Growth and Change
Vol. 39 No. 2 (June 2008), pp. 252–282
Globalization and Regional Change in the U.S.
Furniture Industry
MARK H. DRAYSE
ABSTRACT Furniture manufacturing has experienced rapid globalization in recent years. This
is mainly the result of global production networks established by large manufacturers and retailers
seeking to reduce costs in a highly competitive environment. The industry’s globalization has been
facilitated by technological innovations and the global reduction of trade and investment barriers.
In the U.S., furniture-producing regions are experiencing tumultuous change. Growing numbers
of firms are outsourcing production to China, which is now responsible for about half of all U.S.
furniture imports. Employment levels have plummeted. However, an analysis of spatial patterns of
employment, output, and capital investment in U.S. furniture manufacturing shows that regional
change is not uniform. Southern regions characterized by larger firms specializing in wooden case
goods production have been especially vulnerable to job loss.
Introduction
I
n October 2003, a coalition of furniture manufacturers and unions petitioned the U.S.
International Trade Commission for relief under the Tariff Act of 1930, claiming
material injury from Chinese imports. They argued that China was dumping furniture into
the U.S. market, taking advantage of its low wages and undervalued yuan. The petitioners
were supported by politicians from furniture-producing regions such as North Carolina and
Virginia. Virginia Business cried “the onslaught of the Middle Kingdom is costing thousands of jobs nationwide” (Peters 2002).
The petitioners and their supporters were reacting to the dramatic growth in U.S.
furniture imports from China, which increased from $1.5 to $15.5 billion between 1996 and
2005.1 China’s share of U.S. furniture imports grew from 13 to 46 percent, and the U.S.
furniture trade deficit quadrupled from $7.5 to $28.8 billion (U.S. Census Bureau 2006a).
Chinese imports were the main reason that imports as a share of domestic shipments
increased from 17 percent in 1997 to 40 percent in 2005. Meanwhile, between 2000 and
2005, average annual employment in the U.S. furniture industry fell from 641,000 to
536,000, a 16 percent decline (U.S. Census Bureau 2006b).
Mark H. Drayse is an Associate Professor in the Department of Geography, California State
University, Fullerton, CA 92834. His email address is: mdrayse@fullerton.edu. The author thanks
Thomas Leinbach and three anonymous referees for their constructive comments on an earlier version
of this paper.
Submitted October 2006; revised January 2008; accepted February 2008.
© 2008 Blackwell Publishing, 350 Main Street, Malden MA 02148 US and 9600
Garsington Road, Oxford OX4, 2DQ, UK.
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
253
These numbers paint a picture of another U.S. manufacturing industry succumbing to
global competition. However, the antidumping petition obscures the real processes of
economic globalization in the furniture industry. The driving force behind rising furniture
imports is the development of global production networks by large U.S. firms. Manufacturers are outsourcing production to foreign subcontractors, and large retailers are circumventing domestic manufacturers and developing their own foreign supply networks. In fact,
the Furniture Retailers of America was created expressly to fight the antidumping petition,
since tariffs on furniture imports would result in higher costs for retailers and consumers.
They were joined by large U.S. manufacturers with Chinese supply networks, and Chinese
firms targeted for tariff penalties.
Union support for the petition underscores the tenuous situation of workers in the global
economy. The tension between global and local scales of economic activity is nowhere
more apparent than in the loss of jobs caused by corporations shutting down plants to
engage in a global sourcing strategy. From the workers’ perspective, the petition represents
a defense of place in an uncertain world.
Regional change has been a central theme in the evolution of the U.S. furniture industry.
First taking root in the metropolitan Northeast during the early nineteenth century, the
industry began shifting to small Northeastern and Midwestern cities in the latter half of the
century to take advantage of cheaper labor. The early twentieth century saw the growth of
regional furniture industries in the South and California. The current era of globalization
continues this spatial shift of furniture production to places with less expensive, unorganized labor.
This paper addresses the following questions. How is the U.S. furniture industry reorganizing in this era of rapid globalization? What is the impact of corporate reorganization
on patterns of regional employment change? Regional development outcomes in the U.S.
furniture industry are not uniform—for example, while North Carolina is experiencing
a precipitous loss of jobs, some smaller regional industries are holding their own and
performing better than the national average. What explains these different outcomes?
The paper proceeds by presenting a conceptual framework for understanding regional
development in an era of globalization. This is followed by a discussion of the changing
patterns of global trade and the emergence of China as a pivot for the industry’s globalization. Patterns of regional change in the U.S. furniture industry are then compared and
evaluated using data on capital investment, output, and employment from the Census of
Manufactures and the Annual Survey of Manufactures. The connections between global
production networks and regional restructuring are highlighted in a case study of Furniture
Brands International’s (FBN) global strategy and its impact on employment in the North
Carolina furniture industry.
Economic Globalization and Regional Development
Understanding the connection between economic globalization and regional development is a core research problem in economic geography. Economic globalization involves
intensified international flows of capital, commodities, labor, and information as a result of
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GROWTH AND CHANGE, JUNE 2008
converging technological, political, and economic processes operating at multiple geographical scales (Dicken 2007). Globalization is driven by firms developing global production and distribution networks to take advantage of cheaper costs of production and gain
access to foreign markets. Governments in developing countries are inviting foreign investment to spur economic development, pursuing the strategy of export-led industrialization
pioneered by Japan after the Second World War. Barriers to trade and investment have been
reduced under the auspices of the World Trade Organization (WTO). Technological innovations in transportation and communications have lowered the costs of economic transactions and facilitated the globalization of economic activity.
The concept of global value chains is a useful starting point for describing and understanding the connections between economic globalization and regional development,
defined here as progressive improvement in the social and economic well-being of a
region’s inhabitants. A global value chain is a linked sequence of activities involved in the
production and distribution of a commodity, from raw materials extraction to final consumption (cf. Bair and Gereffi 2003). Manufacturers dominate producer-led chains, and
wholesalers and retailers dominate buyer-led chains. However, the site of corporate control
in different industries may be difficult to identify and can change over time (Leslie and
Reimer 1999). For example, Tewari (2004) suggests that the furniture industry is evolving
into a “quasi-buyer-led” value chain because of the growing influence of transnational
retailers like IKEA and WalMart, alongside branded manufacturers such as FBN.
Incorporated within and across global value chains are global production and distribution networks organized by corporations. These networks include horizontal and vertical
linkages that may encompass local to global scales and include lead firms, suppliers, and
retailers (Sturgeon 2000). While based on contractual relations between firms, global
production and distribution networks are influenced by nonfirm actors, such as governments, labor unions, and nonprofit organizations (Rothenberg-Aalami 2004; Smith et al.
2002).
The development and transformation of global production networks provides the crucial
link between globalizing processes and regional development. Even as corporations
develop global networks, production remains rooted in regional production systems where
firms benefit from agglomeration. Focusing on global production networks helps to break
down the false dichotomy between global flows and regional economic activity (Johns
2006), and highlights both the spatial extent (“stretching”) and territorial embeddedness
(“deepening”) of corporate activity. As Dicken and Malmberg (2001) point out, firms are
“intrinsically spatial and territorial” (7).
Coe et al. (2004) argue that the success of regions in the global economy is related to
their ability to create, enhance, and capture value through integration with global production networks. Value creation involves training and educating the workforce, promoting
start-ups and supplier networks, facilitating venture capital formation, and encouraging
entrepreneurial activity. Value enhancement is a result of industry learning and upgrading,
and the promotion of regional assets. Regional assets include local labor markets, business
associations and other organizations, cultures of learning and innovation, and the provision
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
255
of physical infrastructure (cf. Gertler 1995; Scott and Storper 2003; Storper 1997). Value
capture occurs when a region’s assets are so highly valued by lead firms that they maintain
or increase their activity in the region. However, changes in technological and competitive
environments may result in the devaluation of regional assets by corporations, with attendant disinvestment and job loss (Coe et al. 2004).
