Rising wages in China challenge furniture industry
In recent weeks we've seen reports of a phenomenon that's taking shape in China: Workers are standing up for their rights, and employers are taking notice and raising their wages.
One highly publicized incident involved a worker strike at a Honda plant in southern China. Such strikes, while not unheard of in the Chinese furniture industry, are much more common in Vietnam. Honda raised wages to end the strike.
Hon Hai, a major Chinese supplier to Apple, told newspapers it too was increasing wages to retain workers amid ongoing labor shortages.
The raises are a victory for many Chinese workers, who want some of what the upper class in China has enjoyed for years - nice clothes, jewelry, cars and even home ownership.
The government, which wants to create a more consumer-driven economy, also has responded by raising minimum wages throughout China. In the Guangdong Province, for instance, an estimated 20% increase raised the minimum to roughly $135 per month, a figure based on recent exchange rates.
This creates additional pressure for the U.S. furniture industry, which has always sought the lowest cost producer. Not only do source plants have to meet the government's minimum wage standards, but they will have to compete to retain enough workers to fill orders.
Some have already responded. Case goods manufacturer Fairmont Designs, which has production in southern China, said its average base wage is about 10% higher than the minimum wage. To fall in line with the latest hike in Guangdong Province, it may have to raise wages by almost 20% said Jason Liu, CEO.
Liu noted that wages in the Shanghai area, where the company also has production, are roughly 7% to 8% higher than in southern China because of the area's higher cost of living. These figures do not include fringe benefits such as health care.
Other producers with plants in both areas have said they too must remain competitive with wages and benefits. In addition to meeting government mandates, they also need skilled workers to keep producing quality goods.
Since labor is a relatively small part of a furniture plant's operating costs in China, the wage hikes may not have a huge effect on overall prices. But combine it with rising costs for materials, shipping and other items, and you begin to see an impact.
The question is, amidst such change in the labor market, can the industry stay put in China? Or will it simply move elsewhere? What do you think?
Roger commented:
We have just post our annual outlook for the China side of the industry on our blog.From this end we are seeing a few trends: a) rising labor cost/labor shortages b) worker empowerment c) more suppliers are focused on domestic demand and d) consolidation within the industry. On the buying side we are seeing quality & design improving, rising product costs and again, a focus on domestic buyers by suppliers rather then overseas buyers. For the full rundown/writeup see here:
www.antique-chinese-furniture.com/blog/2010/08/08/antique-reproduction-wood-furniture-industry-trends-and-outlook-for-2010-2011/
Marvin furnitureqchina commented:
I'm from China and have been working in furniture manufacturing and export field for several years. Its true the worker's wages and material cost here rises a lot in recent years, which undoubtedly hurt the competitiveness of China’s manufacturers. However, I think some importers could adjust their sourcing strategy to counteract the influence of those negative factors. For example, there’s plant in China that could stock furniture for its customers and provide favorable payment terms. Both parties may need to sign an agreement and some deposit may be needed. There’re also many new materials in China that could be used to produce furniture, eg, one engineered material could be used to develop 100% solid wood furniture, which could lower the cost on solidwood group a lot. Besides, some plant here could produce not only bedroom furniture, but also dining room furniture, coffee tables, curios, etc. Some groups are high-end and expensive, some groups are maybe price-point products. Then importers could ask the plant to mix different kinds of furniture in the container and ship out directly to their retail customer, which could meet the requirement of certain retailers.
Marvin QC China commented:
I'm from China and have been working in furniture manufacturing and export field for several years. Its true the worker's wages and material cost here rises a lot in recent years, which undoubtedly hurt the competitiveness of China’s manufacturers. However, I think some importers could adjust their sourcing strategy to counteract the influence of those negative factors. For example, there’s plant in China that could stock furniture for its customers and provide favorable payment terms. Both parties may need to sign an agreement and some deposit may be needed. There’re also many new materials in China that could be used to produce furniture, eg, one engineered material could be used to develop 100% solid wood furniture, which could lower the cost on solidwood group a lot. Besides, some plant here could produce not only bedroom furniture, but also dining room furniture, coffee tables, curios, etc. Some groups are high-end and expensive, some groups are maybe price-point products. Then importers could ask the plant to mix different kinds of furniture in the container and ship out directly to their retail customer, which could meet the requirement of certain retailers. My mail is marvinqcexpert@gmail.com. Hope to discuss and share ideas with friends who have interested in furniture made in China.
Big M commented:
A lot has already moved to Vietnam which will bust in two to three years. The China days are winding down. This will come full circle eventually and the geniuses will regret shutting down in the first place when they have to pay todays real estate and machinery prices.Seems to me companies like Vaughan Bassett are smart enough to see this and plan for the future.
THOM commented:
Good Point "Made in USA", but remember, the US consumer is more worried about spending their money on a big house, fancy car, big screen TV's and the most "up to date" cell phones... Keeping up with the Jones is not fashionable or exciting when it comes to furniture... The majority of our industry has not helped the cause by making low quality, disposable JUNK..
made in USA commented:
WEll, since labor seemed to be such a factor in moving the production to china, may the furniture industry should learn how to brand product, build value, and sell the consumer better quality goods instead of chasing price, price, price. think this old dog can learn a new trick??
adolf ahchoo commented:
gone ,2 years ,out the door to vietnam and even back to usa,bubble will burst,1st real estate will topple then labor strikes and wage wars will cripple factories then internal needs will outstrip export needs and it will be over,3 years and we will see new players globally.
