ZHAO FONG
MARKETING SDN. BHD. was
established in 1980 as one of the leading furniture manufacturer which situated
in Batu Pahat, Johor, Malaysia. (Zhao Fong Marketing Sdn Bhd, 2012) In 1980, the
name of company is Zin Tiao Furniture Sdn. Bhd. and after that change to Zhao
Fong Marketing Sdn. Bhd in 1999. The company was founded by Lee Ngee Hong’s
father, who worked in a home furniture trading firm until he was capable to set
up a business on his own and handed over the business to his next generation
after he retired. Thus, as the eldest son, Lee Ngee Hong inherited his father’s
business in the furniture industry. Zhao Fong Marketing Sdn. Bhd. enjoyed 33
years of superior business reputation. It provides customers with cutting-edge
and quality home furniture including bedroom set, kitchen cabinet and wardrobe.
Furniture can be defined as a
consumer durable good as it can be used for a longer period of time. Zhao Fong
Marketing Sdn. Bhd. targets people from different level of income as it
specialised in manufacturing of 2 different types of bedroom sets for those who
appreciate style in their comfort and comfort in their style. For example,
economy style of bedroom set for people with low income, whereas luxury style
of bedroom set for high income groups. Other than that, the firm also mainly
target newly married couples who have higher possibility to become its
potential clients.
According to the law of demand, the
main factor that influencing the quantity demanded of furniture is the price of
the good itself. The lower the price of furniture produced by Zhao Fong
Marketing Sdn. Bhd., the higher is the quantity demanded, with the consumption
of ceteris paribus. Moreover, the price of other related goods, consumers’
level of income, consumers’ preferences and festive seasons are all
instrumental in furniture demand. Firstly, when the price of substitute
furniture offered by competitors is rising, the demand for the furniture
produced by Zhao Fong Marketing Sdn. Bhd. will be increased. Besides that, when
income increases, consumers purchase more of furniture and demand curve will
shifts rightward, as shown in Diagram 1. 
Thirdly, people have different
demands as they have different preferences. As the preferences of consumers
will change over time, the bedroom set series manufactured by the firm are
extended from time to time for diversified market to meet the market demand. In
order to satisfy customers, the firm tends to provides customized service,
which allows customers to choose their favourite compartment style, preferred
size, colour and height of wardrobe. Normally, demand also drastically rises
during festive seasons such as Chinese New Year, Hari Raya, Deepavali as well
as Christmas. As a result, the supply of furniture is increasing to cope with
the increasing demands. In the term of supplying, Zhao Fong Marketing Sdn. Bhd.
supply furniture according to the order made by customers or wholesalers.
The demand for furniture would
remain relatively elastic as the quantity demanded changes is greater than the
price of furniture does. Due to the elastic demand of furniture, Zhao Fong Marketing
Sdn. Bhd. decided to do mega sales as well as promotion start from March to
August. It is because that normally the sales in these few months are the
lowest as there is no any special occasions. Diagram above indicate that a
deduction in original price of furniture from P0 to P1,
resulting a rising in the quantity demanded which Q0 is moving
towards Q1. Therefore, a cut in original price of furniture causes
an increase in total revenue for the company. Although initially the company
has been force to cut down the price, but in the end the company still making
money because the demand is very high.
Since opening its doors in early 1980
with a small factory in Batu Pahat town, Zhao Fong Marketing Sdn. Bhd. has only
a number of 30 workers and 10,000 square feet of floor space. At that moment,
it only operated in the short run production because it did not have the
ability to change the fixed factor of production such as its plants. In short
run, the quantity of one or more resources utilise in the production is fixed. (Parkin,
2012) After 16 years, Zhao Fong Marketing Sdn. Bhd. was slowly moving into long
run production as it was able to change its plants and labours. To increase
output in the long run, the company has increased its plants as well as the
quantity of labour it employed. As time goes by, it has grown to become one of
the prestige furniture manufacturers in Malaysia. In the company, there is a
total workforce of 100 experienced and skilled working personnel. Now, it is a medium-scale
furniture company which has approximately 45, 000 square feet of floor space. As
the furniture industry is constantly evolving, Zhao Fong Marketing Sdn. Bhd. also
established market in Malaysia, Singapore and Indonesia.
As a leading furniture manufacture,
Zhao Fong Marketing Sdn. Bhd. enjoys economies of scale. Economies of scale
refer to the cost advantages that a firm can exploit by expanding the
production’s scale. (Riley, 2012) A higher output rate generates a lower
long-run average cost, and result in the downward sloping of company’s LRAC
curve. (Parkin, 2012) The figure above shows the company’s average total cost
curves (ATC). To produce 10 bedroom sets an hour, the company installs the
plant with the short-run average total cost curve ATC1. The
average cost of producing a bedroom set is RM2,000.
