South-Western College Publishing - Economics  
Furniture Makers are Down, but Not Out, in North Carolina
Subject Furniture maker tries to remain competitive by cutting costs where possible
Topic Production and Costs; Monopolistic Competition; Profit Maximization and the Firm
Key Words

Revenues; Profits; Competition; Price; Production

News Story

Furniture Brands International, a furniture maker in North Carolina, has been hampered by competition from China. The company has recently shuttered 17 production facilities, but one in Thomasville, NC, has refused to fold.

Furniture company employment nationwide has been hard hit recently, with about 30,000 job losses in 2001 and 2002, and about 93,000 jobs since 1979. During the same period, Chinese furniture manufacturing has increased significantly, moved along by higher product quality and cheaper labor costs. Lacquer Craft Manufacturing just opened a new facility outside Shanghai that will eventually occupy an area larger than 80 football fields, and house up to 5,000 workers in dormitories on-sight.

Rick Stanco, head of one of Furniture Brands' production facilities, has been actively engaged in reducing costs to increase his facility's competitiveness. He engaged all of his workers in finding ways of reducing inefficiencies in their production processes, and workers came back with minor machinery changes that increased efficiency by 27%. Mr. Stanco also began to update the plant's aging machinery--a slow process when machines cost approximately $500,000 each. Further, he helped improve worker morale so that they could believe that losing their jobs to China wasn't inevitable, by having the machines painted and completing other cosmetic repairs.

However, not all of his techniques were successful. He recently had to close down the rough-cutting portion of the furniture making facility, laying off about 50 workers. That material will be made elsewhere, and shipped to the plant. It's unclear how long this facility will remain competitive, especially in the face of continued quality improvements and cheap labor from abroad.


(Updated May, 2004)

Questions
1.

Using cost curves, show the impact of Mr. Stanco's drive to increase efficiency in his production process. What should be the impact on profit as a result?

2. The new facility outside of Shanghai was constructed in gargantuan proportions. Why would construction of a facility this size help the Chinese firm compete?
3. Were the moves toward efficiency as described in the article designed to lower short-run costs or long-run costs? Explain.
Source Dan Morse. "In North Carolina, Furniture Makers Try to Stay Alive." The Wall Street Journal. 20 February 2004.

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