Malaysian manufacturers rethink China costs, benefits
Thomas Russell -- Furniture Today, August 21, 2012
Rubelli showed this sectional at the Malaysian International Furniture Fair. Made with a combination of vinyl and fabric, it retails at $899.
Now, some are having second thoughts.
One reason is that labor costs in China have been rising, due largely to inflationary pressures. A furniture worker in the Beijing area can easily earn $300 to $400 a month now, up from about $200 two years ago, according to one industry source. These rising labor rates also factor in the appreciation of the yuan against the U.S. dollar in recent years.
China has seen labor shortages because of competition from other industries. Workers also have been able to find jobs in their home provinces, which negates the need to live and work in furniture producing areas along the coast.
Leather upholstery producer Rubelli has experienced these challenges firsthand. It started to shift its production to Jiaxing City in the Zhejiang Province in 2005. By 2009 it had moved all of its work there.
"I believe labor is still there, but good labor is hard to find," said Chai Kian Peng, general manager of Rubelli.
China's government has raised minimum wages to keep pace with inflation, he said. Last year alone, he estimated that the minimum wage rose 30%.
Today, he said, the average worker pay in the area is about 2,800 yuan per month, or $445, which is more than twice the minimum wage in the Zhejiang Province area. Chai estimated that $445 is also about three times the average pay for area factory workers in 2006 and roughly the same as wages today in Malaysia.
Suburbia Furniture, another Malaysian-based producer of leather upholstery that manufactures in China, has also faced labor cost pressures.
It moved its production to China about eight years ago and has watched the price of labor rise since then. When it started producing there, a factory worker would earn 500-600 yuan per month in the Shenzhen area where it manufacturers, or less than $100 a month based on 2004 exchange rates. Today, a typical factory worker earns more than 3,000 yuan a month, said director Lim Jit Yeu. That translates into about $475 a month based on current exchange rates.
He also said it is difficult to maintain a consistent workforce because workers leave and don't come back after their Chinese New Year holiday.
"Every year we have to reeval
Leather and fabric upholstery producer Rubelli opened its factory in China’s Zhejiang Province in 2005 and moved all its production there in 2009. It has roughly a 60% ownership stake in the factory.
Malaysian companies do have an alternative - they can move production to places like Vietnam, where labor costs are lower than in China. However, Lim said that China has better infrastructure for leather upholstery production.
"In Vietnam and other countries, the infrastructure for sofas is not there," he said. "But in the next two years, labor costs could push us over."
Rubelli also plans to stay put in China despite the challenges.
"We will still keep our plant in China, but will not expand it anytime soon," Chai said.
He added that the company is outsourcing parts of is production to other area manufacturers that are looking for business.
"This has expanded our output capacity without having to increase capital," he said. "We have a well trained QC team and well structured QC procedures to ensure quality from our outsourced companies is not compromised."
Others, however, see Vietnam as a possible option.
That includes youth and master bedroom producer Ane Furniture, which has a 40,000-square-foot plant in Jiang-Men City in the Guangdong Province of southern China. Founder Allen Wang, a Chinese native who moved to Australia in 1996, started the company out of his basement in 2002. He started buying from China, but due to the poor quality, decided to set up his own plant there in September 2004.
Things went well until labor costs began to rise. Today, it's not uncommon for a factory worker to earn as much as $550 a month, he said, which is more than double the 2005 wage. He also echoed concerns over the fact that workers are finding job opportunities in their home provinces, adding to the shortage of labor in his area.
China poses another challenge for Ane Furniture: It can't sell bedrooms to the United States because it faces a 216% antidumping duty. As a result, the company sells mostly to markets such as Australia.
The company is eyeing Vietnam for its bedroom line, but will start out slowly as it did with China, Wang said. It likely will begin to source product from factories there before setting up its own manufacturing.
"We want to makes sure we get the right things at the right price and at the right quality," he said.
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