China Labor Shortage Has Long-Term Industry Implications

As we reported in our Oct. 5 edition, China’s furniture industry is having a bit of a labor crunch.

Coastal area factories that let go workers due to a slowdown in orders need to rehire some of those workers as those orders pick back up. The problem is that, minus unemployment benefits like we are used to here in the U.S., many of those workers have returned to rural areas where they can rely on the support of family and friends.

That leaves a huge gap in the labor force. When workers leave, it’s hard to find replacements with the same skills. It’s also hard to find workers in some parts of China period, given that other industries are in the same boat and are drawing from the same limited labor pool.

That could be bad news for U.S. furniture companies who might experience delayed shipments just as U.S consumers regain their appetite for furniture. But the issue has even longer term implications than a hiccup in the production schedule.

Furniture/Today received further insight into the issue directly from a few key Chinese manufacturers. They view the situation as part of China’s growing pains in becoming a global economic power.

They say it also means China’s labor market is playing by the same rules as other market-driven economies where workers must compete for the best jobs.

The harsh reality is that in China - and some other Asian countries - many younger workers are not drawn to furniture factory jobs. Instead, many prefer to use their skills and education to gain jobs in cleaner, air conditioned environments such as electronics factories.

“In low-tech industries such as ours, the salaries are low and the work is hard,” said Jay Jewett, president of Stylution Direct, the case goods division of Chinese manufacturer Stylution.

Jewett said Stylution’s case goods factory has actually added workers over the past 18 months thanks to its diverse product mix of case goods, leather beds and dining and occasional tables. He noted that other large plants facing a drop in North American sales haven’t been so fortunate.

As business starts to come back, he said, factories face some challenges.

“Having to rehire workers has been a problem,” Jewett said. “Workers are more demanding, and it is easier for them to move from job to job. The time it takes to train and manage workers is difficult. There is a shortage of factory workers, and when the market does turn and orders begin to rise again, hiring new workers that will stay long term will be a challenge for China.”

George Tsai, chairman of case goods manufacturer Fairmont Designs, thinks the scenario could lead to higher wages in China’s furniture industry.

“Furniture pay not only has to go up to hang on to the existing crew, but also to attract second and third tier workers,” he said, noting that a typical furniture worker currently earns about $200 to $250 per month.

To compete for the best workers, he said, factories will not only have to offer competitive salaries, but also benefits such as profit sharing.

“There are some very innovative ways of holding on to your people and keeping your labor force and management team content,” Tsai said.

Mohamad Amini, president of case goods manufacturer Lacquer Craft, said that like many others in the industry, his company had to let some workers go earlier this year. But he said Lacquer Craft kept its most skilled workers, and in the past several months has been recruiting new workers to acclimate to improved business conditions.

That said, Amini believes labor shortages will continue amidst China’s ongoing growth.  

“It becomes a matter of how you manage and take care of your workers,” he said, adding that the solution to the problem lies in how factories deal with growth and maintain a good work force.

“China still remains the best manufacturing country,” Amini said, “and U.S. companies really can’t do much else other than partner up with more stable factories that have resources to deal with such challenges ahead.”

As Amini and others indicate, furniture plants will need to compete for the best workers. As this drives up salaries and other benefits, one has to wonder if the industry will be forced to look at other parts of China or to even lower cost countries where such issues haven’t yet surfaced.  In this global economy, there are still plenty of people around the world looking for work, even if it’s in a furniture factory.

What are your thoughts on the issue?