Carving out a place in global markets: For Indonesia's traditional woodworking industry, globalization poses new challenges

Globalization is altering the traditional wood furniture sector in Central Java, Indonesia, the major employer and export earner of this province. This labour- and resource-intensive industry is facing growing pressure from two sides: competitive strategies from other Asian countries such as China, Malaysia, the Phillipines and Vietnam that are cheaper and more responsive to global buyers' needs for quality, delivery and close customer relations, and an unsustainable rate of logging in the Indonesian teak plantations that, if left unchecked, will undermine this industry's supply of teak and mahogany in the next five years. The result? Jepara's wood working industry is now at a crossroads.

JEPARA, Central Java - In an industry dating back to pre-colonial times and that grew to serve the needs of carved wood furniture for the royal families, skilled wood-workers ply their trade in age-old fashion, producing handcrafted teak and mahogany furniture for export around the world.

The wood-furniture industry based in Central Java today comprises more than 30 furniture clusters composed of numerous medium, small and home based enterprises, and is Central Java's largest export earner, representing around 22 per cent of total export value. It is also a major engine for generating employment and income for hundreds of thousands of people from this province.

The industry profited in the 1980s and early 1990s from growth in domestic consumer demand that made quality furniture more accessible to the growing Indonesian middle class. The 1990s brought an increased role in global markets, boosted significantly by a depreciation of the Indonesian rupiah. Indonesia is now the second largest developing country exporter of wood furniture to OECD markets, behind China.

The best of Java's furniture ends up in fashionable boutiques selling traditionally hand-crafted teak items. This is the positive side of globalization - opening new markets and new opportunities for a traditional industry. But there's also a downside. Neighbouring countries have been quick to join the race for profits, sparking fierce competition with cheaper, mass-produced items, and new designs to meet changing consumer tastes.

Increased competition has spurred demand for more "Western" designs, including self-assembly formats. Foreign buyers are also demanding more standardized quality and strict delivery schedules. Meanwhile, the demand for wood has raised logging in the hardwood forests and plantations to unsustainable levels. (The furniture industry alone uses at least 1.8 million cubic meters of wood a year, less than a third of which can be supplied by state-owned teak plantations. The rest comes from elsewhere and is often illegally harvested.)

"We will be witnessing the sunset of the furniture industry in Indonesia three or four years from now - automatically, because simply they will not have sufficient raw materials," says Agus Setyarso of the Worldwide Fund for Nature.

ILO supports a "high-road" competitive strategy

The focus on low-cost segments of the market and the increasing competition from producers in China, Malaysia, the Philippines and Vietnam has become a key concern for the Javanese producers. To survive in the new global marketplace, the small furniture businesses of central Java must restructure to meet the expectations of European and American clients - improving relations with the international market, raising product quality, and updating communications and marketing techniques, mindful of declining availability.

In this way, the opportunities and challenges of globalization have brought the furniture producers to a crossroads which will affect everyone - from wood-workers, to enterprises to exporters.

Professor Hubert Schmitz, of the University of Sussex in the UK, says there are two ways out of the dilemma: "They can compete by taking the low road, which would mean paying their workers as little as possible, disregarding labour standards, disregarding environmental standards, avoiding taxation and such measures. Or, they can decide to take the high road which would mean upgrading, innovation. Clearly, the former "low road" option is both unrealistic and undesirable."

Local trade unions concur that the high road approach is the only sustainable option for Central Java producers to compete in global markets: "In companies that really look after their workers, offering good, decent working conditions, they can achieve much higher productivity, as well as much better quality of their products," says Indonesian trade unionist Rulita Wijayaningdyah of the International Federation of Building and Wood Workers.

Trade unionists are increasingly active in Jepara, pushing to maintain and improve working conditions. But they face many difficulties because most of the skilled carvers are subcontracted, have no job security and little or no social protection.

An "integrated" approach across the ILO is a key aspect of this work. The ILO's Sub-Regional Office in Manila and Office in Jakarta have joined forces with the Employment Creation and Enterprise Development Department (EMP/ENT) through the In-Focus Programme on Boosting Employment through Small Enterprise Develoment (IFP/SEED) and forestry experts from the Sectoral Activities Department (SECTOR). The ILO is working with a number of local and national stakeholders to understand the dimensions of these competitive pressures and their potential impacts upon employment and to identify and implement responses to these changes. Programme activities are being developed together with local small and medium-enterprises, representative associations of employers and workers, district and provincial governments in Central Java and national government authorities in Jakarta..

A key question for Java is how can wood furniture producers shift into higher quality markets so as to avoid direct competition from low-cost areas.

Searching for an answer to this question has involved building knowledge of the sector and its future prospects at a number of levels, including conducting four studies: an overview of global trade flows in this industry since the 1990s, an analysis of Central Java clusters using a global value chain analysis, a survey of global buyers' perceptions of the leading wood furniture producers in Asia, and an assessment of timber availability in Indonesia.

Without such knowledge, it is difficult for companies to know how best to respond to changing markets. The firms in a cluster become trapped, believing that producing more at lower cost is sufficient for maintaining or increasing market share. Instead, they should be assisted to identify opportunities for upgrading and to decrease their dependency on traditional raw materials, conventional designs and standardized markets.

The findings raised through the ILO studies have been discussed at the local level and have resulted in the production of a range of ILO materials designed to provide guidance and information of the enterprises on improving productivity, accessing timber and other subjects relating to globalization.

The ILO is now garnering support and resources for a second project phase which will seek to implement a new strategy for dealing with the challenges facing the industry.

In this way, the ILO is aiming to engage all concerned - from local and national government to the enterprises, workers, trade unions as well as environmentalists and consumers - in the process of building a future for the Indonesian wood furniture industry that benefits from globalization while providing good quality employment and working conditions.

As stated by Andre Sundrio of the Jepara Excellence Group, "We must develop a better image of Jepara together. It's proven that through better production, service and business practices that follow the rules we will attract more markets."