In December 2014, Bellesbumprom concern approved the Program of furniture production development until 2020, in which planned activities and expected results are detailed. Dmitry Lizura, First Deputy Chairman of the concern told BELTA about the changes expected in the Belarusian furniture industry in the next five years.
- What was the impact of the devaluation of the Russian ruble on the profitability of Belarusian furniture production enterprises which export the greatest part of their products to Russia?
- Considerable fluctuations of the Russian ruble as the major currency which is used in settlements with Russian customers has resulted in noticeable reduction of the export revenue. Over the 11 months of 2013, the enterprises of the concern shipped furniture with the total cost of $169.7 million, whereas over the similar period of 2014 the cost of the shipped products was $165.3 million. Over the 11 months of 2014, the cost of the furniture sold by one of the powerful furniture manufacturers within the concern, closed joint stock holding company Pinskdrev, to Russia was $30.6 million. At the same time, export growth rate compared to 2013 was 108.7% in Russian rubles and only 92.6% in US dollars. The similar situation was observed at one more large enterprise CJSC Molodechnomebel. Export growth rate was 107% in Russian rubles and 91.6% in US dollars.
Tough competition did not allow us to increase export prices in Russian rubles in response to the exchange rate fluctuations. In this respect, members of the concern had to keep their prices at the same level with the Russian manufacturers. Certainly, in these conditions, the working capital of the enterprises was washed away and the business performance reduced; however, the enterprises managed to preserve their positions in the market.
- What conclusions were made by the concern’s management on the basis of challenges faced in the context of the situation in the Russian market? Are there any plans to adjust export policy in 2015?/
- In the nearest future, we will try to diversify the markets to the maximum extent and to increase export to non-CIS countries. In particular, we will actively work to arrange and increase export to European and Asian countries.
However, we won’t ignore the Russian furniture market. In 2013, the output of the Russian furniture enterprises decreased by more than 8% in comparison with 2012. At the same time, experts believe that 2014-2017 will see a gradual increase in the capacity of the Russian furniture market both in physical and in monetary terms. However, the major growth driver will be represented by import furniture deliveries. In recent years, Italy has had the first place in terms of import to the Russian market, next come China and Poland. Belarusian furniture also enjoys high demand.
- The capacity of the web-market increases every year. When will Belarusian furniture manufacturers use world-wide web to sell their products to other countries?
- We have been considering the possibility to sell Belarusian furniture via the Internet for a long time. Nowadays some enterprises in this industry already have their online shops and note their high efficiency. Web-based trade is expected to become one of the most effective methods of selling Belarusian furniture abroad in 2016-2020.
On the one hand, this method is most effective and least costly (there is a possibility to make prompt settlement and to avoid renting or purchasing sales facilities). On the other hand, development of a new sales market requires substantial preparation. The manufacturers will have to expand their dealer base, deal with possible challenges related to settlements between the Belarusian manufacturers and foreign purchasers, learn to calculate the transportation costs as soon as the location of the online customer is determined, optimize the logistics, etc.
Meanwhile we have been developing the mechanism of online sales through foreign representation offices and foreign dealers. This can facilitate the sale of products and make the sales process more mobile.
- Recently, there has been a trend to optimize the production: enterprises have been combined into holdings and, vice versa, demerged according to their functions. Will the number of the concern’s furniture enterprises change?
- No reductions or new enterprises have been planned so far. We expect that the available internal resources of the concern’s enterprises will be enough to achieve the set objectives.
Small production enterprises oriented to individual customer’s needs (built-in furniture, furniture manufactured according to individual design projects, etc.) are most perspective. Poland’s experience may serve as a good example: there are 23.5 thousand furniture companies and the number of employees at 21 thousand of them does not exceed 10 people (small business). Most furniture enterprises in Belarus are large and several hundred of employees work at them.
- According to the program of furniture production development, by 2020, the concern’s enterprises have to increase the output of furniture by 50% compared to 2013. Will the quality suffer as a result?
- When we were developing the program, we stuck to the rule of the golden section when equal efforts have to be aimed at five major milestones. They are increasing the output, ensuring competitive performance, decreasing the materials/output ratio and the share of import, increasing the share of new products in the total furniture output.
The requirement to increase the output is not new for the concern; it’s a regular pattern. Since 2007, the industry has been experiencing a large-scale upgrade, which has resulted in the establishment of new lines and enterprises. The process of technical re-equipment is in its final stage and the enterprises which have been put into operation are gradually achieving their design capacity. Given the results of the upgrade, the output of the concern’s enterprises has increased from $267 million in 2010 to $309 million in 2014.
If we speak about the improvement of competitive advantages, the major direction of furniture production development is the upgrade of the enterprises, introduction of new effective and economical resource-saving technologies. Based on the trends in the sphere of construction materials, we can say that in the nearest years, wood boards (chipboards and medium density fibreboards) will preserve their leading positions in the world’s furniture market; there will be an increase in the use of ply-curve details in the production of different types of furniture; panel details with paper honeycomb will be more actively used in the production of big wardrobes, tabletops and shelve stands. All these elements are currently actively used in Belarusian furniture.
As for the reduction of the materials/output ratio in furniture products, Belarus will expand the production of medium density fibreboards. These boards are expected to be actively used instead of chipboards and natural wood to produce face pieces, especially profile face pieces. The use of medium density fibreboards will help to significantly reduce the production costs.
The import component of furniture production is expected to reduce first of all due to the production of chipboards and fibreboards and plywood by the concern’s enterprises. This will help to reduce the production costs and save foreign currency.
If we talk about the increase in the share of new products in the total amount of shipped furniture, in 2016-2020, we will focus on stimulating the development of high tech production enterprises, including those focusing on the enhanced wood processing. The introduction and the use of new and advanced technologies, global quality and environmental standards are among the priorities. We will try to enhance the innovation activities and enterprises’ susceptibility to changes in markets.
- What, in your opinion, will the results of the implementation of the program be?
- We expect that the implementation of the program will result in the increase in the furniture output and, consequently, gross value added per one employee. We plan to ensure the profitability of sales at the level of 10-15% in conditions of restrained growth of prices for furniture. Export has to increase by 20-25%. Expansion of the distribution network, introduction of new production technologies and new furniture models will help our enterprises to compete with other manufacturers not only in the domestic market but also abroad.
Original source: Belta