Upgrading of production—a key component of value enhancement—involves “innovating to increase value added” (Giuliani, Pietrobelli, and Rabellotti 2005). Giuliani, Pietrobelli, and Rabellotti (2005) identify four types of upgrading. Creating higher-value products
is an example of product upgrading. Process upgrading is a result of innovations in
production technology and more efficient organization of production. If firms concentrate on
higher value activities such as design and marketing, this involves functional upgrading. The
fourth type, intersectoral upgrading, occurs when firms shift industries, again resulting in a
move from lower value added to higher value added activity. Downgrading is the opposite
strategy, involving disinvestment or reliance on a cost-cutting strategy emphasizing low
wages in the absence of innovation. Downgrading may be a consequence of functional
upgrading, while product and process upgrading are complementary strategies.
While upgrading can be associated with the development of regional assets, it can also
result from learning that occurs within global production networks (the learning “pipelines” described by Bathelt, Malmberg, and Maskell 2004). Sacchetti and Sugden (2003)
argue that globalization has promoted the development of long-term, collaborative subcontracting relationships that give lead firms a considerable degree of control over supply
chain logistics and product quality, while at the same time providing subcontractors with
valuable technological, managerial, and skills-related expertise that can allow them to
develop their own subcontracting and distribution networks (van Grunsven and Smakman
2001). Tokatli and Kizilgun (2004) argue that firms in peripheral regions—in their case, a
clothing manufacturer in Turkey—have “room for autonomous action” in upgrading and
exporting their own brands. Upgrading firms may become “sources of information spillovers,” promoting innovation and growth within a regional industry (Scott 2006:1531).
However, as Knutsen (2005) cautions, latecomers in buyer-driven networks may experience
minimal upgrading, as lead firms exploit them for cheap wages. Growing external connections may result in regions becoming branch plant economies dependent on decisions made
elsewhere (cf. Kaplinsky, Morris, and Readman 2002).
Storper (1997) argues that regional competitiveness should involve increases in productivity and market share that sustain the workforce by maintaining or increasing jobs
at decent wages. This is a clear indicator that firms in a regional industry are following
a “high-road” development path. However, upgrading may or may not result in positive
employment outcomes (cf. Bristow 2005; Kitson, Martin, and Tyler 2004). For example,
capital-intensive process upgrading may result in growing sales but falling employment. Houseman (2007) argues that increased offshoring—consistent with functional
upgrading—can result in increased productivity but reduced employment in the home
region, as foreign workers are substituted for local workers at considerably lower wages.
This can result in firms reporting growing output, while domestic employment and capital
256
GROWTH AND CHANGE, JUNE 2008
investment are declining. In their study of the textile, clothing, and footwear industries in
Australia, Webber and Weller (2001) show that increased offshoring resulted in significant
declines in total employment, despite growth in nonproduction jobs. A region may also
experience production downgrading (plant closings, disinvestment) and consequently face
severe job losses. This can result from the extensive outsourcing associated with functional
upgrading, or industry decline (van Grunsven and Smakman 2001).
Regional economic development in the contemporary era of globalization is influenced
both by the intraregional development of industries and assets and the external connections
made by firms within global production networks. Competitive pressures may contribute
to different strategies of upgrading or result in industry disinvestment and decline. The
development path of an industry is not uniform but influenced by regional context (cf.
Smith et al. 2002).
The Globalizing Furniture Industry
Causes of globalization. The furniture industry had the highest trade volume of any
low-technology manufacturing industry in 2001 (Kaplinsky and Readman 2005). Between
1980 and 2001, global furniture exports increased by an average of 11 percent each year,
compared to a 9 percent average annual increase for all manufactured exports (United
Nations Conference on Trade and Development [UNCTAD] 2004). The total value of global
furniture exports increased from $54 to $95 billion (current dollars) between 1999 and 2005
(UNCTAD 2007).
Compared with other labor-intensive industries, such as apparel and footwear, furniture production has been less amenable to globalization. Although the labor-intensive
character of furniture production and relatively low barriers to entry have created a very
competitive industry in which firms have great incentives to seek out low-wage labor, the
material and cultural characteristics of furniture have mitigated long-distance subcontracting. Furniture has one of the lowest value-to-bulk ratios of any manufactured commodity, and wood and upholstered furniture can be easily damaged in transit. Furniture’s
status as a cultural product has influenced industrial organization and further limited
globalization. Furniture reflects the “art and expressivity” of consumers (Molotch 1996).
This helped to create a labor-intensive, batch production industry based on agglomerations of small- and medium-size firms with limited capacity to develop long-distance
production networks.
The globalization of the furniture industry since the 1980s has occurred through a
convergence of technological innovations, the implementation of economic development
strategies and regulatory regimes favoring global investment and trade, and the emergence
of furniture manufacturers and retailers with the capacity to develop global production and
distribution networks. In recent years, a primary reason for the accelerated globalization of
the furniture industry has been the establishment of global production networks using
Chinese subcontractors.
Innovations in transportation, packaging, and logistics have reduced shipping costs. The
ability to ship furniture in containers that can be easily transferred to trucks and trains and
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
257
transported to the final destination has greatly reduced the costs of long-distance shipping.
The design and packaging of knock-down furniture was pioneered by the Swedish furniture
retailer IKEA. New packaging materials and product coatings reduce damage to furniture
in transit. Information technology allows firms to create complex logistics systems to track
orders, production, and shipments. Some firms are customizing factory-direct containers
(known as mixed containers) for individual retail outlets.
Political processes operating at multiple scales are promoting the globalization of
furniture production. At the global scale is the phase-out of furniture tariffs under the
auspices of the WTO. The integration of high-wage and low-wage countries within the
European and North American economic blocs has contributed to increased production in
countries such as Poland and Mexico geared toward the Western European and American
markets, respectively. National governments in developing countries are opening up their
borders to investment and trade in order to promote economic growth. Within countries,
state and local governments are establishing policies and incentives to foster favorable local
conditions for investment.
The center of corporate power in the furniture industry is shifting to large transnational
retailers and branded manufacturers. Since the 1980s, a wave of corporate mergers in
manufacturing, combined with the emergence of megaretailers such as WalMart and
Costco, created large corporations with the resources to organize global networks. After a
series of acquisitions of leading North Carolina manufacturers, FBN emerged as the largest
furniture manufacturer in the U.S., with $2.4 billion in revenue in 2005 (Fortune Magazine
2006). Other leading manufacturers included Steelcase and Herman Miller, both based in
the Grand Rapids region in Michigan. Many traditional furniture retail chains have gone
out of business in the face of stiff competition from megaretailers and manufacturers’ retail
galleries. Processes of corporate consolidation and globalization are mutually reinforcing:
intense competition promotes mergers and acquisitions, creating firms with greater capacity to organize global production networks.
Changing patterns of global trade. Newly industrializing and transitional economies are responsible for growing shares of furniture exports. Between 1999 and 2005,
the global export share of advanced industrial countries fell from 70 to 53 percent.
Leading exporters were Italy, with $10.5 billion in furniture exports in 2005, followed by
Germany, Canada, and the U.S. (Table 1). On the other hand, the export share of newly
industrializing countries grew from 20 to 31 percent. China’s furniture exports increased
from $3.5 to $16.6 billion between 1999 and 2005; in 2004, China surpassed Italy as the
world’s leading furniture exporter. In 2005, China was responsible for 54 percent of
furniture exports from all developing countries and 18 percent of global furniture
exports. Other leading exporters from newly industrializing countries included Mexico,
Malaysia, and Indonesia.
The eastern expansion of the European Union has integrated lower-wage countries into
the European market, resulting in greater subcontracting by firms based in Western Europe.
This explains why the global export share of transitional economies increased from 10 to
15 percent between 1999 and 2005. Poland led the way with $5.6 billion in exports in 2005,
53.4
14.5
31.0
1.1
50,592,183
13,730,457
29,423,865
1,078,430
94,824,935
7.9
17.5
18.6
5.1
29.8
3.8
6.9
3.4
19.0
3.0
12.2
3.2
5.4
2.4
6.4
16.7
4.1
7.0
9.0
Average
annual
percent
change,
1999–2005
United States
Germany
United Kingdom
France
Japan
Canada
Belgium
Spain
Netherlands
Switzerland
Austria
Italy
Sweden
China
Australia
Country Group
ADVANCED
INDUSTRIAL
TRANSITIONAL
NEWLY
INDUSTRIALIZING
UNDERDEVELOPED
WORLD
Source: United Nations Conference on Trade and Development (UNCTAD) (2007).
