Asian sources coping with tough issues
By Thomas Russell -- Furniture Today, May 6, 2007
High Point — Asian manufacturers acknowledge that 2007 will be a tough year with issues that include rising labor, transportation and raw materials costs.
Still, executives are optimistic they can address these challenges through plant investments and other strategic moves that make their companies more competitive on the global stage.
Henry Cheung, director of Chinese leather upholstery manufacturer Kai Nun International, projects a 12% to 18% increase in raw materials costs this year. That, he said, will be his biggest challenge this year.
One way he said his company can offset rising costs will be to purchase more materials at a better price.
"We have to try to make the price lower and work much harder on the management side to control it," he said.
The company also is making a $10 million investment in its Shenzhen factory this year, which will help keep it on track for a 20% increase in sales this year and another 20% increase in 2008.
Gary Ma, CEO of Guangzhou-based case goods manufacturer Royal Furniture, acknowledged the business climate is difficult right now, especially for smaller manufacturers. He estimated that some 200 furniture factories in southern China have closed in the past six months alone and that rising costs have been a factor.
"It's a continual fight," he said. "It's a management problem more than an industry problem. There is more competition every day. Small factories have a tough time competing."
He said his company, which has about 1 million square feet of manufacturing space in Guangzhou, is in relatively good shape because it has been chosen by the government as an exclusive supplier for the 2008 Olympic games. In the coming months, the company will build a lot of contract furniture for hotels, restaurants and other buildings going up for the Olympics next summer.
"We went head to head with 500 factories and got selected because we have the ability to use the best materials for the athletes and come up with good tailor-made designs," he said. "We also have the ability to move and deliver goods in a short amount of time."
Taiwanese case goods and upholstery manufacturer Alexandre International has a 2.5-million-square-foot plant in Dongguan and another 1.5 million-square-foot plant in Vietnam. Like other companies, President Eddy Hsiao said Alexandre International faces rising raw materials and labor costs. From 2000 to 2007 alone, he said, the price of medium-density fiberboard has risen from $150 to $270 per cubic meter. He estimates that overall raw materials prices have risen between 30% and 50% over the same period.
He also believes that the value of Chinese currency will continue to rise against the dollar, a factor that will affect goods paid for in local currency such as labor and utilities.
To offset such costs, the company plans to invest more in its research and development processes and upgrade its facilities.
Hsiao did not say how much the company planned to spend in those areas during 2007. But he did say Alexandre has additional capacity available in its facilities, a factor that could increase revenues down the line.
Hsiao said the company also is making more of an effort to promote its brand in the domestic market and do more contract business.
Challenges in Asia, namely China, relate back to oversupply and consolidation, factors that are still playing out on the case goods side of the business, according to Jack Wang, vice president of La-Z-Boy's China operations.
"The slowdown in sales in the U.S. is putting a lot of pressure on furniture makers in Asia," he said. "Many subcontractors who were living off overspills of orders or small orders that don't fit the biggies in the past are now folding up because of dried-up orders. As a result, many suppliers are requiring furniture companies to pay cash to buy materials or components for fear of credit exposure as a result of so many small furniture makers going belly up.
"This year, without seeing a significant pickup in orders, we will continue to see further declines in the number of (Chinese) furniture makers."
He added that increased materials costs and a tight labor market are putting additional cost pressures on furniture makers. Not too many, he said, are able to pass these increases along to buyers.
Given the challenges relating to exports, many Chinese producers are focusing more on the domestic market and even opening retail stores of their own to have a direct link to that marketplace.
These challenges don't only relate to Chinese companies. Producers in other countries, such as Vietnam, Malaysia, Indonesia and the Philippines, also face some of the same issues, particularly relating to raw materials costs.
But that's not the only challenge. For Malaysian case good manufacturer Ascent Furniture, the biggest challenge is finding the right design niche and the right overseas partners to support its export business.
"Once Malaysia realizes it is no more the low-cost manufacturing country it was, and that position has been taken over by China and Vietnam, then the other challenges — raw materials costs, etc. — are put in the right perspective," said Eric Au, company managing director.
This year, Ascent is focusing on three areas of improvement: Upgrading design to target select market niches; upgrading product with features such as felt-lined drawers, stained drawer boxes and dovetail construction; and offering different finishing, fabric and hardware options to its product mix.
"With specially selected, high-quality hardware, mechanism, handles and fabric from China, Ascent is able to further enhance our furniture features and offer more value to the customer," Au said.
The Philippines also has had challenging times lately due to the softness in the U.S. market and other regions. According to a February report in Yahoo's online Asia News service, some 35 furniture manufacturers closed in the Cebu area alone last year, displacing some 2,500 workers.
"The furniture industry in Cebu is very slow," said Ruby Babao-Salutan, executive director of the Cebu Furniture Industries Foundation. "Plant closings (have) resulted from both the U.S. and the global economy. The present mood here is apprehensive because of the very soft markets."
But she said organizers of the CebuX furniture show held this past February in Cebu took steps to help exhibitors turn things around, including a program focused on enhancing product design and booth displays.
"The support program is aimed at innovation at a crucial level — product design itself and the manner in which products are presented," Salutan said just before the show. "CFIF hopes that these enhancements and progressive ideas will raise the benchmark for exhibitors' standards in CebuX and eventually provide the international buyers and guests with fresh, new and exciting offerings."
The show also featured an area that highlighted designs from the industry's new and upcoming designers.
But officials believe those are only some of the steps the local industry needs to take to remain competitive.
In the Yahoo report, CFIF President Michael Basubas said exporters need to put more emphasis on research and development, particularly when it relates to developing product for the European Union, an area of the world that is willing to pay more for high-quality and environmentally friendly products.
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