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MMQB | March 17, 2008
Over There
The growing market is not lost on the industry's major manufactuers. More and more are investing heavily in overseas operations.
By Rob Kirkbride
A decade ago, the office furniture industry was exploding with growth and the dollar was strong around the world.
International office furniture markets were an afterthought. With things going so well at home, manufacturers had no reason to ship furniture around the globe and compete against established furniture makers on their home turf.
Times have changed.
The weak dollar is making U.S. made office furniture cheap around the world. And manufacturers are taking advantage of it.
According to research by the Business and Institutional Furniture Manufacturers Association, exports of American-made office furniture continues to grow. Exports are up 56 percent since 1996 and grew 15 percent from 2006 and 2007 alone.
The growing market is not lost on the industry's major manufacturers. More and more are investing heavily in overseas operations.
"It certainly has been a growing part of our business," said Mark Schurman, spokesman for Herman Miller Inc. "There is no question our consolidated business has been helped by international sales."
Herman Miller has a new plant in China to serve the Asian market. And it has plants in Europe to sell furniture in the European and African markets.
In China, the company has limited production to seating.
"Seating translates very well and doesn't have the same cultural barriers as systems furniture," Schurman said.
International sales is nothing new for Herman Miller. The company has sold overseas since the 1950s. But there has been a shift in emphasis in the last 10 years, Schurman said.
"(International sales) has been made a much more central element of the company's larger growth strategy."
While the U.S. economy has sputtered along over the past few years, other areas of the world are booming.
Herman Miller has seen strong growth in the Middle East, Asia, continental Europe, Canada and Mexico.
KI's international operations are growing as well. The company's European unit saw sales increase 53 percent in 2007, 48 percent over its goal.
The company entered 2008 with two large products already won, AIB in Dublin and The Grand Museum of Egypt in Cairo. It also has wins for Unilever, Barclays Capital, Hertfordshire County Council, PWC, BP, Bank of New York, ING, Mazars and Willis Insurance.
KI Europe expects another year of growth in 2008 despite the adverse impact of banking and financial markets.
"Certainly in the major centers like London and the like, it is very robust," said Jonathan M. Hindle, managing director of KI Europe and Middle East. "We are seeing the same sort of activity as last year, which was very strong. There is strong activity in the banking and financial and legal sectors. KI has also enjoyed a lot of success in media, publishing and energy."
Regionally, KI has seen success in continental Europe, Germany and Benelux, German and Benelux have strengthened.
"The Euro has been strengthening recently, putting some growth in their economy," Hindle said.
Although they have a much stronger foothold, growth overseas isn't limited to larger manufacturers, said Joe Schmieder, owner of MVA Business Development, a Grand Rapids consulting firm that helps companies exploit international markets. "Many smaller companies are beginning to look at China as a market," he said. "The big guys are all over there now. I think smaller companies are beginning to realize they can tap into foreign markets, set up operations and make some money off those markets.
"It is not as hard to do as you might think. There are 320 million people in China that speak English."
Shipping is one of the most difficult aspects of selling office furniture overseas (see story in last weeks MMQB The Shipping News). "It is difficult to ship complete furniture. It's just becoming more difficult to ship any products," he said.
International markets are attractive, in part, because they can create a recession buffer for American manufacturers. Although the world financial market is increasingly tied together, it is still rare for all areas to be stricken by a recession at the same time. If the U.S. market is sick, a strong European market can make the downturn a little less painful. If Europe is in a recession, strong Asian markets can make up for it.
"Companies in the U.S. have an intuitive belief that even if they are seeing a slowing global economy, they can temper that downturn by seeking out places that are strong," Schurman said.
KI set up its European division 12 years ago and has grown the business organically by recognizing there are "different buying behaviors in different countries," Hindle said.
"We very much tailor or products to the needs of the customer," he said. Most of the large office furniture makers have grown internationally through acquisition. Steelcase made several strategic acquisitions to grow its European business and the company recently purchased a Chinese manufacturer.
Haworth also built its brand in Europe through acquisition, while Herman Miller's growth was more embryonic.
Interestingly, while KI is probably known best for its educational furniture in the U.S., it is best known as a filing specialist in the United Kingdom. In continental Europe, KI is known for its high density seating and training furniture.
In the Middle East, the bulk of KI's new sales activity is in the education market, similar to its strength in the U.S.
"There are lots of colleges and universities springing up there," Hindle said. "There is strength there with banking, universities and schools."
International markets are a growing prize, Hindle said. "It is fair to say that historically, the interests of companies that are U.S.-centric ended at the east and west coast (of America)," he said. "They only recently started to realize there's a bigger world out there."
American manufacturers also have benefitted from strong currency translation. Profits at Steelcase and Herman Miller have been boosted in recent quarters simply because of exchange rates.
"International sales greatly impacted the large players positively last year," Schmieder said.
Hindle said the dollar's drop has allowed KI to stay competitive in Europe "while other factors worked against us." Both freight and fuel charges were a drain, he said.
"Where we have seen some of the benefits, it has allowed us to remain competitive against the domestic manufacturers," Hindle said.
American companies will continue to grow overseas. Herman Miller is looking at expanding its operations in India and South America, although no firm plans are in place for new factories just yet.
Selling parts and sourcing parts internationally also continue to grow, said Tom Reardon, executive director of BIFMA.
"Anecdotally, I have observed some increased focus there (internationally), at least with some of the larger companies," he said.
But international growth goes beyond anecdotes as well. In its most recent quarterly report, Herman Miller reported orders outside of North America continued to improve and grew 12.1 percent over the prior year and 5.7 percent over the prior quarter. Steelcase notched impressive gains internationally as well. The company reported international sales of $230.8 million during its most recent quarter compared to $199.6 during the same period last year, a hearty 15 percent increase.
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