In 2006, the sale prices for a home peaked. The same year began a steep decline in mortgage loans making refinancing difficult for homeowners. The adjustable rate mortgage began to reset at a higher interest rate contributing to mortgage delinquencies. The subprime mortgages widely held by financial firms lost most of their value and as a result, global investors drastically reduced their purchases of mortgage-backed debt inevitably causing a great worldwide concern of U.S. credit and financial markets. This also led to tightening credit around the world and the slowing economic growth in the U.S. and even Europe. The success story begins with a company called “Ethan Allen” which was focused mostly on the retail of hand-crafted furniture. Ethan Allen’s sales and profits had plunged along with many other retailers in the United States; largely because consumers lacked confidence in buying and retaining their home, and a general lack of consumer spending and confidence altogether. To make matters worse, the furniture industry was declining in the U.S. Buying hand-crafter furniture would easily be last on the list for many consumers. Ethan Allen’s CEO recognized that their company would have no future if they didn’t make any changes. The solution that came to mind for the owner and CEO of Ethan Allen would be in globalization.
Currently known in the New York Stock Exchange (NYSE) as the symbol (ETH), Ethan Allen today is roughly at 24 USD a share. The company is headquartered in Danbury, Connecticut. It was named after the Vermont Revolutionary “Ethan Allen” because in 1939, early style American furniture was introduced under same brand. Fast forwarding to 1983, CEO Farooq Kathwari bought the firm and went public in 1993 to help raise 159 million through the sale of common stock. In 2008 the company closed a dozen design centers as part of their consolidation due to a decline in sales and high operational costs. Although the company currently serves the same areas where they consolidated and maintained profits, it was not enough to provide future growth due to the American economy’s inability to rise. In that same year 2008, Ethan Allen purchased a factory mainly for sewing textiles and related products in Mexico. Furthermore, even with the many other companies exporting their entire manufacturing plants overseas, more than 70% of Ethan Allen’s products (i.e. cherry, maple, and alder wood pieces) are crafted in the United States and exported throughout the globe. The transportation costs of exported goods would soon change.
- Their raw materials are mainly in the Appalachian Mountains which enables the company to virtually have more resources than international competitors.
- Recognized name brand furniture established in the United States.
- Vast amount of raw furniture materials mainly from the Appalachian Mountains.
- High customer demand in expanding overseas market.
- Customers design their own furniture on-line
- Owns manufacturing plants in the Philippines, Mexico, and Vietnam.
- Products are fairly and evenly priced on-line.
- Newly entering the global market.
- Communicating internationally poses a great challenge.
- The name “Ethan Allen” mainly has historical and cultural value in the United States.
- Hand-crafted furniture is expensive to the average consumer.
- Growing demand for high quality, hand-crafted furniture in Asia.
- Limited natural resources in China.
- Mergers with existing furniture businesses.
- Lowering cost of transportation fees.
- Increase profits by localizing Design Centers and choice customer’s of furniture style.
- Government restrictions
- Local Competition
- Importing, Exporting Fees
- Existing Global Furniture retailers such as IKEA are selling at lower costs.
- Cultural Barriers
One weakness for company was never being able to allocate purchases from the internet and for over ten years, the CEO anticipated the use of online purchasing for maximum revenue but; never established it until 2008 due to confusion on variable prices of their products. Raw materials were taken from all over the world to include, the Philippines, Malaysia, Indonesia, Vietnam, and China. Fortunately, all the various furniture purchased online have the same price around the globe. These strategic moves helped the company minimize the losses from wasted material and predict future profits. During this transformation process, Ethan Allen’s found an opportunity to market to a larger audience. Anyone having an interest in finely crafted furniture would be able to purchase their products via on-line or the Design Center. Customers in the past had a lot of involvement in the creation of their furniture but now their target market has also expanded providing discounts every month on selected furniture. With the great ambition to transform globally, Ethan Allen’s understood the risks involved when dealing with international governments and their respective regulations, local laws, and differing cultures. 2008 would be the beginning year for Ethan Allen’s for global operations.
Decisions for Globalization
Unfortunately for some who worked for Ethan Allen, the company laid off 238 workers from Beecher Falls, Vermont as part of their consolidation process where only 93 employees remained to only have the plant cease operations in 2009. The company originally globalized for reactive reasons, the market in America was maturing, sales were declining, and more customers around the globe wanted their product. Operational costs were also getting expensive. The CEO had to find inexpensive ways to bring their product to overseas buyers. The profits were marginally low until they recently established themselves on international grounds. Since the decision to globalize, Ethan Allen’s have been aggressive in efforts to remain competitive in the furniture retail and exporting industry.
“The strategic decision for Ethan Allen Furniture was not an easy task”, according to its CEO Farooq Sathwari on (Bloomberg News), “Ethan Allen has looked at all of the possible strategies to cut cost and remain competitive in their respective market. Overall, most of their competitors have either lost control by not adopting to the new model of globalization or; they have remained stagnant with no recognizable growth”.
Online, customers can find over 3000 high quality fabrics and design their own furniture at the company website launched in 2008. Customers are also encouraged to walk into the Design Center to get more help with designs. Many new hires of Ethan Allen are already established in the furniture industry, they have college degrees relating to interior designing and this helps the community by enhancing the growth of businesses in the regions they choose to do business. The method in which customers design their furniture helps the company to connect with the customers inevitably breaking the cultural barrier. For example, the business owner in China has the opportunity to grow their customer base by working for and; adopting the Ethan Allen model. As a result, contributions from the individual retailer would not only help the United States economy but also making economic sense in China and other parts of the globe. The company also pays a competitive wage. The local college graduates who end up working for Ethan Allen’s are paid competitive wages. This further contributes to the local economy enhancing admiration for the company in their respective regions. Currently, there are 42 stores in China but this hasn’t come easy. It involved a Strategy Formulation process.