Trade data for SITC (Standard Industrial Trade Classification) 821—Furniture.
17.5
11.1
8.0
5.9
5.9
5.5
4.8
3.1
2.8
2.3
2.1
2.0
2.0
2.0
1.9
16,571,814
10,538,493
7,574,119
5,641,650
5,551,047
5,190,359
4,559,805
2,970,609
2,650,578
2,141,769
2,024,695
1,902,976
1,874,510
1,856,060
1,804,620
China
Italy
Germany
Canada
Poland
United States
Mexico
France
Denmark
Belgium
Malaysia
Czech Republic
Spain
Indonesia
Austria
Country Group
ADVANCED
INDUSTRIAL
TRANSITIONAL
NEWLY
INDUSTRIALIZING
UNDERDEVELOPED
WORLD
Percent
of world
2005
exports
($millions)
Country
TABLE 1. GLOBAL FURNITURE TRADE, 1999–2005.
1,185,159
103,543,052
5,120,745
5,554,823
91,682,325
34,017,715
9,132,916
7,305,790
6,558,813
4,901,564
4,614,011
3,009,311
2,709,579
2,581,679
2,306,247
1,954,362
1,914,543
1,660,607
1,533,481
1,499,478
2005
imports
($millions)
1.1
4.9
5.4
88.5
32.9
8.8
7.1
6.3
4.7
4.5
2.9
2.6
2.5
2.2
1.9
1.8
1.6
1.5
1.4
Percent
of world
8.9
19.3
5.7
10.1
11.8
4.5
15.2
10.6
8.7
8.6
6.4
20.0
4.4
5.2
5.3
12.5
9.4
2.5
17.3
Average
annual
percent
change,
1999–2005
258
GROWTH AND CHANGE, JUNE 2008
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
259
making it the fifth largest furniture exporter in the world. Other major exporters in this
group were Czech Republic, Slovenia, and Romania.
The advanced industrial countries absorbed 89 percent of global furniture imports in
2005. The U.S. alone imported $34.0 billion of furniture in 2005, 33 percent of total global
imports. Other major importers, with much smaller volumes, were Germany, UK, France,
and Japan. China was the leading furniture importer outside of the advanced industrial
economies; its $1.5 billion in furniture imports in 2005 represented 13 percent of all
furniture imports by developing and transitional economies. The massive scale of China’s
furniture production allows it to meet most domestic demand internally while generating an
enormous trade surplus.
The emerging giant: the Chinese furniture industry. What explains China’s revolutionary impact on the global furniture industry? Production costs are certainly lower.
Average hourly wages in Chinese furniture factories are between $0.50–$0.75, compared
with $13.33 in the U.S. (Bryson et al. 2003; U.S. Census Bureau 2006b). Chinese firms also
enjoy much lower overhead costs than their American counterparts. These cost savings
more than compensate for the cost of shipping a container of furniture across the Pacific
Ocean. For example, one study estimated that labor, overhead, and shipping costs for
Chinese furniture firms are approximately 50–60 percent of the cost of labor and overhead
alone for U.S. furniture firms (Bryson et al. 2003). A Wisconsin manufacturer stated that he
can “ship Indiana oak halfway around the world, have it made into furniture and sent back
to the Midwest—all for about 40 percent less than the cost of production here” (Schmid and
Romell 2003).
However, lower production costs are only part of the answer. The foundation for the
industry’s modern development was laid by the strategic shift in Chinese industrial policy
in the post-Mao era. Following the lead of successful Pacific Asian economies, China
embarked on a strategy of export-led industrialization (cf. Naughton, 1996). The country
channeled foreign investment to special economic zones in the coastal provinces. This
helped the government concentrate infrastructure investments while containing foreign
investment in the coastal ports that were China’s traditional gateway to the outside world.
Foreign firms were allowed to invest in Chinese firms and establish joint ventures and
subcontracting relationships and under certain conditions can now establish wholly owned
subsidiaries (Wei 2000).
Dynamic furniture manufacturing agglomerations emerged in new industrial cities such
as Shenzhen, where firms have access to a growing, inexpensive labor force, massive
infusions of capital and technology, and networks of suppliers and subcontractors. Annual
trade marts bring together local producers and foreign firms. Furniture centers are being
created to provide technical expertise and marketing services. In Shenzhen, two universities
supply graduates in furniture and interior design (Carroll 2003). The significance of
agglomeration is recognized in official proclamations. For example, Dayong has been
designated the “Specialized Town for the Production of Redwood Furniture”; Dachong is
the “Specialized Town of Mahogany Furniture Production.” The high degree of agglomeration in the Chinese furniture industry is borne out by comparisons with other industries.
260
GROWTH AND CHANGE, JUNE 2008
Of 29 Chinese manufacturing industries analyzed by Fan and Scott (2003), furniture
manufacturing ranked third in geographical concentration of establishments, and seventh in
geographical concentration of employment.
Today, there are an estimated 50,000 furniture firms in China, employing five million
workers. The core of the industry, including the major exporters, consists of more than
2,000 large state-owned companies and joint ventures (Union Européenne de
l’Ameublement 2000; Xu, Cao, and Hansen 2003). The Zhu Zhiang (Pearl River) Delta
in Guangdong province is the center of the Chinese furniture industry. The province
accounted for 30 percent of China’s furniture output in 2002 and 51 percent of exports in
2003. Just north of Guangdong, Fujian was the source of 22 percent of output and 10
percent of exports, and the Lower Yangtze Delta region (including Shanghai, Zhejiang, and
Jiangsu) was responsible for 21 percent of both output and exports (Xu, Cao, and Hansen
2003).
The Chinese furniture industry has benefited greatly from Taiwanese investment. This
has been a critical factor behind the country’s growing furniture industry, providing
infusions of capital and technical know-how, as well as connections with customers in the
U.S. and other developed countries. In the 1980s and early 1990s, Taiwan was the major
source of U.S. furniture imports. As a result, Taiwanese furniture firms were experienced in
producing high-quality furniture to meet the demands of U.S. customers. Once the mainland economy was opened up, Taiwanese entrepreneurs crossed the strait to take advantage
of much lower production costs. The Taiwanese benefited from the relative autonomy of
local authorities in Guangdong, Fujian, and other provinces eager to attract investment and
create jobs (Hsing 1995; Lin 2001). China’s largest furniture manufacturer, Urumqi-based
Markor Corporation, was founded by two local entrepreneurs allied in a joint venture with
a Taiwanese firm (Urban 2002).
The large Chinese furniture firms operate “megaplants” that employ thousands of
workers living in company-owned dormitories. For example, Lacquer Craft’s 2.5 million
square foot plant in Dongguan employs more than 5,000 workers. Its original brand
production has been shifted to a new four million square foot plant in Shanghai (Russell
2004). Yihua International, a fully integrated firm with its own forests, is building a
“3.6-million-square-foot complex in Guandong that could employ 20,000 people” (Russell
2005). Lacquer Craft’s Taiwanese founder, Samuel Ko, states that “Americans have no idea
how big and well-equipped these plants are” (Becker 2003). By contrast, FBN’s 25 plants
in 2005 ranged in size between 103,000 and 899,000 square feet (FBN 2006).
Several large Chinese firms have established alliances with manufacturers and retailers
in North America and Europe. For example, most of Lacquer Craft’s Dongguan plant
output is destined for FBN and other U.S. customers (Urban 2002). While providing U.S.
contractors with significant cost savings, these alliances also benefit Chinese firms through
the transfer of technology and expertise.
