Pallister Case Study Essay

Background and Problem Palliser Furniture Ltd. is Canadian second largest furniture company. They currently have production facilities in Canada, Mexico, and Indonesia. Due to increasing competitive pressures from Asia, Palliser Furniture must decide whether to expand into the Chinese market, and if so through which entry strategy? SWOT ANALYSIS Internal Analysis: (Firm) Strengths: 1. Brand Name Recognition: Palliser has high brand name recognition especially domestically in Canada with the majority of its revenues are generated and it is known for its innovation, high quality, and contemporary design. 2. Recruited product managers/designers from all across the world including Sweden, Hong Kong, and Italy. 3. New distribution channel through the dealer-owned stores was very successful. Weakness: 1. Employees lay off at the Winnipeg factory. Downsizing activities such as this often decrease employee morale, impact employees’ perception of job security, and increase turnover rates. External Analysis: (Industry) Opportunity: 1. China’s total furniture output value was $20 billion and accounted for 10 per cent of world total furniture output value. 2. China’s furniture export was growing at an annual rate of over 30 per cent. 3. China could offer Palliser lower labor costs and high-quality workers. Along with minimum income tax and social costs is giving China a solid competitive position. 4. Producing the same product in China was up to 30 per cent cheaper compared to North America. 5. China offered cheaper supplies including leather, wood, foam, and packaging. Threat: 1. Increased Competition: America, Japanese, and Italian firms had established factories in China. Strong competition that will compete for the same skilled employees. 2. Chinese language and cultural barriers. Industry Attractiveness: China has made significant progress in the furniture market and will likely continue to see further growth due to its low labor costs and low tariffs making this a very attractive market for Palliser. Strategic Alternatives A) Maintain status quo (Do not invest in China) Pro: Simple Con: Lost market potential and possible cost savings B) Enter Chinese market through subcontracting with another firm Pro: Lower involvement, requires less financial commitment, and reduces risk Con: Conflict or unable to meet delivery dates, etc. C) Expand Palliser relationship with China through foreign direct investment (wholly owned) Pro: Cheaper labor and allows Palliser to focus on cost leadership strategy. Con: Higher risk, more involvement required Recommendation/Implementation In order for Palliser Furniture to remain competitive it critical for them to invest and expand into China immediately. Palliser should manufacture the motion products in this market due to the possible savings of $130 per product and identity the most effective market distribution channels in order to better achieve its cost leadership strategy. However, before entering this market Palliser should conduct a thorough industry analysis in order to understand any potential barriers such as China’s laws and regulations, shipping, tax structure, and supply of infrastructure in order to prevent any future problems (as experienced in Mexico). References Paperadepts.( 2011). Pallister furniture, S.W.O.T. analysis. Retrieved from: http://www.paperadepts.com/paper/Pallister-furniture-S.W.O.T.-analysis-185519.html Writework (2005). Pallister furniture, S.W.O.T. analysis. Retrieved from: http://www.writework.com/essay/pallister-furniture-s-w-o-t-analysis