Soaring Materials Costs Hit Chinese Office-Furniture Makers

China's furniture industry is labor intensive. This is proving a key to competitiveness in a world market seeing serious shortages and rising prices for steel, wood, and other raw materials, increased labor costs worldwide, and big swings in the rates of floating currencies.

Founded in February 1991 in Guangzhou, Guangdong Province, Landmega Furniture Co. moved to Shunde in August 2003 to facilitate expansion. The firm's product lines include office desks, office chairs, computer desks, and home-use sofas. Guoqing Zhang, the general manager, reports that, "We are set to introduce a new series of home-use furniture sets made of steel, wood, and glass. Sets will encompass sofas, end tables, and cupboards. The essence is on simple and fashionable styling that suits the tastes of young people."

Most of the firm's output is exported, with the majority going to North America, Europe, Southeast Asia, Africa, and the Middle East. "In the domestic market, we exclusively supply international store chains such as Makro, Lotus Supermarket Chain Store, BOBA, and Metro, " Zhang says. "We have our own brand, Landmega, and expect to unveil another, Bosswin, this November after all government-application procedures are completed. Our 2004 export revenues were around US$12 million, and are expected to increase by 40 percent in 2005. This big jump will result in large part from sound cooperation ties we've more recently established with big international retail groups such as Carrefour and Wal-Mart, from which we expect large-volume orders to pour in this April and May."

The GM says that the large price increases for raw materials and in other areas in the past year or so has had a major impact. "Steel has increased around 45 percent, sponge about 40 percent. Freight costs have also shot up, and we have serious problems concerning electricity supply as well. Consequently, our production costs have increased around 20 percent, and we have been forced to pass much of this on to customers, who are hardly pleased about the situation, though we find they are adjusting with time."

Before 2003 the firm's main rivals were from Taiwan, Malaysia, and Indonesia. Now, says Zhang, pressure is being felt from younger, aggressive competition within the country itself--from Shanghai, Shenzhen, Dongguan, Shunde, Jian (in Zhejiang province), and elsewhere. Many Taiwanese firms have been investing in production facilities in China as well. In the face of this situation, Landmega is paying even closer attention to its product quality/price/service package, and picked up the pace of its new-product offerings to maximize model diversity for buyers.

The euro has appreciated markedly against the US dollar of late, and the renminbi is facing appreciation as well. "For an export-oriented company like ours, this is really troubling, " says Zhang. However, he adds, "Our business is not being affected at all" by the zero-tariff policy on imported furniture that came into effect January 1st this year.

Xinda Clover Industry Co., Ltd. Specializes in mid-range and high-end office furniture such as workstations, desks, chairs, and other items of steel and wood. Guangjing He, the firm's marketing manager, says that, "We have withstood the test of rocketing material prices. Buyers balked at price increases for our finished products, so we had to try all means to keep prices unchanged. We have found ways to save on materials without negatively altering appearance and functions-crucial to continued competitiveness in this emerging era of global resource shortages."

The company has two brand names, CLOVER and UTOR. An export program was kicked off last year, mainly targeting North America and Europe. Total 2004 export revenues were US$10 million. "We've been negotiating with some big customers in Europe and North America, " the marketing manager says, "preparing samples, applying for certifications, bringing all our software and hardware in line with international requisites. We expect volume orders soon to result from these efforts."

Last year the firm participated in numerous exhibitions, including the Guangzhou International Furniture Show, Index International Furniture and Interior Design Exhibition in Dubai, India International Furniture Show, IMM Cologne, and NewCon World Trade Fair Chicago. The marketing manager states that current plans are to be present at the Guangzhou event this year.

In the face of fierce global competition, He says, "Our strongest rival is ourselves. We keep developing new products and enhancing staff training to achieve heightened competitiveness. A new factory is under construction to meet the growing requirements of the company. It is a matter of 'the survival the fittest' in the present competitive environment, and I am confident we'll be a winner."

Shunde Lecong Sunteam Steel-Wooden Products Co., Ltd is one of the leading manufacturers of ergonomic computer tables (ECT) in China, possessing a modern factory covering 20, 000 square meters. It specializes in the production of steel/wooden furniture, including computer desks and office chairs.

"We have great product diversity, high product quality, and outstanding R&D capability, " says Jiaqiang Wu, general manager of the company. "New models are available each month. Seventy percent of our products are exported, primarily to North America, Europe, Japan, and Korea. In the domestic market we mainly cooperate with renowned retailers such as Carrefour and Wal-Mart. Our export revenue for 2004 was US$10 million, and we feel US$15 million is achievable this year."

The prices increases for raw materials in the past year, Wu states, have been a tremendous challenge for the firm. It has adjusted by increasing production 8~10% to achieve better economy of scale, lowered costs in other areas, and lowered its profit margins. Its customers are remaining loyal because, he says, "The quality of our products is superior; we chiefly aim at mid-range and high-end customers. We obtained our ISO9002 certification in January 2000."

Leiau Furniture Co., Ltd. Was established as a trading company in 2000. In February 2004 it set up its own production facility. The firm specializes in computer desks and office chairs, emphasizing items in great model variety that are of the highest quality and are multifunctional. Its mid-range/high-end lineup is 100% exported, mostly to Australia and a selection of European countries.

Anny Cheng, sales executive at Leiau, says that, "We've just introduced around 20 new, stylish models. Though product prices are rising because of the surge in raw-materials costs, and customers have understandably expressed dissatisfaction, our business has not been much affected because the situation is the same industry-wide."

The firm's export revenue in 2004 was US$1.5 million. The firm believes US$3 million will be attained this year. "We attended the Furnitex show in Melbourne last July, " says Cheng, "and have won significant orders from two new customers that have led us to estimate we will double our exports this year."