As a result of their growing capabilities, several Chinese firms are marketing brandname furniture in the U.S. For example, about 90 percent of Lacquer Craft’s U.S. sales are
channeled through its own Universal Furniture and Legacy Classic divisions (Russell
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
261
2006). In May 2006, Lacquer Craft established a manufacturing base in the U.S. by
acquiring North Carolina upholstery manufacturer Craftmaster Furniture Corporation
(Evans 2006). Yihua International Group recently opened a distribution center in Rancho
Cucamonga, California (Russell 2005). The Hong Kong manufacturer Simplified is building a distribution network among independent U.S. retailers and establishing its own
licensed stores to sell branded products (Slaughter 2005). Xilinmen Group, which produces
furniture for New Jersey’s Excel, plans to build a plant in the U.S. to manufacture bedding
(Perry 2004).
The growth of the modern Chinese furniture industry has resulted from the convergence
of labor and capital in coastal cities, supportive local and national government policies, and
the dynamic local and external networks established by Chinese firms. This has reoriented
the geography of the global furniture value chain. For example, the forests of Siberia are
being tapped to augment lumber supplies for the Chinese industry (Hashirimoto, Castano,
and Johnson 2004). Foreign component and finishing suppliers are moving to China to
fulfill growing demand for their products.
The opening of the Chinese economy has accelerated the industry’s globalization, and
connected regions and workers across the Pacific Ocean. Chinese production and American
consumption is the dominant economic axis in the global furniture industry today.
Regional Employment Change in the U.S. Furniture Industry
Before the current era of globalization, employment in the U.S. furniture industry was
predictably cyclical, tracking trends in housing and office construction that ebbed and
flowed with economic recessions and expansions. But in recent years, employment has
fallen precipitously in the midst of an expanding housing market because of growing
reliance on Chinese suppliers by U.S. furniture manufacturers and retailers. The emerging
global division of labor for the U.S. furniture industry has unhinged the connection between
overall economic activity, furniture consumption and production, and domestic furniture
employment. For example, between 2000 and 2005, annual housing permits in the U.S.
increased 35 percent, and consumer spending on furniture grew 17 percent (U.S. Census
Bureau 2006c). However, total output in U.S. furniture manufacturing increased only 2
percent between 2000 and 2005, while employment fell by 16 percent. New capital
expenditures by U.S. furniture firms also declined, from $2.3 billion in 2000 to $1.4 billion
in 2004 (U.S. Census Bureau 2006b).
The globalization of the U.S. furniture industry is readily apparent from trade statistics.
The total value of U.S. furniture imports tripled from $11.5 billion in 1996 to $34.0 billion
in 2005 (Table 2). The furniture trade deficit ballooned from $7.5 to $28.8 billion
(Figure 1). While China’s share of imports grew from 14 to 46 percent between 1996 and
2005, Taiwan’s import share fell from 11 to 2 percent as Taiwanese investors shifted
investment to the mainland (Figure 2). The import share of Southeast Asian countries fell
from 11 to 10 percent despite a rising value of imports. Vietnam is the only Southeast Asian
country experiencing a growth in import share, as its furniture imports skyrocketed from a
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GROWTH AND CHANGE, JUNE 2008
TABLE 2. US FURNITURE IMPORTS, 1996 AND 2005 (MILLIONS OF 2005 DOLLARS).
Country
Imports
2005
Percent
Imports
1996
Percent
Average annual
percent change,
1996–2005
China
Canada
Mexico
Italy
Malaysia
Vietnam
Taiwan
Indonesia
Thailand
Brazil
Germany
Philippines
United Kingdom
France
India
WORLD
15,479.9
5,202.6
4,334.0
1,185.8
908.0
850.1
801.9
729.5
531.7
529.9
365.5
330.7
254.2
237.3
233.4
34,017.7
45.5
15.3
12.7
3.5
2.7
2.5
2.4
2.1
1.6
1.6
1.1
1.0
0.7
0.7
0.7
100.0
1,478.6
3,411.4
1,779.3
858.9
500.2
0.4
1,213.2
311.8
220.7
74.6
157.8
222.1
195.5
82.1
28.5
11,544.3
12.8
29.6
15.4
7.4
4.3
0.0
10.5
2.7
1.9
0.6
1.4
1.9
1.7
0.7
0.2
100.0
29.8
4.8
10.4
3.6
6.8
134.8
-4.5
9.9
10.3
24.3
9.8
4.5
3.0
12.5
26.3
12.8
Source: US Census Bureau (2006a).
negligible $392,000 in 1996 to $850 million in 2005. Vietnam now accounts for more than
25 percent of U.S. furniture imports from Southeast Asia.
Import shares from developed economies are falling, although volumes are generally
increasing. For example, although the total value of imports from Canada increased by an
average annual rate of 4.8 percent between 1996 and 2005, Canada’s share of U.S. furniture
imports fell from 30 to 15 percent. Italy and Germany, the major European sources, also
saw their shares of U.S. imports decline.
Production and employment change. How has the globalization of the U.S. furniture
industry influenced patterns of regional production and employment? To describe regional
change in production, I draw on the framework presented by Kaplinsky and Readman
(2005) in their study of upgrading in the global furniture industry. They used two indicators
of production upgrading: unit prices and market share. Successful upgrading was indicated
by above-average change in each indicator, suggesting that firms were producing higherquality products and gaining market share. To analyze production upgrading in the U.S.
furniture producing regions, I used state-level capital investment and value-added data
from the Census of Manufactures and Annual Survey of Manufactures. Unit price data were
not available due to the suppression of state-level shipment volume data. To analyze
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
263
FIGURE 1. THE GROWING U.S. FURNITURE TRADE DEFICIT, 1996–2005.
regional employment change, a time series was created for 1997–2005 using state-level
data on employment, capital investment, and value added. To dampen annual fluctuations,
I compared change between 1997–1999 and 2003–2005.
Regional trends are an aggregate outcome of corporate strategies and actions. As
described by Giuliani, Pietrobelli, and Rabellotti (2005), upgrading strategies include 1)
product upgrading, 2) process upgrading, 3) functional upgrading, and 4) intersectoral
upgrading. The first three strategies are evident in furniture manufacturing. To these
strategies, we can add 5) “low-road” growth based on cutting costs and 6) downgrading and
disinvestment.
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GROWTH AND CHANGE, JUNE 2008
FIGURE 2. U.S.–CHINA FURNITURE TRADE, 1996–2005.
Successful product and process upgrading should be associated with above-average
growth in capital investment and value added, providing evidence that firms are reaping the
benefits of innovation through increased market share. Failed upgrading can be identified
by increased capital investment but below-average growth or decline in value added.
Functional upgrading, which may involve significant offshoring of production and
concentration on design and marketing at home, is likely to result in deep cuts in capital
investment. Impacts on output will vary depending on the extent of cuts in domestic
production relative to the volume of imported goods. In any case, the share of a region’s
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
265
output accounted for by domestic establishments will decline as a result of widespread
functional upgrading. If value added increases at an above-average rate but capital investment is well below the industry average, firms in a region may be trying to compete through
price competition, a “low-road” approach unlikely to be sustained.
The following hypotheses regarding corporate strategy and employment change can be
proposed:
1. Successful product and process upgrading can result in different employment outcomes,
although at a minimum employment change, even if negative, should be more positive
than the national rate of change. On the other hand, failed product and process upgrading is likely to result in employment decline.
2. Functional upgrading should result in significant employment decline as domestic
production is reduced.
3. A low-road competitive strategy may result in stable employment in the short term,
although the industry is likely to decline due to lack of innovation and intense
competition.
In the case of a rapidly globalizing industry such as furniture, the best-case scenario
may involve growing market share and above-average change in capital investment and
employment, even if the latter two indicators are declining. In the case of employment, a
region able to maintain stable employment levels or experience only moderate employment
loss might be considered successful in the changing competitive environment.
Changes in capital investment, value added, and employment are shown for the 18 major
furniture manufacturing states based on employment in 2005 (see Table 3). Table 3 also
includes an Upgrading Index (UI) based on percent change in value added and capital
investment, where VA = value added, K = capital investment, t2 = 2003–2005, and
t1 = 1997–1999:
UI = [( VA t 2 VA t1 × 100 ) + ( K t 2 K t1 × 100 )] 2
Upgrading trends in the furniture-producing states are displayed graphically in Figure 3.
