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Thomas Russell

Asian labor a bargain, but times are changing

Tom Russell Associate EditorTom Russell Associate Editor
Price increases have hardly been a subject that suppliers like to talk about. But it seems like we're going to have that discussion again soon.
     We can partly attribute this to rising minimum wage rates in Asia, an issue we reported on during the Las Vegas Market. Materials prices and shipping costs also factor in, but the cost of labor has probably been the most significant. Asia, the source of much of our furniture, has been a low-cost region but is becoming less so.
     What we learned in interviews was that some in the industry are already paying more than the newly raised minimum wages. That's good because it means the industry takes seriously the idea of paying a reasonable wage to retain talent and thus maintain quality.
     "We have a serious labor shortage in China, and so we need to offer better allowances to keep the workers stable in 2013," said Lawrence Yen, president of Taiwan-based case goods producer Woodworth Wooden Inds.
     But the going rates for labor are surprising. Vietnam, which reportedly paid in the $50 a month range six or seven years ago, is now up to $150 to $175, not including health insurance. China, which was around $150 several years ago, now pays as much as $600 and even $750 for highly skilled craftsmen, one factory owner told us.
     Of course these countries are still a bargain given the value added carving and hand painting skills workers offer. This would likely be cost prohibitive in the U.S.
     Still, rising Asian wages are a reality check for the industry. The message is that governments in Asia want to keep their work forces stable, particularly in the midst of a rising cost of living.
     But for China, still the largest shipper of furniture to the U.S., there are big implications. That's especially true when you consider the fact that China is fast outpacing Mexico in terms of labor cost growth. Combine that with the fact that it's cheaper to ship from Mexico and this could pose some significant challenges to China.
     "I think in the coming next couple of years, China will face some economic issues," said Ernie Koh, an executive director at Singapore-based case goods manufacturer Koda. "Furniture companies that traditionally export their products are finding it hard to compete internationally. Some have closed, others have shifted to supply into the domestic markets, and some have moved their operations overseas."
     This begs the next import question: What country could possibly replace China in furniture production. Vietnam, Indonesia, India? A lot will depend on infrastructure and capacity. It also will depend on labor costs, which for better or worse, continue to be a driving factor of where furniture is made.

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