Producing 10 bedroom sets an hour
does not use the plant at its lowest possible average total cost. If the
company could sell enough furniture for it to produce 20 bedroom sets an hour,
the company could use its current plant and produce at an average cost of
RM1,500 a bedroom set. However, if the company planned to produce 20 bedroom sets
an hour, it would not stick with its current plant. The company would install a
bigger plant with the short-run average total cost curve ATC2, and
produce 20 bedroom sets an hour for RM1,000 a bedroom set. Hence, the cost of
production will be reduced.
Moreover, Zhao
Fong Marketing Sdn. Bhd. provides good quality of wardrobe which
is made from Medium-density fibreboard (MDF). Manufacturing furniture by using MDF
is also relatively cheaper as compared to solid wood lumber, thus the firm can
save a lot of cost. (Beach, 2013) MDF is an engineered wood product that made
up of fine particles of wood. The firm used MDF instead of plywood or chipboard
as it is dense, stiff, flat, has no knots and also easily machined. (Baylor,
2013) Besides, the firm also imports MDF in bulks from its supplier in China. This
significantly reduces the long run average costs of production and achieves
economies of scale.
As Zhao Fong Marketing Sdn. Bhd. is
growing larger, it has its own specialisation and division of labour. A full
bedroom set manufacture by Zhao Fong Marketing Sdn. Bhd. consists of bedstead, side
table, wardrobe, dressing table and stool. In order to produce a bedroom set,
it has to be broken down into different departments. In each department, the
job tasks have been divided into many parts. In the wardrobe department, some
workers in charge of the production of glass, some workers take on the
production of door for wardrobe, while others have to take responsible for the
production of the body for wardrobe. When the staffs keep on repeating on the
same task, the company do not need to provide training or hire supervisor to
oversee the overall activities. This helps company to save a lot of costs, thus
the cost of production will fall. In addition, when the production in the
company is broken down into a number of simpler and more specialised tasks, it
allows workers to obtain a higher degree of efficiency. Thus the level of
output can be doubled and bring economies of scale.
Zhao Fong Marketing Sdn. Bhd.,
adopts an monopolistic competition market structure. In furniture manufacturer
industry, there are a large number of firms competing in the market to produce
differentiated products. (Josphine, 2013) The main competitors that pose a
threat to the firm are Mixbox Furniture Sdn. Bhd and Kuek Brothers Furniture
Sdn.Bhd.. However, Zhao Fong Marketing Sdn. Bhd. has its own competitive
advantages to distinguish itself from the competitors. The firm creates a
differential advantage by providing smart and unique designed bedroom set
include 3D series and super anti-skip silent wheel series in order to attract
customers. Effectively, it gives Zhao Fong Marketing Sdn. Bhd. an edge over its
competitors and an ability to yield greater value for the firm as well as its
shareholders.
In monopolistic competition, Zhao
Fong Marketing Sdn. Bhd. tends to be a price maker. Even though furniture has
an elastic demand, but the firm has its own customers stay loyal to the brand. Some
wholesalers constantly buy furniture from the firm and then sell them in
relatively large quantities to specialty shops that operate mainly in furniture
and department stores. Consequently, the firm has some power to set its own
prices. Furthermore, government does charges tax on the firm, in which the
percentage of tax charges is depend on the total sales of the firm. The higher
the sales made by the firm, the higher is the tax charged by government.
Besides, government does not offer the firm any subsidy.
In summary, Zhao Fong Marketing
Sdn. Bhd. exists as a home furniture manufacturer in monopolistic competition
which produce a differentiated furniture product with an elastic demand, has
the ability to expand its business into long-run production as well as incur economies of scale. In my opinion, Zhao Fong Marketing Sdn. Bhd. has the
potential to grow larger and gain more market share in the furniture industry. The
company has embarked on the road to success. It will strive to provide superior
quality, prompt delivery, excellent service and best pricing to maintain its
global competitiveness.
Reference List
Baylor, C. (2013) Woodworking with Medium-Density Fiberboard
(MDF). Available from: http://woodworking.about.com/od/typesofwood/p/Woodworking-With-Medium-Density-Fiberboard-Mdf.htm [Accessed 20 October 2013].
Beach, E. (2013) Medium Density Fiber Wood Facts.
Available from: http://www.ehow.com/about_6168064_medium-density-fiber-wood.html
[Accessed 20 October 2013].
Josphine, A. (2013) Advantages & Disadvantages
of Monopolistic Compettition. Available from: http://www.ehow.com/info_8572321_advantages-disadvantages-monopolistic-compettition.html
[Accessed 21 October 2013].
Parkin, M. (2012) Economics. 10th ed. Harlow: Pearson Education.
Riley, G. (2012) Economies
& diseconomies of scale. Available from: http://www.tutor2u.net/economics/revision-notes/as-marketfailure-scale.html
[Accessed 21 October 2013].
Zhao Fong Marketing Sdn Bhd (2013) Company Profile. Available from: http://zhaofongfurniture.com.my/
[Accessed 20 October 2013].
Chua Yi Jing 0310954