The upper right-hand quadrant corresponds with product and process upgrading, while the
upper left-hand quadrant is associated with failed upgrading. The bottom right-hand quadrant could indicate low-road growth or functional upgrading, while the bottom left-hand
quadrant could represent a failed low-road strategy, aggressive functional upgrading, or
simply industry decline. Looking at the dashed axes, which indicate change in value added
and capital investment for the U.S. furniture industry, we can see that the “center of gravity”
of the industry is in the bottom right-hand quadrant. Growing output and falling capital
investment is consistent with both functional upgrading and low-road growth, suggesting
that these are dominant trends in the industry.
Different patterns were identified for three groups of states: a top tier with aboveaverage change in capital investment and value added, a middle tier also experiencing
growth in value added but greater declines in capital investment than the top-tier states, and
266
GROWTH AND CHANGE, JUNE 2008
TABLE 3. REGIONAL CHANGE IN U.S. FURNITURE MANUFACTURING, 1997–2005
(STATES RANKED BY UPGRADING INDEX).
State
Employment
(thousands)
2005
Florida
Missouri
Wisconsin
Pennsylvania
Minnesota
Indiana
Texas
Ohio
California
Mississippi
U.S.
Alabama
New York
Illinois
Georgia
Michigan
Virginia
Tennessee
North Carolina
16.0
11.7
12.8
23.2
11.9
25.6
26.0
21.7
59.4
26.5
535.8
13.4
22.9
19.0
13.5
25.9
17.4
19.8
57.5
Percent
change in
employment
Percent
change
in value
added
Percent
Upgrading
change in
Indexa
capital
investment
1997–99 to 1997–99 to 1997–99 to
2003–05
2003–05
2003–05
-10.4
-2.2
-12.8
-7.6
-2.7
-3.9
0.9
-2.6
-8.5
-17.7
-11.0
-14.6
3.4
-3.9
-10.5
-15.5
-26.4
-24.4
-26.8
20.0
17.7
14.8
9.2
4.4
15.9
16.3
17.3
8.7
4.8
10.4
4.5
16.4
-7.8
2.0
5.2
-1.0
-7.7
-10.3
52.3
-9.0
-12.4
-13.7
-7.7
-30.4
-32.8
-33.4
-29.7
-25.2
-31.9
-30.4
-45.2
-29.6
-48.0
-61.0
-55.2
-50.7
-58.3
136
105
102
98
98
93
92
92
90
90
89
88
86
81
77
72
72
71
66
a
The Upgrading Index = [(VAt2/VAt1 ¥ 100) + (Kt2/Kt1 ¥ 100)]/2, where VA = value
added, K = new capital investment, t2 = 2003–2005 and t1 = 1997–1999.
Source: Derived from U.S. Census of Manufacturers; 1997 and Annual Survey of
Manufacturers, 1998–1999 and 2003–2005 (U.S. Census Bureau 2006b).
a bottom tier with above-average decline in capital investment, combined with belowaverage growth or decline in value added.
The top tier, with a UI greater than 97, includes five states: Florida, Missouri, Wisconsin, Minnesota, and Pennsylvania. These states accounted for 14 percent of furniture
manufacturing employment and production in 2005 and do not include the major furniture
producing agglomerations. Florida was the only state with growth in both value added
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
267
FIGURE 3. UPGRADING OF REGIONAL FURNITURE INDUSTRIES IN THE U.S., 1997–
1999 TO 2003–2005.
Note: Dashed axes represent U.S. industry average.
(+20 percent) and capital investment (+52 percent) between the two time periods—the one
unequivocal case of production upgrading. In the other four states, capital investment
declined but at a much slower rate than the national average of -32 percent, suggesting a
mix of production upgrading and low-road growth. Missouri and Wisconsin firms experienced increased market share, with 18 and 15 percent growth in value added. Between
1997–1999 and 2003–2005, employment fell slightly in Missouri (-2 percent), and at an
average rate in Florida (-10 percent) and Wisconsin (-13 percent).
The middle tier includes states with changes in capital investment and value added close
to the national average: Alabama, California, Indiana, Mississippi, New York, Ohio, and
Texas. The UI in these states was between 86 and 93 (the U.S. average was 89). This group
includes some of the country’s largest furniture agglomerations, in Los Angeles, Southern
Indiana, Northeast Mississippi, and Dallas–Fort Worth, and accounted for 36 percent
of the industry’s employment and 35 percent of its output. These industries are likely
268
GROWTH AND CHANGE, JUNE 2008
experiencing a mix of functional upgrading and low-road growth. The furniture industries
in Indiana, New York, Ohio, and Texas appear to be growing without upgrading (the
low-road approach), because above-average increases in value added corresponded with
significant decline in capital investment and stable employment levels (including modest
growth in New York and Texas). However, considerable employment losses were recorded
in California (-9 percent), Alabama (-15 percent), and Mississippi (-18 percent). These
three states also experienced below-average growth in value added and falling capital
investment, suggesting that functional upgrading may be prevalent.
The bottom tier, with an UI below 82, includes Georgia, Illinois, Michigan, North
Carolina, Tennessee, and Virginia. This group represented 29 percent of the industry’s
employment and 30 percent of its output. The country’s leading center of household furniture
manufacturing is in North Carolina, while the major office furniture agglomeration is in
Michigan. North Carolina, Tennessee, and Virginia were the only states in which greater than
average decline in capital investment was combined with falling value added. This trend is
consistent with functional upgrading. In Georgia and Michigan, equally severe contraction
in capital investment corresponded with below-average growth in value added, while in
Illinois, value added declined and capital investment fell at a rate close to the national
average. Employment fell considerably in each of the bottom-tier states, with the exception
of Illinois. Substantial job losses occurred in North Carolina (-27 percent), Virginia (-26
percent), and Tennessee (-24 percent), while Michigan’s employment fell 16 percent.
Regional shift. There is an unexpected regional shift occurring in the U.S. furniture
industry, with the lower-wage, nonunion South faring considerably worse than the higherwage North and West—in 2004, average annual earnings in furniture manufacturing were
$33,900 in the U.S. North, $30,190 in the U.S. West, and $27,736 in the U.S. South (U.S.
Census Bureau, 2006d). Unlike the manufacturing sector as a whole, in which Southern job
change closely paralleled the national trend (annual change of -2.8 and -2.7 percent,
respectively), the South absorbed most of the job loss in U.S. furniture manufacturing
between 1997 and 2005. The Southern furniture industry experienced a net loss of 53,700
jobs between 1997 and 2005 (mostly in North Carolina, Tennessee, and Virginia), compared to 14,100 jobs in the rest of the country. Table 3 and Figure 3 show that the Southern
states (with the exception of Florida and Texas) tend to have low scores on the UI, while
Northern states (with the exception of Michigan and Illinois) tend to have higher scores.
This can be explained by differences in regional industry specialization and structure
that have influenced corporate globalization. As furniture manufacturing evolved in the
Piedmont South through the twentieth century, firms capitalized on the region’s lumber and
textile supplies and woodworking skills by specializing in wooden case goods—e.g.,
bedroom and dining room furniture, bookcases, and desks—as well as upholstered household furniture. As it turns out, case goods today are especially prone to offshore production.
Even some upholstered products are being imported in higher volumes, as foreign firms
master the details of motion mechanisms for recliners. On the other hand, some industry
segments remain based on domestic production, including kitchen cabinetry, custom
upholstery, custom woodwork and millwork, and mattresses. These industries are well
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
269
represented in metropolitan furniture-producing regions, where firms have access to large
household and business markets—especially in the Northeast and Great Lakes states.
Regional industry specialization and the distribution of furniture manufacturing
employment based on the import sensitivity of the industry are shown in Table 4. Industry
specialization was determined based on the share of a state’s furniture employment in an
industry segment, compared with the share of the nation’s furniture employment in the
same industry segment. In furniture manufacturing segments classified with high import
sensitivity, imports as a share of value added were greater than 60 percent in 2002.
Industries with medium import sensitivity had 15–30 percent import shares, and those with
low import sensitivity had import shares below 15 percent. The share of a state’s furniture
manufacturing employment in industry segments with high and medium import sensitivity
is shown in Figure 4.
