My recent experience as a judge in Qingdao Furniture Exhibition and Nankang Furniture Exhibition has led me to consider a phenomenon: I noticed a several “blocks” at both exhibitions. For example in Gaomi, many factories are producing large and rough wooden frame sofas, this is one “block”; in Gaomi, there is another “block” that makes northern European designs; In Jiaodong, there are similarly designed bedroom furniture and pinewood child bunk bed “block”.

It is the same in Nankang, where a village or city creates only one category of product each and produces them in bulk. This makes deciphering the winner of furniture design a difficult task. Every design from each place looks the same, even down to the materials used, production technics, and the machinery. The only way to pick out a winner is by choosing one with the larger scale, and more meticulous in their work. Most furniture judges who took the stage spoke about how there should not be too many homogeneous products. Ferocious competition in the market would drive homogeneous product prices very low.

The common theories about success among business management discussions would Include the following:
— Lowering costs
— Stabilizing product quality
— Differentiation

Talk is easy, but to execute these strategies in reality is not. How do you keep your costs lower than everyone else when their cost is already low to begin with? Take Ikea for example, they expect to lower costs every year, which means lowering their suppliers’ prices. These suppliers suffer through it and some even end up collapsing under the pressure. It is not easy to keep costs low. Of course there are some who lower costs by cutting corners but we are not here to talk about that.

On stable product quality, we do not speak of highest quality, because it is “not worthwhile”. Every product has an expiration date in this industrialized era. Take for instance the car, it has the usual lifespan of around 10 years. It is the same with furniture. In the days of old, furniture was passed down from generation to generation. This was during the agricultural age, where the ideology of beauty did not change rapidly and people did not own many materialistic things. These days, European and American home furniture are treated as “fashion” accessories whereby they are replaced before reaching ten years of usage. The products from Ikea and such would be replaced within 3-4 years therefore the products would only need a durability of about 4 years.

Of course there are still a few furniture producers with the “craftman’s spirit”, who still pursue products that last 100 years. And there are “cultural scholars” who call for products that could be passed down to future generations, products that antique stores and scavengers would collect, to be sold to those who would put it on display at home to “show off”. I neither discourage nor encourage these practices because at the end of the day, these are small scaled markets.

The most difficult of all is creating product differentiation. In theory, differentiation comes from innovation. When your product is different from others, there are no ground for comparisons. Therefore, there will be less pressure to compete on pricing, creating a socalled blue ocean market.

But most furniture companies are unable to differentiate. Why is that?

* The lack of talents in design. There is a relatively low number of design talents in China. Designing a product that sells well and with market longevity, is few and far between.

* No confidence in the market. A design needs to be cultivated for a long time before achieving market recognition. If a design is not recognized by the market after a long time, medium and small companies might be discouraged, might even be forced to shut down. Some companies might never get the courage to try new designs in the future because of this.

* Regional collaborative production, like those found in Gaomi, Pingdu in Shandong, Muar in Malaysia, even in Italy and Japan. Every factory produces only one category of the final product. For example, one manufacturer produces only dining chairs, another produces another part, like a table top. These factories and the parts produced would then come together to be assembled into the final product. This collaboration makes production highly efficient but only for two or three designs. This type of production would not be able handle too many designs.

Productivity increases while costs are lowered but because there are no differentiation to the designs, prices are low and so are profits.

No one would compete with these designs, but from the business standpoint, those that only produce their own design (differentiation) might even yield a higher total profit. But it is not easy to differentiate from the crowd. There will constantly be uncertainties starting from the product design to production. This type of production is not for everyone.

That is why we always advocate for both regional collaborative production and differentiation, which are often contradictory.

And thus I often wonder, does our business cluster resemble the economic model as described by Michael Porter or product clusters? Products with the same style, same category, competing on homogeneity?

Industry clustering as described by Michael Porter is an advanced economic model with vertical and horizontal collaborations while product clustering is for mass market when one or two products are overproduced, lowering the market value.

However it is serious homogenization.

Credit: Furniture & Furnishing Export International

I would like to discuss the business model of furniture retail in China.

During the recent International Famous Furniture Fair (Dongguan), I finally realized that the existing “manufacturer – dealer” model that is so common in China is coming to an end. Dealers are now going through a phase of reduction, not growing in numbers. Recruitment of dealers via trade fairs is also at the end of the road. This is due to the following:

* Over the years, those dealers that need to be recruited have been recruited. There is now a great surplus of both factories and dealers;

* In the past 2-3 years, business have been poor for most dealers. They have been reducing the number of stores and sizes of their stores. This certainly has impact on the furniture malls in China. Can the number of furniture malls not reduce with lesser dealers?

That is not the case. Bucking the trend, the numbers are instead growing! This is the current state in China. Some companies have moved ahead and enjoyed success. Quite a number have gone upstream in the industry chain to become developers, decorators etc.

To give an example, I recently visited Guangdong “Nice Home” (靓家居). As there were many trade secrets, I can only state briefly the following:

Nice Home works with property developers to take over the renovation of units that are unfinished (in the raw/blank state). The company will then enter into direct agreements with owners of the units to undertake their renovation and furnishing works.

