U.S. importers investing in Asian factories
By Thomas Russell -- Furniture Today, April 10, 2006
High Point — For some importers, an investment or ownership stake in Asian furniture factories represents an investment in their own future. Along with having dedicated production space, they reap profits from the manufacturing side of the business.
Here are snapshots of several key U.S. furniture importers and marketers that are taking on more of a manufacturing role through their ownership stakes.
Fine Furniture Design & Marketing
This High Point-based company is the marketing arm of Chinese manufacturer Fine Furniture Shanghai Ltd. Through that relationship, it has an undisclosed ownership stake in a 2.1 million-square-foot factory complex in the Shanghai area.
The facility, which has about 1 million square feet of manufacturing space, opened in early 2002. It now ships more than 200 containers a month of wood bedroom and dining room furniture exclusively for Fine Furniture Design & Marketing. It does no OEM furniture business, but does have a flooring operation that produces about 200 containers a month of wood flooring.
The mutual ownership gives both sides incentives to improve manufacturing, said FFD&M CEO Geoff Beaston. The single-source relationship also helps control quality and consistency throughout the product line, from lumber treatment to finishing and delivery, he said.
"Our factory makes one quality level," he said, noting the company offers a high-end product at affordable price points. "We are not trying to set different standards for different customers. That's a key to our development."
The company also has on-site warehousing, which helps improve the flow the goods to the United States.
"Everything you see in the showroom is mixable on a container," Beaston said.
He attributed much of the company's success to the vision of the late Larry Moh, its founding chairman. Moh, he said, was adamant in his desire to devote the plant exclusively to a high-quality line designed and marketed by FFD&M.
Beaston said Moh backed that up by installing state-of-the-art equipment and hiring the best managers available to run the factory.
"There was a major, major commitment by Larry Moh," he said. "His commitment was to create a new level of quality coming from Asia."
Beaston said there are some risks in a sole-source plant relationship, particularly with a plant that produces 95% of the line. And having an ownership stake increases some of those risks for a marketing company like FFD&M.
One risk relates to the antidumping duties imposed on Chinese-made bedroom furniture by the U.S. government. Unlike other importers, Fine Furniture Shanghai can't simply move production to Vietnam, so it now pays a 6.65% duty on bedroom furniture shipped to the United States.
Another issue affecting China is its currency. Last July, the Chinese government agreed to revalue the yuan largely in response to criticism from U.S. business and political leaders about its being tied to the dollar.
In late February, The Wall Street Journal reported that Goldman Sacks predicts the yuan will rise 9% against the dollar this year. The same report said J.P. Morgan predicted the yuan will appreciate more than 10% against the dollar.
Still, Beaston is bullish on China and believes the advantages FFD&M has through the dedicated plant — quality control and consistency — far outweigh such risks.
The relationship also gives FFD&M an identity that separates it from competition. "We are a manufacturer," he said. "We generally don't think of ourselves as an importer."
Manchester Furniture Group
This High Point-based case goods importer acquired an ownership stake in a furniture plant just north of Singapore in Johor Bahru, Malaysia in December 2002. Today, it has close to 80% ownership in the plant, which it runs in conjunction with Hong Kong Teakwood, which has the remaining stake.
The plant, once a sawmill that supplied Universal Singapore, has about 900,000 square feet of manufacturing and warehouse space under one roof.
In January, it shipped about 230 containers of mostly bedroom furniture and some dining room, about 20% of Manchester's volume. Shipments are expected to grow to over 300 containers a month by the end of 2006.
Manchester, the factory's sole customer, has invested about $9 million in the facility to date. Manchester also plans to acquire 50% ownership in a plant in Danyang, China, about two hours northwest of Shanghai.
The 1.2 million-square-foot plant, now owned and operated by Dare Global, makes bedroom, dining room, entertainment and occasional furniture.
When the deal is completed, the China factory is expected to devote about 40% of its 150 containers per month capacity to Manchester. The rest will be for OEM business.
Manchester also gets finished goods from as many as 15 other plants in Thailand, Malaysia, Vietnam and China, which currently supply about 40% of its product line. That diversity of sourcing helps match product with the factory best equipped to make it.
"Certain things fit in certain plants," said Manchester President Ron Hahn. "We're really good at knowing where to go with what product. "That's one of the reasons we've been successful."
The company chose to invest in some factories because of the control that gives it over consistency, quality and delivery.
"The No. 1 advantage is control," Hahn said. "The No. 1 disadvantage is you must keep these plants full. It's a double-edged sword."
Four Hands
This Austin, Texas-based case goods importer deals with about 12 plants in China and India. In the past, it has provided as much as $500,000 to help some of those factories expand. But outside that investment, it hadn't gotten involved in plant ownership.
That changed last year when Four Hands CEO Brett Hatton became a majority shareholder in a dedicated factory in Ningbo, China.
Opened in March 2005, the 110,000-square-foot plant produces 25 to 30 containers per month of occasional and dining room furniture. The joint venture is operated by a company called Four Hands International.
"It's a pilot, and if it works our plan is to expand and open a second factory," Hatton said, noting the facility is a small part of the company's business but helps give Four Hands greater control.
"It's much easier to control quality and hold somebody accountable when they work directly for you," he said.
The facility also helps Four Hands remain more competitive in pricing and delivery in an environment where more and more companies are opening factories in China or partnering with existing ones, he said.
Hatton said it took about a year to find the right partner and the right real estate for the project. He admitted he wanted nothing to do with the headaches involved in owning part of a factory when he first got into the business. But his thinking changed in the past few years.
"We had no choice," Hatton said. "As we have grown, we needed to secure our supply chain."