The major Southern furniture producing states, with the exception of Texas, tend to
specialize in industry segments with high to medium levels of imports. For example, in North
Carolina, Mississippi, Tennessee, and Virginia, between 70 and 95 percent of furniture
manufacturing employment in 2002 was based in highly import-sensitive industries, especially wood household, institutional, and upholstered furniture. These four states accounted
for 61 percent of all Southern employment in furniture manufacturing. By comparison, in the
rest of the U.S., 55 percent of furniture workers were employed in industries with high to
medium levels of import sensitivity, while the rest were in low-import industries, including
kitchen cabinets, custom woodwork and millwork, and metal office furniture.
Also, the Southern furniture industry is dominated by major corporations operating
large factories. For example, while only 1.7 percent of U.S. furniture manufacturing
establishments employed 250 or more workers in 2004, the corresponding figures for
Mississippi and North Carolina were 10.6 and 6.0 percent (Table 5). Virginia and Tennessee
also had an above-average number of large establishments. This is significant for two
reasons. First, larger firms and plants are able to exploit scale economies and produce more
standardized furniture in longer production runs. These product lines are more readily
outsourced than those made in customized, small-batch production runs. Also, larger firms
are in a better position to make high-volume orders and provide managerial and technical
expertise to offshore suppliers than smaller firms.
Outside of the South, the most significant employment decline was in Michigan. This is
despite the fact that Michigan specializes in office furniture (except wood), an industry
segment with a low import share in 2002. Michigan’s furniture industry is based in Grand
Rapids, which gained a reputation for high-quality furniture in the nineteenth century.
However, the labor-intensive wood furniture industry declined in Grand Rapids and other
northern centers by the mid-1900s due to competition from Southern producers. This led to
a significant regional divide, as the Grand Rapids industry shifted its focus from household
to office furniture, led by companies that would become industry giants: Steelcase,
Haworth, and Herman Miller. Today, these firms are developing global supply networks and
closing down domestic facilities. For example, Steelcase has aggressively expanded its
global supply chain since 2002, and owns factories in 12 countries in North America,
2.56
0.58
1.87
0.75
1.04
1.05
0.70
1.05
1.65
0.69
1.34
1.31
337122
4.67
2.09
337124
2.11
1.43
2.00
337127
High import sensitivityc
0.71
2.90
2.49
4.30
0.66
1.29
337121
3.57
337211
0.99
1.16
1.35
2.62
1.35
1.20
1.01
1.58
1.21
0.99
1.21
0.88
0.95
1.15
337215
Medium import sensitivityc
Industry Segment
2.76
337920
0.73
1.48
0.67
1.05
1.38
1.44
1.02
0.90
1.60
1.60
1.20
1.72
1.71
337110
8.23
337214
Low import
sensitivityc
a
Industrial specialization: cell values show Index of Industry Specialization: = (Esr/Er)/(Esn/En), where Esr = state employment in the industry
segment, Er = total state of employment in the furniture industry, Esn = rational employment in the industry segement, and En = national
employment in the furniture industry.
b
State industry segments with more than 10% of state employment in furniture manufacturaing. Shaded cells indicate index of industry
specialization > 1.50.
c
Import sensitivity: High (> 60 percent imports in 2002): wood household furniture (NAICS 337122), metal household furniture (337124),
industrial furniture (337127); medium (15–30 percent imports in 2002): upholstered furniture (337121), wood office furniture (337211),
showcases, shelvings, partitions, lockers (337215), blinds and shades (337920); low (< 6% imports in 2002): wood kitchen cabinets and
countertops (337110), office furniture (except wood) (337214). NAICS refers to the North American Industrial Classification System.
Source: Derived by author from Census of Manufactures, 2002 (U.S. Census Bureau, 2006b).
Florida
Missouri
Wisconsin
Pennsylvania
Minnesota
Indiana
Texas
Ohio
California
Mississippi
Alabama
New York
Illinois
Georgia
Michigan
Virginia
Tennessee
North Carolina
U.S.
State
TABLE 4. REGIONAL INDUSTRY SPECIALIZATION,a U.S. FURNITURE MANUFACTURING.b
270
GROWTH AND CHANGE, JUNE 2008
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
271
FIGURE 4. PERCENT OF EMPLOYMENT IN FURNITURE INDUSTRY SEGMENTS WITH HIGH
OR MEDIUM IMPORT SENSITIVITY.
Europe, the Middle East, and Pacific Asia (http://www.steelcase.com). The company has
dramatically reduced its manufacturing capabilities in North America while expanding
them in Asia. Also, it has increased its reliance on both domestic and foreign suppliers for
parts, components, and finished products. Both Steelcase and Herman Miller recently
opened manufacturing plants in China and are increasing their use of Chinese suppliers.
In contrast to the lower-tier Southern states and Michigan, the top-tier states and most
middle-tier states are characterized by small firms and less specialized in high-import
272
GROWTH AND CHANGE, JUNE 2008
TABLE 5. INDUSTRY SIZE STRUCTURE, U.S. FURNITURE MANUFACTURING.a
State
Employees per
establishment
Establishment size distribution (%)
Employment size category
Mississippi
North Carolina
Indiana
Michigan
Tennessee
Alabama
Virginia
Wisconsin
Ohio
Pennsylvania
Texas
U.S.
Missouri
Illinois
California
Georgia
Minnesota
New York
Florida
92
52
49
43
43
36
32
28
28
27
26
25
24
23
22
20
19
18
12
1–19
20–99
100–249
250 or more
58.1
66.9
63.9
75.0
74.9
78.2
79.7
74.6
82.4
76.6
75.1
78.9
81.1
79.1
78.2
80.9
80.9
82.6
87.3
19.9
20.9
25.8
17.2
17.5
14.8
12.9
20.7
14.6
18.3
20.1
16.1
15.4
16.1
17.3
15.0
15.3
15.1
10.1
9.6
6.8
5.6
4.5
4.6
3.7
3.4
3.5
1.8
3.8
3.5
3.3
2.0
3.6
3.3
3.1
2.4
1.8
2.2
12.3
5.5
4.7
3.3
3.0
3.2
3.9
1.2
1.2
1.3
1.3
1.7
1.5
1.2
1.2
1.0
1.4
0.5
0.4
a
States ranked by percent of establishments with 250 or more employees.
Source: U.S. Census Bureau (2006d).
industry segments. These are industries dominated by small companies catering to local
metropolitan markets, without the capacity or need to develop global sources. For example,
Florida has the smallest average establishment size of the leading 18 furniture-producing
states, with 12 employees per establishment compared with the industry average of 25.
Florida firms specialize in kitchen cabinets, millwork, and mattresses, all industries with
very low import penetration. Likewise, Minnesota employs 19 per establishment, and its
firms specialize in kitchen cabinets and millwork, partitions and fixtures, and institutional
furniture. The Pennsylvania industry specializes in kitchen cabinets and employs 27
workers per establishment. In the case of New York, where firms specialize in the importsensitive wood household furniture industry, the small size of establishments (average of 18
workers) mitigates the development of offshore networks.
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
273
TABLE 6. REGRESSION ANALYSIS OF EMPLOYMENT CHANGE IN FURNITURE MANUFACTURING (NAICS 337) IN THE U.S.
t
Constant
IMPORT
WAGE
CAPITAL
Adjusted R-square
n
0.647
-2.721*
-0.033
2.185*
0.35
30
* p < .05.
The relation between industry structure and employment change can be captured by a
regression model. Using data for the 30 states with the greatest employment in furniture
manufacturing, a model was created with percent employment change between 1997–1999
and 2003–2005 as the dependent variable. The independent variables included the percent of employment in high and medium import-sensitive industry segments in 2002
(IMPORT), average wage in 2004 (WAGE), and average annual capital investment between
1997–1999 and 2003–2005 (CAPITAL) (Table 6).
The coefficient for IMPORT was negative and highly significant (p = 0.011). There
was an inverse relationship between total employment change and the percent of workers
employed in furniture manufacturing segments subject to high levels of outsourcing. The
WAGE coefficient was insignificant, and the CAPITAL coefficient was positive and significant (p = 0.038). Higher rates of capital investment were associated with stable or
increasing employment.