In formulating their strategy, Ethan Allen had to find what their main purpose and objectives were. After defining their goals, a mission statement was newly formed since 2008 and the company has been successful, reaping the rewards of a globalized multinational corporation.
“We run the business in the interests of our stakeholders. In creating the well-designed home, we provide high-quality products, service, and value to our clients; high-quality management for our shareholders; and high quality employment for our team.” Faarooq Sathwari- CEO (Ethan Allen Furniture).
By assessing the Asian and European environments, for threats and opportunities, they found that the Asian region is a growing market for furniture sales. Additionally, the surrounding countries such as Vietnam and China were running out of resources to make furniture. Ethan Allen – on the other hand, has a vast amount of resources in the Appalachians. They were also able to find out the political instabilities in this country. Currently, China is a socialist culture with a booming economy, and supports new ventures. Ethan Allen was able to understand how the increased competition would be welcomed. By knowing these first steps in the global strategy, Ethan Allen was able to recognize how expanding their company into China would prove profitable. For other parts of the world, currency instability may represent another risk affecting profitability overseas particularly in regards to Indonesia. The extensive researching for a MNC in regards to nationalism, government restrictions, import controls, and equity requirements, local content requirements, and limitations on profits were all considered before choosing to invest globally.
Conducting a global competitor analysis, and finding out if the area will support additional competition is another key into entering the global arena. Sometimes entering too soon may result in a relatively short supply when the company product is in high demand. The ability for managers at Ethan Allen to assess their competitor by position, goals, strategies, strengths, and weaknesses was also important. Establishing the company in a foreign area too rapidly may not be advantageous if the supply, financial capability, and growth of resources are not enough.
Assessing internal weaknesses: By closing factories and consolidating operations to reduce cost and maintain sales in their regions.
“Globalization is more than buying products cheaper in other countries and selling them for more in others. Globalization increases the populations GDP and their standards of living”. Farooq Sathwari (Ethan Allen-CEO), Bloomberg News.
Farooq Sathwari believes that globalization is happening at a rapid pace not understanding where some companies do not fully understand how globalization works because many companies who choose to do business overseas end up failing. Furthermore, he states how the plants are at full capacity in China, Vietnam, Indonesia, Philippines, to maintain these operations across the globe, the company has been moving more manufacturing overseas. He also discussed how many companies have shut down and completely brought their plants overseas and too fast and how there were long-term economic advantages because Appalachian Mountains holds a great deal of resources, in regards to the raw material for furniture (oak, birch, and maple trees).
Although the energy costs would be factor in keeping the plants operational in different countries, the company also faces Import restrictions but globalization would still be plus. 50 percent of the manufactured furniture is exported to China. They have added 1200 hundred new people in the last 15 months.
“Globalization may be conflicting in regards to trade, environmental concerns, health and wage standards, and decent work conditions but it enhances people’s awareness of oppression, and injustice and; is a monumental change where by metaphor we are living in a small world where we have to help everybody else, and we are all in this together”. CEO-Farooq Sathwari, Bloomberg News
China is a booming economy with and currently on of the world’s largest exporter of goods. In addition to adhering to Chinese laws and regulations, Ethan Allen Furniture will also have a part in the rising GDP of China and South East Asia. The revenues will be allocated in the United States further giving recognition to American values stemmed from the person the company was named for “Ethan Allen”. In China, the society is a collective, socialist culture, to establish grounds the company would have to make decisions through mediations before a final solution can be reached in to establish more Design Centers. The raw materials from China may also play a big part in lowering the cost of shipping. In Europe, in the company’s mode of thinking, they can sell a lamp for a room one day, and eventually end up selling an entire bedroom. This is partly how Ethan Allen increases their sales by giving their customer what they want in the first place and more if they ask. During first quarter of 2011, Ethan Allen announced their increase in sales. Is this being the company decided to go global and close down their factories at home? In regards to the globalization strategic process, there could have been many reasons for this particular company to go global – some may be reactive reason meaning (defensive) and others are proactive reasons (aggressive). During these recent financial collapse of the subprime mortgage rates, a lot of the world decisions forced companies to observe the most efficient ways to operate their respective businesses. More importantly, these large businesses have to move fast. This is what Ethan Allen furniture has done. The reactive reason was customers may want more of their products around the globe, there are also incentives for doing business in China to reduce costs of shipping and exporting, there are also tariffs, regulations, Furthermore, exporting furniture from the United States may have been a positive thing but now the company wants to have twelve design centers in China because of the exporting fees. This may also be a solution to a logistical problem. Since there are many suppliers of raw furniture materials across South East Asia and China, it doesn’t make practical sense to keep all of the factories in one place especially if a large customer base is already established in those regions. The proactive reasons Ethan Allen’s globalization is also long-term. Since it is a larger firm with “new life”, they want to achieve world-scale volume in sales to the fullest use. This may in turn lower the cost of unit development because Ethan Allen will have higher level of outputs in a global market. Only globalization will enable them to keep up with the customer demands. The proactive reasons are simply growth opportunities.
Ethan Allen furniture may be well established in the United States but the decision to expand globally makes sense for companies in the retail business especially if they are already established logistically. To no surprise, many large retailers are taking advantage of the growing markets overseas such as the large economic boom in China but Ethan Allen’s is one the few American companies whose roots were founded on American soil and the majority of its exports are from Danbury, Connecticut-USA. The challenges ahead for this Multinational Corporation are to maintain good relationships with the countries they choose to do business in and; it can begin by communicating that “globalization makes sense for all nations”.
For more information on Ethan Allen Interiors click here, www.ethanallen.com