Taiwanese Makers Endeavor to Uphold Profit Margins

Faced with an adverse operating environment, Taiwanese metal dining-room furniture makers have endeavored to automate their production and launch new products, so that they can hold their profit margins at an adequate level.

One major problem plaguing Taiwanese makers in the line lies in iron prices lingering at high levels. Although FOB prices in U.S. dollars for iron materials have remained almost unchanged this year, makers, in fact, have had to bear higher costs, due to the devaluation of the New Taiwan dollar and renminbi (RMB, or Chinese yuan). As a result, many Taiwanese steel furniture makers have been forced to close shop.

To cut their production costs, several Taiwanese makers in the line have made heavy investments in setting up automated production facilities. Some even design their own machinery to maximize their productivity.

Unable to raise prices for their existing products, many have resorted to constantly rolling out new products, which enables them to command profit margins at more reasonable levels.

A trend for new models this year is the adoption of a combination of materials to create variety in product appearances.

In order to better penetrate overseas markets, some Taiwanese firms in the line hire foreign designers to help them create designs catering more to the tastes of foreign customers.

The U.S. is the largest market for Taiwan-made metal dining-room furniture products, thanks to its massive and homogeneous consumer population, which generates a large demand for simpler items. By comparison, Europe consists of highly diversified markets, greatly increasing makers' marketing efforts.

Phoebe & George Enterprise Co., Ltd. (PGE), for instance, has launched a new dining table featuring a tabletop made of a natural stone. The material is sourced from mainland China and features clear patterns. It produces an effect similar to that of a mosaic. The products command prices 30% higher than common dining tables, and are mainly shipped to the U.S.

The new table is but one of more than 100 new items introduced by the company this year. The development of new models is critical for PGE to uphold its overall profit margins, according to Thoede Lee, general manager.

Most of the company's dining-room furniture is of the knock-down (K/D) type, different from the welded furniture made by most Chinese makers in the line. Lee notes that K/D furniture requires more precise design and manufacturing, so that consumers can assemble the products smoothly.

To assure quality, the company adopts iron tubes supplied by China Steel Corporation in Taiwan, instead of mainland Chinese-made steel, since the former can better withstand bending during the production process.

Production takes place at the company's 300-worker factory, located in Poluo County, Guangdong Province, mainland China. The factory features integrated production and is capable of turning out 80 containers of products per month. It sources materials from Taiwanese suppliers in the neighborhood, where a clustered group of Taiwanese furniture makers has formed.

Metal dining-room furniture products account for 40% of the company's output and are shipped mainly to the U.S. and Europe (especially the U.K. and France). The company's other products include TV cabinets, coffee tables, and shelves.

Revenue this year is estimated at US$12 million, similar to the 2004 level, according to Lee.

Como Furniture Enterprise has also endeavored to launch new products to keep up its profit margins. New models this year feature the adoption of combination materials, including aluminum and glass, giving them an ultra-modern appearance. The aluminum parts give the products a more varied appearance and can undergo anodizing treatment for an upscale look. Iron tubes also undergo an Italian-style treatment, which endows the furniture with an appearance of brushed lines and artistic corrosion. The designs feature minimalist styles.

From its origin in the production of computer tables, Como has stepped into the production of metal dining-room furniture this year, which now accounts for 10% of its output. The share is expected to double next year. Sixty percent of the company's dining-room furniture is delivered to Ikea now, or more than 100, 000 units per month.

Production takes place at the company's 150-worker factory in Changhua County, central Taiwan. The factory is equipped with machinery that was designed by Como itself to save on labor costs-a set of the equipment needs only two operators, instead of the original 50. This high level of automation has enabled the company's products to maintain strong price competitiveness, which, along with their attractive design and quality, is critical for Como's success in the global market, according to Judith Huang, the company's general manager.

Backed by its automated production facilities, Como targets doubling its turnover annually in the coming three to four years, Huang says.