I.                   Introduction

The retail industry in the Hong Kong setting has similarly been subject to a lot of changes as the special administrative for the past years. With the advent of the region’s return to Mainland China as well as the outbreak of deadly viruses like bird flue and SIRS are among the major changes that Hong Kong has endured in the past years. Aside from other industrial and commercial entities that have sprung up in the Hong Kong market, the region’s furniture industry has shown resiliency against the indicated changes. The furniture industry of the Hong Kong Special Administrative Region has made general improvements in its performance in both the manufacturing and exporting sector. An internet study on the overall performance of the furniture market is shown by TIC Trade. COM. (Trade. COM, 2005) It shows that the furniture manufacturing industries in Hong Kong has been doing well in the international arena. With the export of household, office and kitchen furniture, the furniture industry has not only been regarded as a major player in the international scene, it has also helped in generating available employment for the local sector. However, there appears to be an insufficient account on the retail industry in the region. Though it has been indicated to do well with its outbound sales, the performance on the local scene has been overlooked. This paper intends to examine the local retail industry in Hong Kong. In order to analyze the Hong Kong market, the discussions will be using an impact analysis, strategic group analysis, and Porter’s Diamond Model. The study will also be examining one of the region’s top furniture retailers, Price rite. At the end of the paper, the author will build a scenario that would establish a 10-year projection of the industry. It is in these data that a conclusion will be based.  


    


II.                Impact Analysis

The PESTLE analysis will be used to take into consideration the different aspects of the furniture industry in Hong Kong.


A.   Political Factors Hong Kong has always been perceived as a bastion of commercial activity and capitalist ventures even before it has been placed under Chinese Rule. Nevertheless, despite the rather strict communist principles present in the central government in Mainland China, it has permitted the Special Administrative Region to continue with its prior trade and commercial activities. (Sheath, 2004) This however has been limited eventually by the Chinese government given the unimpressive performance of the leadership of the autonomous region. Along with this reduction of liberties, the Hong Kong government has to similarly contend with the changes in economic status as provided by deadly viruses such as SIRS. This apparent danger brought about unemployment for over a period, along with some level of resistance to the changes of Chinese rule, eventually triggered discontent. (Sheath, 2004) The central government responded to this call be granting the Hong Kong population the right to elect their own leader. Similarly, the central government has also allowed the free flow of mainlanders to the administrative region by lessening the restrictions and encouraging mainlanders to spend their money in Hong Kong. (Sheath, 2004)    B.   Economic Factors

According to the annual report of one of Hong Kong’s top furniture company, there has been a great flux of tourists in 2004. (Price Rite, 2005) This means that there is an increase in the possibility of instilling consumer confidence and created a new demand in the retail sector of the administrative region. Nevertheless, it is still apparent that price sensitivity still exists and is continuously slowing down businesses based in Hong Kong. (Price Rite, 2005) This sensitivity apparently has been spawned by the meager economic fundamentals that have been ingrained in the region for the past years.


C.   Socio-cultural Factors

Being one of the major economies in Asia, the individuals dwelling in Hong Kong is seemingly familiar to the principles of trade and other types of capitalist ventures. This means that Hong Congers know the value of their money. With this in hand, companies engaged in retail will eventually find success given that they provide the best possible line of product to the public with the most reasonable price they could offer.   


D.   Technological Factors

Hong Kong is one of the most technologically advanced societies with a computer literate population. (2003) In looking at the major players in the furniture retail industry, Price rite and IKEA, they both have their individual websites where product information other company data is available. Some other businesses in the said region have also begun using the Internet as a medium to peddle their goods. This means that shopping online is, to a certain extent, a norm in the region. (2004) So it is viable for retail businesses to take on the internet as an ally to gather much more of their industry’s market share.    


E.   Environmental Factors

The emergence of deadly virus SIRS has been one of the biggest factors that has affected Hong Kong economy, and with it its retail industry. Given the fear provided of incurring a sickness without a cure, the epidemic triggered a “cataclysmic fall” on the number of tourism coming to the region. (2004) Despite this apparent recession in triggered by SIRS, the government of the administrative region has significantly lessened the case of infection of the said epidemic and eventually regained the number of tourist influx in the past years.


F.    Legislation and Democracy Factors

Despite the autonomy enjoyed by Hong Kong, these liberties are still under the mercy of the central government. The central government has then power to make decision regarding the region’s elections and anti-subversive legislation and use it to further place limitations on the social liberties enjoyed by Hong Congers. (Sheath, 2004) However, this may yet to be seen in the near future if the central government wants to look good and maintain an amiable reputation internationally as it treats Hong Kong in a fair and just manner.


 


III.              Strategic Group Analysis

The following discussion will present the company competing in the furniture retail industry. The discussions will be based on the situation of Price Rite. After the presentation of the specific attributes of the market, it the strategic position of the said firm will similarly be established. The discussions are divided based on Porter’s Five Forces Model.   


A.   Threat of Entry

The furniture retail market in Hong Kong is tightly contended by two huge companies, Price rite and IKEA. Both are deeply established companies in the Hong Kong market, this shows that new entrants may have a difficult time in getting a part of the exiting market share in the furniture business. Given the nature of the competition in the said industry, both companies may possibly take on cost-reduction measure to defend their position in the market. And since the products are highly dependent on design and function for the differentiation of the products in the industry, patents, propriety knowledge, and brand reputation are among that are needed in entering the Hong Kong scene. And to some extent, these may well be considered barriers of entry among new players in the industry. Thus, new entrants are not apparently powerful in the industry.     


