry.

5. State of domestic Currency and Exchange Rates - A strong currancy will deplete exportability as the people and organizations which would like to import products would like to pay less. For example if USA is exporting to Japan at the exchange rate: 1$ = 100 Yens, people in Japan would be discouraged to import from USA as they will be paying more. However, if this exchange rate comes down to 1$ = 0.5 Yen, Japanies importers will be paying less. Thus, the exchange rate and status of dometic currency is a key factor in assessing an export market for furnitures too.

Export Function of Furniture may be written in a symbolic manner such as:

E = f(P, G, T, F, C)

Where,

E = Total Export Market / Exportability

P = Production and Productivity

G = Growth Rate

T = Trade Relations

F = Factors of production

C = Status of Exchange / Currency exchange

Similarly, we may consider factors responsible for Imports with a symbolic Import Function:

I = f(Nd, Gp, C, T, In, R, Q)

Where,

I = Total Imports

Nd = Natural Disasters

Gp = Government Policies

C = Status of Currency / Exchange Rates

T = Technology

In = Inflation

R = External Relationships / Nature of Economy

Q = Quality of Goods / Services

  

Tools of Economic Analysis:

Elasticity

Terms of trade is the balance between Imports and Exports. If Imports are less than Exports, less money of the country is spent on other economies. This is known as favourable terms of trade. Conversely, if Exports are lesser than Imports, it would give an unfavourable terms of trade. The terms of trade is determined by the nature of elasticity. Suppose a country produces unique products, there will be high demand. Chance of substitution of such rpduct is negligible as there are no / lesser alternatives. Imagine purchasing I Phone. Since I phone is such a high-tech item with low alternatives, ability to avoid purchase is slim. Whenever there is a situation of high price acceptance, it is a situation of low elasticity. The reverse; i.e., high sensitivity to price is a condition of high elasticity. Thus, if the exported items are of high elasticity, there will be high avoidance as customers are sensitive to price. However, if the goods and services for exports has low elasticity, the firm or person who is the exporter, will earn high revenues.

Revenue = P×Q

Elastic Demand of Exports = High Price Sensitivity – Result: Low Revenue and Low Profits

Inelastic Demand of Exports = Low Price Sensitivity – Result: High Revenue and High Profits

Therefore, it depends on how unique, avoidable, substitutable the exported Furniture is.

Profit Analysis

Profit analysis is used to ensure tat the business runs at optimum profitability. It is a form of economic analysis which considers, cost, revenue volume and accounting decisions. Ideally, Cost should be less than Revenue. This situation should be considered at a particular volume.

The following factors should be considered by the furniture industry too, while contemplating Exports / Imports.

1. Sales – Mix of items sold

2. Costs

3. Revenue

4. Fixed Costs & Variable Costs

5. Total Production – Level of volume of items produced

The export import activity should consider the nature of exports, level of costs and revenue. Any export activity that does not result in profits should not be considered. Fixed Costs such as Overheads, Buildings, Machinery, Recurring costs such as salaries, tax, rent etc. Should be carefully studied before taking decision on exports or import activities.

Theories of Production

Production involves bringing factors of production together to turn out output. Essentially, it is input-output combination. Economic theories of production guide production centres to decide on level of production at a particular input output combination. The following theories of production may be utilized to consider export // import decision of furniture:

Law of Variable Proportions – At various combination of inputs (Fixed and Variable Factors) there may be Increasing Return, Decreasing Returns and Constant Returns.

Returns to Factor – When addition of variable factor is done, there may be Increasing Returns, Decreasing Returns or Constant Returns.

Market Competition

A market can be defined as a condition wherein the buyer and seller are in close coordination for the purpose of going through a transaction. number of sellers, price levels, information availability, nature of products and entry / exit conditions. Perfect Competition is an extreme model wherein six conditions exist:

1. Large Number of Buyers and Sellers

2. Homogenous Products

3. Free Entry and Exit

4. Perfect Information

5. Zero Transport Cost’

6. Perfect Factor Mobility

In the above said conditions,

1. Price will be determined by markets and not the firm

2. Negligible profits will be seen

3. Market Power will be least

4. High competition

5. Least chance of consumer exploitation

6. Consumer Choice

7. Reasonable prices

8. Perfectly elastic demand curve

9. Non-price competition

Other Imperfect Competition to be considered for Furniture Industry are:

A. Monopoly – High profits for furniture industry

B. Duopoly - High profits for furniture industry divided between two firms

C. Oligopoly - High profits for furniture industry divided between few firms

D. Monopolistic Competition - High profits for furniture industry divided between many firms

Export Market – Monopoly, High Profits

Import Market – Perfect Competition, low profits