Abstract
Wood furniture industry is an important component in our manufacturing sector for it significantly contributes to the industrialization of Malaysia’s economy. Evaluating wood furniture industry’s level of efficiency is important to assist and provide a relative direction to small and medium firms on their business. The objective of this research is to examine the efficiency of wooden furniture industry by determining the technical efficiency using stochastic frontier production model. Results show that firm output is 54 per cent less than the maximal output which can be achieved from the existing inputs. The technical inefficiency on individual firm varies from 1.63 to 94.69 per cent and so does the potential to increase firm output from the existing inputs. This evidence suggests that many firms still operate below the efficiency level, confirming the conventional view that labor-intensive firms are most likely inefficient.
Highlights
The furniture sub-sector is largely export-oriented, with more than 90 per cent of its production exported
The objective of this research is to examine the efficiency of wooden furniture industry by determining the technical efficiency using stochastic frontier production model
Apart from the traditional markets, comprising the USA, Japan, the United Kingdom (UK) and Australia, exports of Malaysian furniture had diversified into non-traditional markets, such as South America, West Asia, Africa, Russia and the Association of Southeast Asian Nations (ASEAN)
Summary
The furniture sub-sector is largely export-oriented, with more than 90 per cent of its production exported. In 2005, wooden furniture contributed 27.8 per cent to the total export earnings in the industry exceeding RM5.8 billion. Malaysian furniture was exported to more than 160 countries. Apart from the traditional markets, comprising the USA, Japan, the United Kingdom (UK) and Australia, exports of Malaysian furniture had diversified into non-traditional markets, such as South America, West Asia, Africa, Russia and the Association of Southeast Asian Nations (ASEAN). The furniture industry in Malaysia is dominated by small and medium firms, labor-intensive and employing low level automations. The feature of this industry is normally linked to low efficiency. This paper attempts to examine the efficiency of the wooden furniture industry, namely the technical efficiency
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