B.   Powers of the Buyer

The products that are offered in the furniture retail industry in Hong Kong are seemingly interchangeable and indistinguishable. Both of the major companies tend to the needs of the consumer with regards to the office, household, and kitchen furniture. Though the products that are sold by both companies could not be considered a commodity there are certain furniture sectors that tend to different sales channels thus ensuring a constant/regular number of buyers in the said industry. (Hong Kong Trade Development Council, 2004) This shows that that the individual buyers in the retail sector are not the sole source of revenue of these companies. Though the buyers in the industry could well demand for a lower price from these companies, they don’t have the sufficient power to force these companies to take on their demands.  


 


C.   Power of Suppliers

In the said industry, the power of the suppliers is relatively not strong given that the companies that compete for the market share could easily find other sources of raw materials for their products. Similar to the products that the companies offer to the public, the raw materials presented by the suppliers are in the same way interchangeable and indistinguishable. Similarly, it would if ever the cost of the raw materials provided by the suppliers get out of line, the companies in the said industry would not have a hard time in finding a replacement. In this manner the operations of the companies is not compromised. However, base on the annual report of Price Rite (2005) they have installed a system that would be able to equalize the power between the supplier and the companies involved. This is called the Wireless Warehouse Management System (WAS) which improved the relationship between the supplier and the company. The company is also able to reduce the transaction costs through the speed and efficiency provided by the WAS.  


 


D.   Threat of Substitutes

There is always a threat for substitutes in every industry. For instance, the furniture retail industry companies like IKEA and Price Rite may have problems with the preference of the market to purchasing antique or even traditional furniture. This means that these companies may have to contend with a lesser market share do that prefer their contemporary product. Nonetheless, there may well be quite a few of these considering the price range of the products offered by these companies are less compared to that of the ones selling antique and traditional furniture. Moreover, given that the price of these substitute products is considerably more costly than that offered by the industry, it one could also observe that the quality, benefits, and specific features provided by these substitute products are considerably lower. Other than that, the companies involved in the industry have no other direct competition with other companies. The problem in this scenario is that the companies could not compete directly with these substitute products because these are not sell not manufactured by IKEA and Price Rite.


E.   Competitive Rivalry

The competition in the said industry is held by Price Rite and IKEA. Both companies came from foreign countries and are vying for the Hong Kong furniture market. Price rite has to contend with IKEA, the biggest home furniture retail chain in Hong Kong. The IKEA model is anchored on establishing and offering an extensive variety of home furnishing products that are elegant and functional with reasonable rates which a lot of individuals will be able to meet the expense.


Alternatively, Price rite is merely starting to expand and build up a more customer responsive setting with the development of their store designs and supplementary offers. Albeit IKEA is an international organization and makes the most of the media by building up its advertisings, it can’t be rebuffed that Price rite has survived for a longer period than IKEA. Therefore, the former is more recognized in the administrative region than the latter.


In the said discussion, it appears that the competitors in the industry have a considerably diverse way of doing business. However, given the rather cutthroat competition for market share, the ways they do business are becoming increasingly similar. Given the kind of products that the companies offer the market, it appears that they spend a considerable amount of money to their plant and equipment. And in order to make the most of their assets and save a lot, it is recommended that outdated and rather faulty plant and equipment should be taken out of their company.


 


IV.            Scenarios

The following discussion is going to provide both optimistic and pessimistic scenarios for the furniture retail industry in Hong Kong. The setting will be after a decade with the possible outcomes based on the existing period as discussed in this paper.   


A.   Optimistic

Hong Kong’s retail industry in the furniture sector will be flourishing. The policies coming from the central government are not limiting the potential of the companies that are competing in the industry as well as those that are trying to get in the industry. The market share of IKEA and Price Rite is considerably reduced because of the entrance of new competitors in the industry. Though there are some foreign based companies that are now competing in the said industry, a bulk of the other competitors are locally based and are supported by the special administrative region. Similarly, the market grown considering the great influx of mainlanders to the region, more demand for office, household, and kitchen, furniture is created.


 


B.   Pessimistic

 


The furniture retail industry is still dominated by the two foreign companies that have gained access to the market, IKEA and Price Rite. Their influence in the market has been of powerful given the number of employment they created and other economic assistance that gained the favor of the government. These companies become so influential that they have been able to gain the favor of the government to enact legislation that would install more barriers to entry in the industry. The Hong Kong market for furniture wasn’t able to develop because of these.


 


V.               Conclusion

Based on the presented discussions above, the optimistic scenario may well be more feasible than that of the pessimistic. The retail industry in the Hong Kong furniture market displays how the Hong Kong buyers behave with regards to purchasing products. With IKEA and Price rite being at the top of the furniture industry food chain, it appears that product. Product design, price and quality are important factors in their purchasing decisions. The rising numbers of dual-income households may prove to be the reason for the demand for such increase for house furnishing products that allow for easy use and quick cooking. Hong Kong consumers consider internationally-renowned brands of imported furniture and house furnishing products to have higher quality and better designs. The discussions above showed that possibly. Hong Kong is an important part of the central government in China that it will continue to permit Hong Kong to engage in what it does best, be a bastion of commercial development in Asia.



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