Case Study: Moda Milano Mobili

Moda Milano Mobili is a medium size furniture manufacturer who primarily crafts living room sofas, chairs and dining room chairs, as well as complementary coffee tables, side tables and dining room tables. Their product style is based on contemporary designs with simple clear flowing lines without many details that using Australian cowhide and native timbers. Other than manufacture, Moda Milano Mobili retails their products through independently owned furniture stores in many cities, like Sydney, Melbourne, Brisbane and Adelaide.

In addition, the company plans to open their international market, establish frequent shipping between Australia and north-east Asian to increase its international market share, satisfy the demand of customers. This article focuses on Moda Milano Mobili’s financial position and its competitive advantages in both domestic and international market. General Environment (1) Political From political factors to analyse the current and next few years, the basic political situation tends to stabilized.

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Peace and development are the two major themes of the contemporary world. Under this situation, world furniture industry also keeps a steady growth trend. China is the biggest competitor and the potential market of Australia. By entering the World Trade Organization, China’s tariff barriers have being removed. This basally becomes an opportunity of Australian furniture industry to export their products into China. (2) Economic Economic cycle is a response to the economy from the Boom – Decline – Recession – Recovery.

According the chart, there is a sharp decline in Australian GDP in 2009 after the 2008’s boom which is not only caused by the America sub prime mortgage crisis but also caused by the significant decrease of raw and proceed materials’ price. Til the 1st and 2nd quarters this year, there is a slight recovery of Australian GDP, which gives a break to the whole Australian industries include furniture industry. Chart 1 Australian GDP in recently years Sources from Trading Economics (http://www. tradingeconomics. com) (3) Social Up to 7 August 2010, there are 22. million people in Australia (Australian Bureau of Statistics), less than 3 people per square kilometer, nearly the least one in the world. The ex-prime minister Kevin Rudd indicated that he had a view about a big Australia which is to increase the population through increase of birthrate and immigrants; and actually, the population of Australia do increased by 2% during these years. However, the new prime-minister Julia Gillard argued that she doesn’t believe in a big Australia, the existed infrastructure can’t burden such increase speed of population.

That means, increase people’s purchasing power through increasing the population is impossible during the next few years. (4) Technological The most advanced technology is no longer the advantage of Australian furniture industry. Companies from other countries are easy to purchase such technology and use them in their production. (5) Environmental Recently, the environment-protection consciousness has been enhanced. People became care about whether the product would harm the environment, as well as whether they could be harmful to people’s health.

With the changes of fashion trends, which is more metal and glass furniture gradually replaced the traditional wood and leather furniture, Australian traditional furniture industry is under challenge. (6) Legal Australian legal system tends to perfect, especially the tax system. Australia’s tax rate for corporate is 30% which is a good rate comparing with other developed countries such as America, Japan and German which are nearly 40%. Such the low rate is really good for companies’ development, makes them have capacities to expand their international markets, like exporting their products to those developing countries, even their largest ompetitor China. Chart 2 Tax rate Market Environment (1)Supplier The supplier of Australian timber and leather is not a problem. During the 2009 financial crisis, many timber and leather supplier bankrupted. The price of woods and leather kept decreasing due to the low confidence of the processing industry. This is an opportunity for Moda Milano Mobili as a buyer. Recently, the economic are slightly recovering, to develop owned materials suppliers are important for Moda Milano Mobili. (2)Buyer

As I discussed in the previous chapter, Moda Milano Mobili don’t have advantage in domestic market due to the Australian residual purchase power is not strong, and the cheaper price of imported products. But foreign people do interest in Australian furniture because of the materials. Australian Jar-rah is famous as it’s easy to be processed, and hard to be eroded. Currently, Germany and Italy are the main export markets of Australian furniture. After the Beijing furniture credit crisis in 2006(will talk about this later), China will become a new costumer of Moda Milano Mobili. (3)Substitutes

There is no substitute product that can replace furniture. However, the metal and glass furniture becomes more fashionable, this could be a threat of Moda Milano Mobili who primary produce wooden and leather furniture. (4)Potential Entrants The important parts in the value chain of Australian furniture industry include materials, human resources and market shares. For the first and second, they are quite limited that not allowed if there are too many new entrants. For market shares, Australian market is captured by many foreign companies who have the lower price due to their economic of scale.

