Some U.S. importers own, run offshore plants

By Thomas Russell -- Furniture Today, March 19, 2006

High Point — U.S. importers and manufacturers aren't just forming alliances with other manufacturers. In some cases, they are building and running their own plants.

This is particularly true at the high end, which is more focused on quality, design and artistry than on the typical high-volume production of China.

Below are three examples of major high-end producers that have built their own plants in Asia.

Maitland-Smith

More than 20 years ago, Maitland-Smith built a plant on the island of Cebu in the Philippines. Today, this 600,000-square-foot factory employs roughly 4,000 workers in areas ranging from carving, wood processing, veneer work and finishing to metal forging and lamp making.

The factory primarily produces product for Maitland-Smith, but it also does OEM work for sister Furniture Brand International companies such as Thomasville Furniture Inds. Products include case goods, occasional and highly decorative accent items.

Maitland-Smith chose the location primarily because of Cebu's highly skilled and artistic labor force. Over the years, these workers have produced and even helped design the highly carved and hand-painted elements that are a trademark of the Maitland-Smith brand.

While it uses raw materials from around the world, the Cebu plant has access to plenty of materials in its own backyard. These materials provide a critical mixed-media element to the company's product line.

Located in Samarang, Maitland-Smith's Indonesia plant is about 10 years old. As with the Cebu facility, the company built the plant from the ground up. Today, the 150,000-square-foot plant employs about 1,500 workers.

The plant is different from Cebu in that it makes mostly chairs, sofas and beds from indigenous hardwoods such as plantation-grown mahogany. The facility also has a veneer room, but it is not as complex an operation as the one in Cebu, said President Seamus Bateson.

In many respects, these plants have helped define Maitland-Smith as a company. Roughly 10 years ago, the company sourced 40% of its finished product mix, Bateson said. Today, Maitland-Smith manufactures close to 100% of what it sells.

Bateson cited many advantages to this manufacturing model. A chief benefit, particularly involving the Cebu operation, is the close collaboration of U.S. and Filipino management. The Cebu factory has several U.S. managers on staff while the High Point-based headquarters has several people from the Philippines.

"At the high end, that is a huge advantage in terms of quality," Bateson said.

Having its own Asian facilities also helps the company better manage its global supply chain — from raw materials purchases to the cost of shipping and packaging.

The company also has a role in the education and training of its workers, another critical step in the production of high-end products. Cebu's culture of highly artistic workers helps facilitate that process, Bateson said.

Likewise, Indonesia's mix of highly skilled carvers and ample wood supply is a key advantage in having a plant there.

The disadvantages of these two locations include ongoing political instability and infrastructure woes. Also, daily issues such as high traffic, brownouts and power shortages are not uncommon.

"You have to be nimble to adapt to that environment," Bateson said.

Currency fluctuations also can have an effect on the bottom line, particularly when overhead costs such as energy and labor are factored in.

China also has some advantages over these countries in terms of labor and land costs. Because the government owns the land and leases it back to the user, it creates an artificially deflated cost structure for plant owners, Bateson said.

But he believes his employee turnover rates are much lower than the typical 10% to 20% per month in China. He believes that results from the generous benefits that Maitland-Smith provides its employees.

"If you treat people with respect, they treat you with respect, and that shows up in the product," he said.

Theodore Alexander

About 10 years ago, this high-end manufacturer decided to establish a major presence in Ho Chi Minh City, Vietnam. It initiated what would turn out to be a $40 million investment in a plant that today has 1.5 million square feet of production space and employs 6,000 workers.

Theodore Alexander built the first 40% of that space during the first year of operation 10 years ago. Between then and 2003, it built another 20% of the capacity and it has added the remaining space since then.

Today, this plant produces roughly 85% of the company's product mix. The rest comes from other countries, said Randy Austin, president and general director of Theodore Alexander HCM Ltd.

The product line is made up of mostly antique reproduction furniture. It includes case goods and upholstery, some of which also has an Art Deco-style/contemporary and transitional flair. The Vietnam plant, which has its own foundry, also produces the company's Althorp Living History Collection.

Austin said the main benefits of owning and operating a factory in Asia include having direct control over all areas of the manufacturing process. This includes anything from planning and purchasing to production and quality control.

The key disadvantages, he said, are the language barrier: his team of expatriates does not speak Vietnamese.

The operation seems to be running well and meeting the company's goals. While it doesn't have any immediate expansion plans, Austin said, it may need to do so later this year.

L&JG Stickley

L&JG Stickley, a high-end case goods manufacturer, has a major manufacturing presence in Manlius, N.Y.

However, last year it expanded to Asia by building a $10 million plant in the Binh Duong Province of Vietnam, just outside Ho Chi Minh City. The factory is operated by a company called Stickley International, which is 100% owned by U.S. parent company L&JG Stickley Inc.

Company officials did not offer details on the size or capacity of their Vietnam plant. However, the facility currently employs about 200 people and accounts for just 5% of the company's production. Products made there have included Antiquities by Stickley, and Madison Square, a line of accent and occasional furniture.

Edward Audi, Stickley's vice president of strategic planning and international operations, said building a plant from the ground up and hiring a work force is much more challenging than just outsourcing to a foreign-owned plant.

"Doing business in any foreign country has a steep learning curve, but in this case it was shortened substantially by the fact that we already had over 160 Vietnamese employees working in our Manlius, N.Y., factory," he said.

Audi said many of those same workers volunteered for training missions at Stickley International, which in turn, allowed them to reconnect with families after as many as 25 years apart.

The company also sends other U.S. quality control and production employees back and forth to the plant on training assignments.

"One of the greatest benefits of having our own facility is that we are working with our own employees and training them to our own exacting standards, not somebody else's," he said.

Despite some logistical challenges, Audi said, the company is very pleased with the quality of the goods the facility is producing. He believes that quality will only improve over time.

On that note, Audi added, the Vietnam facility allows Stickley greater control over its own fate as the U.S. furniture industry continues to emphasize imported product. Along with giving it better control over quality, the plant also helps Stickley control its intellectual property at the same time it provides "aggressive values" to its customer base.

Finally, the labor-intensive nature of the Vietnam plant allows the company's domestic operations in Manlius to be more efficient, and thus, more competitive.