Export opportunities to China evolving rapidly
By Powell Slaughter -- Furniture Today, May 3, 2004
HIGH POINT — HIGH POINT— U.S. furniture companies that view China only as a manufacturing resource are missing an opportunity to get in on the ground floor of what's fast evolving into a powerful consumer market.
That was part of the message from William Chu, a foreign trade representative for the North Carolina Department of Commerce in Hong Kong, in a market presentation to the North Carolina Furniture Export Council.
There's a lot of room for China to grow as a market, he said.
"China imported $200 million of furniture in 2002," Chu said. "That's not very much for a $19 billion market."
The good news for outsiders is that Chinese furniture imports were up 37% last year, and should keep increasing, especially after import taxes on furniture are eliminated by 2005.
Other positive signs for furniture include:
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19% of the Chinese population, or 200 million people, are "middle income" as defined in China, with fixed assets between $18,000 and $30,000. That group is increasing 1% a year.
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$55 billion in foreign investment last year is generating employment and income.
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The housing market is expected to grow 20% a year for the next five to six years.
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Retail sales are increasing 9% to 10.5% a year.
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Many Chinese consumers purchase furniture in big furniture malls, some as large as 1 million square feet, as well as manufacturer outlets. Others buy through decorating and architectural companies that benefit from relationships with manufacturers catering to the building boom underway in China.
Chinese consumers have a taste for brands, as well. Natuzzi, Ethan Allen and Bo-Concept — Club 8's global retail network — are recognized names in China. Ikea also has three stores in China. Those companies' early entry should position them well as the consumer market matures, said Chu, since brands, especially foreign brand names, resonate among Chinese consumers.
"With imports and foreign brands, there's an assumption of quality," he said. For Chinese consumers, "the grass is always greener on the other side."
The 2008 Olympics in Beijing are another opportunity. The government will invest $14 billion in the Olympics and related projects.
China ain't Kansas, though, Chu said. Furniture companies approaching the market need to be aware of risks.
Corporate governance, business ethics and social accountability are not widely understood or accepted yet in China, and Western ideas of sales and marketing still have a hard time taking root.
"There's a get-rich-quick ethos that leads to white collar crime and kickbacks that erode profit margins," Chu said. "Before you appoint an agent, do adequate due diligence and investigate your partner carefully.
"You need a good local staff who knows the market."
Getting established in China demands commitment: at least three to five years, and the willingness to go there often in person to keep up with a rapidly changing marketplace.
"China is neither a simple nor uniform market … There's huge geographic, linguistic and regional cultural diversity," Chu said. "Make sure you know the history and customs of the different regions you approach."