So there won’t lots of new domestic entrants in Australian market; but with the growing globalization, there would be lots of foreign companies with their fashionable designs and high technologies compete for the market share. (5)Rivalry among competitors By searching ‘the domestic furniture manufactures in Australian’, there are 113 results on the list (Australian Home Furniture Directory). There are also many cheaper furniture products imported from other countries like China and America.

Base one this situation, Moda Milano Mobili does not have any advantage in domestic market. The Beijing Market As the capital of China, Beijing is undoubtedly the most noteworthy city. Beijing has over 17 million residents distributed in 6 million households. 15. 4% people are over 60 years old who could be more interested in traditional furniture. This means for Moda Milano Mobili whose production are primarily based on contemporary designs with simple clear flowing lines could have a better marker share than those companies who produce traditional style furniture.

Particular in the year of 2006, lots of Made-in-Beijing-furniture was reported on the black list due to they are (1) excessive formaldehyde; or (2) their paint is not acid-proof; or (3) the actual materials, like wood or leather are not as they presented, and so on. These all causes Beijing furniture companies lose their goodwill. Consumers no longer trust the local furniture manufactures, which make foreign furniture companies have the opportunity to take a significant market share. Strategy analysis

The main problem of Moda Milano Mobili faced is the higher average cost of products due to the small economic scale, which causes the company hard to compete with other foreign furniture companies. In addition, the Australian tariff of import such products are quite low, that means to purchase foreign furniture sometimes much cheaper than buying domestics. Another problem is the serious labor shortage. The professional craftsmen are difficult to be found; one reason is there don’t have that many skilled craftsmen due to Australia’s small population and strict limitations of foreign workers.

To enter Beijing market, only relying on materials advantage is not enough. Beijing, as the center of economic in China, lived more than 10 million high-income people. Instead of price, they more care about quality and tastes of the product. Especially after the credit crisis, goodwill became the most important intangible assets that direct effect the company’s profit. Since Moda Milano Mobili plan to create a selling point of ‘made in Australia’. If the company can ensure the product quality and avoid the inferior materials, the selling point could be one of the company’s strength.

In addition, Beijing is a city of aging people, to develop kinds of traditional style furniture to satisfy the elderly people would be necessary. To Increase competitiveness in the markets, to decrease the products’ price is important. It not means using cheaper materials, but to expand the scale of its businesses. Average cost would be decreased if the scale of manufacture; price would be decreased due to decrease the resale and transport costs if there are more owned suppliers and retailers.

In order to solving the problems, Moda Milano Mobili plan to hire more craftsmen and expanding the factory; they also trying to appoint more retail distributors in Australia and other countries. Question 2 Austrade provide many services for domestic companies who plan to develop its international markets. Those services are mainly information assists that include: ? Provide information about markets and industry trends in particular countries or regions, to assist in the development of investment plans, strategies or objectives; ? Make introductions to potential international partners, buyers and other in-market contacts; ?

Supply referrals to service providers who can give you specialist advice, such as lawyers, business advisors and investment promotion agencies; ? Help exporter to access to international governments and other relevant overseas decision-makers in the market; ? Advise about the process of establishing an overseas business; ? Offer ongoing support, including help in identifying market opportunities, tendering for projects and promoting the business in the market; Other than that, Austrade also created a link with The Export Market Development Grants (EMDG) scheme which is a financial assistance rogram created by Australian government. Reference Australia GDP Growth Rate http://www. tradingeconomics. com/Economics/GDP-Growth. aspx? Symbol=AUD Beijing Statistical Information Net http://www. bjstats. gov. cn/sjfb/pcsj/rkpc/200607/t20060704_45119. htm Australian Home Furniture Directory http://www. homefurniture. com. au/ World Furniture Confederation website http://www. worldfurnitureconfederation. org/ Australia Government http://www. austrade. gov. au/Export/default. aspx