This report provides an analysis of the performance of the furniture industry across four key Asia markets last year, and offers forecasts for this year. It is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia.

The home decor industry emphasized products that employ sustainable materials and manufacturing processes in 2014. Throughout a number of developing countries in Asia, suppliers addressed demand for environment-friendly models, which include those made of plant-derived raw components and recycled inputs.

In India, Nepal and the Philippines, the sector closely followed "green" production practices that adhere to international regulations on wood and chemical additives. Although it entails additional costs, testing and inspection by third-party agencies are now increasingly becoming standard procedure among companies in the segment. Makers that utilize wood secure compliance documents with their respective governments to certify that lumber being used comes from legitimate sources.

Designs are now being modified to reflect the shift to models that don't affect the environment significantly. For instance, paper decor made previously of wood pulp is now being reworked to come in banana and cotton fibers. Besides having minimal ecological impact, items such as these help makers differentiate their products better compared with those offered from other sourcing centers.

Exports

Overseas sales of home decor from India, Nepal and the Philippines continued to expand in 2014, following the upward trend seen since 2011. The increases from each country ranged from 4 to 22 percent, although some specific product segments experienced much greater growth.

The sustained improvement is attributable to a variety of factors, the most important of which is strong popularity of basketware made of vegetable materials. Revenue from this particular line surged 110 percent last year on the back of solid demand from traditional markets. Robust exports of products made of natural fibers such as Manila hemp and marine-derived inputs such as seashell also contributed to higher income in the sector.

Across all countries, the US remains to be the leading overseas destination. Its sustained recovery from the global financial crisis has resulted in increased consumer spending for nonessential products such as home decor. The EU is another major market. Within the bloc, Germany, the UK and the Netherlands account for most of turnover. In Asia, China is emerging as the dominant destination amid growing demand for models in natural materials. Other locations taking up a significant portion of exports are Japan, Singapore and Latin America.

Price trends

Quotes of home decor generally went up in the previous year, brought about by a number of developments specific to each country. In the Philippines, adjustments to the minimum wage in key regions resulted in higher labor expenditure. Furthermore, typhoons destroyed many plantations of natural materials, causing a surge in the cost of inputs for several months. Price changes were moderate, nonetheless, as companies feared of losing competitiveness against neighboring sourcing hubs.

In India, prices of metal home decor such as vases and wall hangings went up by at least 10 percent last year. This was directly an upshot of the soaring cost of iron ore and railway freight, which is commonly used to transport this raw input. In addition, compensations for artisans specializing in sculpting, engraving and embroidery were generally pushed up.

Rising prices of raw materials in Nepal caused product quotes to go up. Major inputs such as wool, brass and copper are imported, and the cost of these components increased by 8 to 12 percent last year.

Challenges

Among the three countries, the most common problems faced by the home decor industry last year are the increasing expenditure on manpower and high cost of raw materials.

Changes to the minimum wage in different locations are the primary influence behind growing outlay for labor. In the Philippines, for example, the basic salary in Metro Manila was recently raised from $289 to $314 per month, which is an increase of nearly 7 percent. Depending on the product segment involved, this translates to a corresponding adjustment in prices to maintain viability. Competitiveness is also partially compromised as manufacturers increasingly devote more resources for employee compensation. In India, the government is remedying the situation by authorizing state governments to independently set minimum wages apart from those imposed by Delhi.

The escalating cost of raw materials is another roadblock hampering the entire industry. As demand for sustainable models becomes greater, so do the materials needed. This, in turn, pushes up prices of unprocessed inputs. In some areas, components are heavily imported since domestic supply is unreliable. In such cases, expenditure for raw materials surges even more compared with areas that have can readily procure inputs from local vendors.

A lingering problem among home decor enterprises in Asia's developing countries is intense price competition with China. To counter this difficulty, companies are making an upmarket shift to avoid the low end, which remains to be dominated by that country. Many makers, however, find it difficult to do so due to inadequate funding for R&D and upgraded equipment.

2015 Outlook

Sustained improvement is expected from the industry in 2015 in spite of the prevailing difficulties. Most manufacturers anticipate higher export revenue as a result of escalating demand from the US, the EU and Asia-Pacific. Large retailers such as Wal-Mart, Kmart and Macy's are seen to augment their sourcing for felt and pashmina home decor by tapping the Nepal market. The popularity of items featuring intricate decorations and ethnic designs is also on the upswing in alternative destinations, including Brazil, Argentina, Chile, Bolivia and Guatemala. In addition, even though China is widely regarded as a competitor, the industry is projecting it to become a significant destination for midrange and high-end products.

Prices are forecast to rise this year as many suppliers try to cope with the high cost of raw materials and manpower. Quotes are not expected to climb significantly, however, to ensure products' competitiveness. Many makers are seen to peg adjustments to no more than 5 percent.

Upcoming releases will still emphasize the general trend of sustainable materials and products last year. This will be complemented by decorative elements not readily available in products from other sourcing zones. These include plant-derived adornments in indoor planters, decorative trays and trinket boxes. In terms of colors, the spotlight will be on vivid hues such as yellow, orange, light green and teal.

For more information about the Hinrich Foundation's industry-specific sourcing reports spanning seven different countries in Asia, visit Online Developing Country Sourcing.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.