Ownership stakes provide greater control
By Powell Slaughter -- Furniture Today, March 6, 2005
High Point — An ownership stake in the means of production gives any marketer greater control over product design, quality and distribution.
Several models exist for proprietary Latin American sourcing of furniture targeted to the U.S. market. For U.S. companies, these include joint ventures with Latin American manufacturers and outright ownership of factories in the region. For Latin American producers, controlling their own U.S. distribution is the key.
Rockford's joint venture
Importer Rockford Furniture's American Woodcrafters division is a joint venture between a U.S. importer and a 400,000-square-foot Chilean plant that formerly made components, but now produces fully assembled bedroom furniture.
A joint venture was the relationship of choice for Rockford, which already had extensive warehousing and sourcing in Asia. Establishing clear parameters was the key to a mutually beneficial relationship, said John Foster, Rockford's chairman.
"Someone who owns a large manufacturing facility typically is not going to give a controlling interest in a plant," he said of the American Woodcrafters' source factory. "We could provide sales, service, forecasting, design and logistics.
"I would provide consulting services to help whomever we partner up with understand our market and have the key to success in our niche. At American Woodcrafters, that niche is second and youth bedroom in solid pine."
The Chilean plant offered vertical integration — American Woodcrafters' facility near Santiago owns its own sawmill and lumberyard on site, along with 60,000 acres of managed forests.
For its part, Rockford's Latin American partner went from 52% to 75% yield on its wood resources, and benefited from the logistical and marketing skills of Foster — a longtime executive with Ladd and a veteran of Asian importing.
Production at the Chilean plant has averaged 50% growth over the past four years, said Lao Labra, president of American Woodcrafters and the Latin American manufacturing operation.
"Why isn't South America stronger in the U.S. market?" Labra said. "Plants there are very OEM-oriented and order-takers, but compared to China, (Latin American sources) are closer to the marketplace and cultural barriers aren't as high. Raw materials are more available."
While Latin America doesn't yet offer the mixed-media capability of Asian manufacturers, the region's plants are ready to do business on lower minimum orders, Foster said.
"Are you going to be a little fish in a small pond or a big pond? When you go to China, they've basically established their parameters, their manufacturing utilities," he said. "We've decided to look for other sources of supply where we can have more impact, more control over pricing, and be more important."
Good opens its own plant
Good Cos., which has a 300,000-square-foot plant with 1,000 workers in Tijuana, Mexico — where it matches promotional print bedroom to all-wood dining and occasional imported from Asia — took a direct ownership position in its manufacturing operation.
"We're marrying design and production capacity in Mexico to what we're importing from Asia," said President Sarah Garcia. "We've ended up with 24-hour production development work: Our engineers send plans to our people in China, so they're working round the clock. We're looking at other ways to speed product to market."
Good enjoys several advantages from owning its own production, primarily control of product design and delivery times.
"We're looking right now at one to two weeks for delivery," Garcia said.
Good has several U.S. distribution centers that cater to smaller accounts. A Tijuana warehouse, along with another on the way by year-end in Mexico City, combine with Good's Mexican manufacturing location to help build business in Mexico, which the company hopes to account for 20% of sales.
The Mexico operation also plays a key role in Good's strategy to complement innovative production with prints in bedroom with China-sourced dining room for complete collections.
"We enjoy the ownership and proprietary nature of unique design that's allowed us to take a print medium and come up with various looks no one else has," Garcia said. "If it's not your own facility you can't control it. You can't ignore that we're a global business. I don't look at us as having to compete with China. I look at us as being able to source the best from around the world."
As in China, opportunity exists for Latin American factories to take their product directly to the U.S. market. Few, however, have been able to develop their own distribution here. Successful examples, though, include Brazil's Niroflex in leather upholstery and South Cone Trading, a high-end supplier of case goods and accessories that is the largest Peruvian exporter of furniture to the United States.
South Cone's mission
South Cone's 120,000-square-foot Peruvian plant employs 350; and another plant in Argentina has 80 workers. The company also contracts with a couple of plants in each country for subassembly.
South Cone started in 1986, and cut its teeth in the U.S. high-end market providing wood furniture for the likes of Baker. At those price points, a company like South Cone provides an alternative to China, and President Gerry Cooklin emphasizes the word "company" in that context.
"We're small compared to what's going on in Asia," he said. "In China, you're dealing with an industry, (but) in Peru, you're dealing with a company.
"I think you boil it down to the fact that we will deliver as good a quality as you'll see anywhere."
Beyond developing national distribution that includes several Top 100 furniture stores, South Cone also is committed to developing new wood species for furniture manufacturing and drawing upon Peru's native artisanship.
South Cone works with native communities in the rain forest where it sources much of its wood to develop inherent wood-crafting and craft skills for adaptation to products that sell in North America. Currently, 60% of the wood in the company's products is certified by the Forest Stewardship Council for being harvested from sustainable rain-forest lumber resources; and 40% of the line's pieces carry the same stamp for the amount of certified wood used in their production, up from zero three years ago.
South Cone also is developing an engineering and business services department for customers looking to source other furniture in Latin America with the same standards for resource management the company holds itself to.
"We're not just a manufacturer, we're a company trying to contribute to the greater good," Cooklin said.
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