Thus, although the South remains an attractive region for incoming manufacturing
investment—witness the location of Japanese, Korean, and German automobile manufacturing plants—the scale and product specialization of Southern furniture manufacturers
means that larger firms are likely to outsource production to reduce costs. Traditional
advantages of lower wage and production costs are insufficient to prevent widespread
offshoring—and have in fact contributed to it. As a result, the country’s dominant household furniture producing region, centered on North Carolina and extending into Virginia
and Tennessee, absorbed most of the country’s net employment loss in furniture manufacturing between 1997 and 2005.
Although the Michigan industry specializes in office furniture segments with relatively
low import sensitivity, the large firms based in Grand Rapids are implementing global
strategies that involve increased offshoring and foreign direct investment. As a result,
employment has declined significantly in Michigan in recent years. States whose furniture
industries are based on smaller firms and establishments, with less specialization in
274
GROWTH AND CHANGE, JUNE 2008
segments with high import sensitivity, were more likely to experience stable or moderate
decline in employment, combined with above-average change in value added and capital
investment. We can surmise that the smaller furniture industries with stronger ties to local
metropolitan markets are capitalizing on customized products and short delivery times to
maintain competitiveness in a fast-changing environment.
Corporate Restructuring and Regional Development:
The Case of FBN and North Carolina
The greatest job loss in the U.S. furniture industry is occurring in North Carolina, despite
well-developed institutional assets and local labor markets, and an average hourly wage of
$12.90 in 2005, 6 percent below the industry average (U.S. Census Bureau, 2006d). The
North Carolina case illustrates how regional context influences processes of globalization
and regional employment change. North Carolina firms specialize in household and office
case goods, segments of the industry experiencing growing outsourcing. The North Carolina
industry is based on large firms, including the largest manufacturer of furniture in the U.S.,
FBN. The implementation of global sourcing strategies by FBN and other manufacturers
(e.g., Lexington Industries) has been the most important reason for the collapse in employment and falling production in North Carolina. The North Carolina furniture industry is
repositioning, shifting case goods production overseas and concentrating on administration,
marketing, and manufacturing of upholstered goods—a classic case of functional upgrading.
In the late 1800s North Carolina entrepreneurs took advantage of ample supplies of
timber; skilled, relatively inexpensive labor; and improved transportation networks to
produce low-price furniture for the growing Southern market (Lacy 2004; Tewari 2005).
Why did North Carolina emerge as the leading Southern center of furniture production
when these advantages could be found throughout the South? Tewari (2005) argues that
local firms created “a set of institutions and organizational practices” that propelled them
to the front ranks of furniture producers in the South and eventually the U.S. They created
a biannual furniture market in High Point where manufacturers advertised their products
to retailers from around the country. Furniture manufacturers organized to promote competitiveness and build the region’s reputation.
The International Shoe Company, FBN’s corporate ancestor, was created in 1911 by the
merger of two St. Louis shoe manufacturers. The company expanded its shoe manufacturing empire through the 1960s, becoming one of the major producers in the U.S. The next
three decades would witness a tumultuous corporate restructuring. Embarking on an
aggressive diversification into retail and apparel manufacturing, International Shoe
Company changed its name to Interco in 1966. Interco entered the furniture industry in
1980, acquiring the well-known company Ethan Allen. The North Carolina manufacturer
Broyhill was purchased in 1981, followed by the Mississippi upholstery manufacturer Lane
in 1987. As happened with other companies, the 1980s merger and acquisition wave left
Interco deep in debt. By the end of the decade, Interco had sold or liquidated most of its
retail and apparel manufacturing holdings, and was forced to sell Ethan Allen in 1989 in a
failed attempt to reduce its debt and avoid bankruptcy (FBN 2006).
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
275
Emerging from bankruptcy in 1992, Interco decided to focus on the furniture industry
and sold its remaining shoe manufacturing shares in 1994. In 1995, the company bought
another well-regarded North Carolina manufacturer, Thomasville, and changed its name
to Furniture Brands International in 1996. FBN vaulted to the front rank of U.S. furniture
manufacturers in 2001 by acquiring North Carolina’s Henredon, Drexel Heritage, and
Maitland-Smith (later consolidated into its HDM subsidiary) (FBN 2006).
While the corporate headquarters are in St. Louis, four of FBN’s five subsidiary offices
are in North Carolina, including two in High Point, the “capital” of the household furniture
industry. Twenty-one of the company’s 27 manufacturing facilities are in the state, as are
six of eight distribution centers (FBN 2006).
FBN is pursuing a two-pronged strategy to remain globally competitive. First, its
“blended sourcing strategy” combines offshore and domestic production. In 2003, FBN
imported $523 million of furniture, which represented 22 percent of sales revenue
(Lorimor and Christianson 2004). Second, FBN is transitioning into a “branded consumer products” company, promoting brand name recognition and distributing furniture
in dedicated retail outlets. By 2005, FBN had 244 single-brand furniture stores
(Thimangu and Mueller 2005). Evidence of a shift in corporate culture was revealed in
the 2005 Annual Report, in which FBN Chairman and CEO Mickey Holloman stressed
that the company is “shedding the manufacturing mindset” and becoming a “true sourcing and marketing company.”
FBN owns only two foreign plants, in Cebu, Philippines and Semarang, Indonesia, which
it inherited when it purchased Maitland-Smith in 2001. Its global production network is
based on strategic alliances forged with firms in China, Vietnam, Philippines, and Indonesia.
The major alliances are with Chinese manufacturers Lacquer Craft, Kasen International, and
Hong Kong Teakwood Works, all located in the Zhu Jiang Delta. The company’s goal is to
concentrate its supply network on “fewer and fewer vendors”; in 2005, just five firms
accounted for about 50 percent of FBN’s imports (FBN 2006). FBN is working to reduce
delivery times and warehousing costs by shipping containers directly to retailers.
FBN’s Pacific Asia network is managed by the independent Furniture Brands Import
Services Organization (FBISO), which plays a critical operational and logistical role on
FBN. FBISO ensures product quality by maintaining personnel in each source firm and
operating testing facilities in China and Philippines.
Back home, FBN has slashed jobs and production and closed plants. Between 2000 and
2006, the company closed 33 manufacturing plants in the U.S. The effects of plant closings
and job losses were mostly felt in North Carolina’s Furniture Alley, where 24 plants were
closed. FBN plant closings and layoffs were responsible for 37 percent of jobs lost in the
North Carolina furniture industry (North Carolina Employment Security Commission
2006). Altogether, FBN cut 7,100 jobs in North Carolina. While net sales grew from
$1.94 to $2.39 billion between 2001 and 2005, total employment fell from 23,000 to 15,200
(FBN 2006).
The pattern of plant closings reveals an international division of labor in the production of FBN furniture based on industry segment. The company is outsourcing more of
276
GROWTH AND CHANGE, JUNE 2008
its case goods production to partners in China and Vietnam, while maintaining most of
its upholstery manufacturing in the U.S. 17 of the company’s remaining 25 factories in
the U.S. produce upholstered furniture. Though growing volumes of upholstered furniture
are being imported as Chinese manufacturers improve production techniques, there
are still significant advantages to producing domestically in the custom upholstery
segment in which products have a variety of fabric styles and are typically made to
order.
The repositioning of FBN in North Carolina is reflected in the growth of office and
distribution facilities. In 2001, three offices and four distribution facilities were located in
North Carolina. By 2006, four offices and six distribution facilities were located in the
state. As furniture firms outsource more production while maintaining head office and
distribution functions in the region, the ratio of non-production to production employment
is increasing. In North Carolina, furniture manufacturing, non-production workers as a
share of total employment increased from 14 to 19 percent between 1997 and 2005 (U.S.
Census Bureau 2006b).
The growth in non-production employment has not compensated for the loss in production jobs. The restructuring of furniture firms has hit the small factory towns of the
North Carolina Piedmont especially hard. In Alexander and Caldwell counties, 34 and 25
percent of the workforce, respectively, was employed in furniture manufacturing in 2005
(Table 7). In Burke, Catawba, Davidson, and Randolph counties, furniture plants employed
between 10 and 15 percent of the workforce. Just four counties absorbed the loss of 12,600
furniture manufacturing jobs between 2000 and 2005: Caldwell (where production is based
in Lenoir), Catawba (Hickory), Davidson (Lexington and Thomasville), and Randolph
(Asheboro). This represented 56 percent of furniture manufacturing employment decline in
North Carolina and almost one in seven jobs lost in the industry nationwide. Almost 2,700
jobs were lost in Lenoir, including 2,150 at FBN plants. Thomasville—“Chair City”—lost
1,700 jobs, almost all from FBN layoffs and plant closings, and Lexington lost 1,700 jobs,
mostly from the restructuring of Lexington Brands (North Carolina Employment Security
Commission 2006; U.S. Census Bureau 2006d).
This has resulted in higher unemployment, especially in the western counties of Burke,
Caldwell, and Catawba, where average annual unemployment rates between 2001 and 2005
were 7.1, 7.8, and 7.1 percent, respectively, well above the state average of 5.9 percent
(which was one of the highest in the nation). Average unemployment was 5.6 percent in
Randolph and 6.6 percent in Davidson.
The high volume of FBN production has enabled it to enter into supply partnerships
with large Chinese firms. The firm is effectively trading regions, replacing the workers,
factories, and regional assets of North Carolina with those of Guangdong. A recent
development has raised the intriguing possibility that the site of corporate control in the
FBN network may also move across the Pacific. Samson Industries, which owns Universal
and Legacy Classic, now controls 15 percent of FBN stock. In October 2007, FBN declined
a merger proposal from Samson. But Samson “hasn’t ruled out a tender offer in the near
future” (Furniture/Today 2007).
15,813
9,662
8,366
8,293
6,176
3,774
2,942
1,896
1,361
1,317
1,226
1,220
1,034
2000
12,794
6,390
6,349
4,030
5,872
2,874
2,647
1,415
750
750
375
801
346
2005
Employment
in furniture
manufacturing
-3,019
-3,272
-2,017
-4,263
-304
-900
-295
-481
-611
-567
-851
-419
-688
Change
-4.1
-7.9
-5.4
-13.4
-1.0
-5.3
-2.1
-5.7
-11.2
-10.6
-21.1
-8.1
-19.7
Annual
change
2000–2005
Sources:
Employment data: US Census Bureau (2006d).
Unemployment data: US Bureau of Labor Statistics (2006).
Catawba
Caldwell
Randolph
Davidson
Guilford
Burke
Alexander
Lincoln
McDowell
Surry
Forsyth
Wilkes
Montgomery
County
8.94
15.33
8.61
6.25
1.37
6.72
20.80
4.76
3.29
1.43
0.13
2.18
2.40
Location
quotient
2005
14.7
25.3
14.2
10.3
2.3
11.1
34.3
7.9
5.4
2.4
0.2
3.6
4.0
Share of total
employment
2005
7.1
7.8
5.6
6.6
5.6
7.1
6.3
6.6
6.8
6.8
5.1
6.8
7.7
Average
unemployment
2001–2005
TABLE 7. FURNITURE MANUFACTURING IN NORTH CAROLINA EMPLOYMENT CHANGE IN MAIN FURNITURE PRODUCING COUNTIES,
2000–2005.
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
277
278
GROWTH AND CHANGE, JUNE 2008
Conclusion
The ability of firms to develop global production networks has been facilitated by
technological change and government policy. Furniture firms use information technology to
control computerized machinery on the factory floor and manage supply and distribution
logistics. Innovations in shipping and packaging make it possible to ship bulky, fragile
furniture across the ocean. At the same time, the global embrace of neoliberal economic
policy has reduced barriers to trade and investment. The pivotal political event for the
globalization of the U.S. furniture industry has been the opening of the Chinese economy and
the normalization of U.S.–China trade relations. This has allowed large U.S. firms to
effectively shift their labor supply from traditional centers such as North Carolina to
emerging agglomerations in coastal China, where workers are paid a pittance of U.S. wages.
Regional job loss and attendant social consequences are a consequence of the increasing
openness of local economies to globalizing processes. However, the impact of corporate
globalization on U.S. furniture-producing regions depends to a considerable degree on each
region’s industry structure and the situation of its firms in global production and distribution networks. For example, the severity of job loss in North Carolina, the leading household furniture manufacturing region in the U.S., is mainly the result of regional industrial
history. North Carolina developed large firms focused on the production of wooden case
goods and upholstered furniture. Wooden case goods are the most feasible furniture lines
to source globally, and the large size of North Carolina firms facilitates the establishment
of contracting relationships based on high-volume orders and technology and information
transfer. In this case, the coevolution of firms and regional assets in North Carolina created
a situation in which large, industry-leading furniture firms could develop. Now, however,
they are looking to China as a low-cost production alternative to North Carolina. The
regional assets of North Carolina are no longer valued as highly as those of the Zhu Jiang
Delta, Ho Chi Minh City, or Shanghai, where U.S. firms have cultivated offshore partners
capable of producing high-volume, high-quality furniture at a relatively low cost.
On the other hand, furniture-producing regions in the Northern U.S. tend to focus on
customized woodworking, cabinetry, and office furniture segments closely tied to metropolitan markets. This too is a product of regional history. Through the 1900s, Northern
furniture industries faced stiff competition in the case goods and upholstered good segments from Southern firms and as a result tended to shift to other industry segments. The
smaller size of firms and the specialized, customized character of their products makes
them less vulnerable to imports and less likely to shift production offshore. As a result,
these industries have experienced lower rates of job loss, and several states are increasing
market share. The main exception is Michigan, where large, capital-intensive firms carved
out a dominant position in the continental office furniture industry. Their scale has enabled
them to move production globally into new markets and outsource the production of
standardized components and products for the U.S. market.
What policy options are available to regions faced with industry change? Protectionist
petitions are likely to have little if any effect, especially as they tend to mask underlying
GLOBALIZATION AND THE U.S. FURNITURE INDUSTRY
279
globalizing processes. The U.S. Department of Commerce supported the antidumping
petition, stating that Chinese producers sold furniture in the U.S. at “less than fair values.”
Seven companies, representing about 40 percent of U.S. wood furniture imports, were
assessed preliminary tariffs between 4.9 and 24.3 percent. These included large manufacturers such as Lacquer Craft, Starcorp, Markor, and Shing Mark. An additional 82 “Section
A” companies that cooperated with the Department’s investigation received a tariff of
10.9 percent, and all other Chinese firms were assessed a rate of 198.1 percent (U.S.
Department of Commerce 2004a). After further review, though, the tariffs for the “Big
Seven” were reduced to 0.8 to 15.8 percent, and the Section A companies saw their tariff
reduced to 6.7 percent (U.S. Department of Commerce 2004b). These tariffs were much
lower than the level demanded by the petitioners and had a negligible effect on rising
furniture imports. More than anything, the petition revealed the divide in the U.S. furniture
industry between transnational retailers and manufacturers, on the one hand, and smaller
companies concentrating on domestic production, on the other.
To effectively compete in the global economy, furniture firms need to develop and sell
high-quality products, offer diverse styles, ensure quick delivery, and provide personal
customer service. Furniture remains a bulky fashion product subject to significant transportation costs; rising production costs in China or changes in the regulatory landscape
could reduce the cost savings associated with offshore production. Regions could try to
encourage the growth of small- and medium-size firms in segments of the furniture
industry focused on customization and less vulnerable to imports. There are a number of
actions governments could take to promote entrepreneurialism and industry growth, including 1) working with colleges and businesses to match vocational training programs with the
labor needs of local firms, 2) promoting innovation through financial and technical assistance, and 3) assisting firms in marketing and distributing their products. The example of
the Québec furniture industry is instructive. Several industry-specific institutions support
innovation and growth, such as L’Ecole québécoise du meuble et du bois ouvré, which
provides technical assistance, applied research, worker training, and assistance with production organization. There is still space for regional policy in a globalizing economy.
NOTE
1. Unless otherwise noted, all monetary values are in constant 2005 U.S. dollars.
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