The agreements may be customized, thus bringing about the below benefits: * Developers can complete their work at the unfinished phase thereby advancing handover by at least six months;

* Owners of the units can customize their renovation. They do not have to wait until after a unit is decorated and then having to re-do it if they are not satisfied. This saves owners lots of money and time;

In addition to working with developers, Nice Home employs holistic marketing tactics: * Online – shops are opened on Tmall (similar to Taobao; another product of Alibaba) to draw traffic;

* At Construction site – they deploy dedicated personnel onsite to communicate directly with new home owners. They also build demonstration/show units to showcase their capabilities;

* Offline – Nice Home has showrooms in more than two dozen shopping centres (all limited within the Guangdong Province).

In addition to professional sales/design personnel, services are available online, onsite. Also available are furniture, appliances, renovation materials, bathroom tiles etc. for customers to choose. Nice Home not only provides renovation/decoration services but home appliances, furniture, etc. The units can be done up till move-in state, saving owners a great deal of trouble.

In Chinese expression, this model can be described as “deep plowing and careful cultivation” (深耕细作), a form of holistic indepth marketing. In e-commerce language, this means a high conversion rate. However as there is too much depth, Nice Home can only operate within the perimeters of the province. This model is difficult to sustain a nationwide expansion throughout China. This is an example of success achieved going upstream.

The downstream of the industry chain are predominantly retail outlets of dealers, be them in the form of stand-alone shops or stores in a mall.

Some months back, I discussed Warren Buffet’s furniture store in an article entitled “I am priority – For Retailers”. Below is an extract of its content:

Buffett started Nebraska Furniture Mart, a 5,000 square metres furniture retail store in Omaha, his home town. Omaha is a small town and Buffett’s store instantly dominated the retail scene.

In his store, the total floor area was divided into many smaller units with each approximately 200 square meters in size. In each of these units, only 20 percent of a factory or importer’s products (best sellers) are available on display. The remaining 80% slow movers, such as parts of a collection or products to be sold in package deals are shown via display screens within the unit.

Buffet adopted the 20:80 rule of management focusing on the top 20% best sellers. However, the remaining 80% cannot be omitted even though they are slow moving. Often customers would want some of these products as complements. This 80% is what the Chinese terms as “chicken rib” – to mean no meat but with taste so wasteful if discarded.

Most people do not realize that the “chicken rib” is often the main reason for the losses sustained by many furniture dealers.

Dealers can duplicate Buffet’s tactics to address the “chicken ribs”. By providing QR codes on the 20% best sellers on display, customers will be able to obtain information of the remaining 80% online via their mobile phones.

As a result of this, there can be 25 different brand-names (products of different factories or importers) sold within a 5,000 square meters of store space. The saving of floor space for the other 80% provides for the valuable saving in rent.

My article also addressed issues such as product selection, procurement etc. which I will not go into details here.

This is a success story of a downstream of the furniture store. Well, Buffett is Buffett after all.

Credit: Furniture & Furnishing Export International

I often share this view: design must be built on a people’s cultures and traditions. I think most would agree with this view. Of course, there will be some who will differ.

While in agreement, the common belief is that it cannot be practiced in China, at least for now. The most direct reason often given is that customers do not like such designs – the customers like “European-American” designs. In reality, these so-called European- American designs are Chinese interpretations of European and American designs.

Another reason is the interference of the factory bosses. Although they are not trained in design and often with little formal education, they like to influence their designers and meddle with the design process. Factory owners believe they are close to the market and understand the needs of the customers. They also believe in gearing designs towards products of other companies that are selling well. What about traditional culture? These bosses do not understand nor do not want to understand!

Under the circumstances of market economy, those designers who agree with me are unable to do much either.

Some of those who do not agree with my point of view feel that:
• Design are without borders
• Modern people do not accept traditional culture
• We should learn good foreign designs
• The facade of our buildings are mostly European- and American-styled, and so are the decoration. As such the furniture design should match them.
• There is nothing good in our tradition

As such there are some designers who think that my point of view is too narrow, and even some pedantic. These designers are very keen on Nordic and Italian designs, going for their “pilgrimage” in Milan to worship and come home bragging about the greatness. However, I have always believed that these are foreign which belong to other people. No matter how much you praise and imitate, you can never be as good.

This self-imposed “weakness” has a long history. It started during the May Fourth Movement, when China abandoned all traditions, with the belief that our ancestors are inferior in every aspect. Therefore the eagerness to learn from the “foreign teachers”. This happened in philosophy, politics and so on.

In the furniture domain, it happened during 1911-1949, with the introduction of the socalled “Republic-styled furniture”. The Chinese people were desperately trying to imitate Western furniture. There were foreigners who brought drawings to allow the Chinese people to copy. Materials used were largely redwood such as rosewood and ebony. The carving methods were still Chinese style with many lines, patterns. It was a poor imitation producing “hybrid” products, which became the characteristics of the “Republic-styled furniture”. There were two broad categories:
• Predominantly Western with Chinese elements
• Predominantly Chinese with Western elements

Such hybrid designs have blossomed once again with the opening of the Chinese economy. However, now even the Chinese element has even been done away with. The current hybrid is to start with Italian and end with Spanish. I believe one cannot produce first class with such a foreign hybrid. If you do not believe, just look at Youyou Tu, a Chinese who had won the Nobel Prize in medicine. There were all kinds of talk regarding Tu Youyou’s winning. She did not have a PhD; she is not an academician; she did not study abroad nor even understand English. However, she took the right path focusing solely on the study of Chinese traditional medicine. She first gathered more than two thousand kinds of traditional prescriptions, screened them and adopted modern means of extraction which helped her to finally developed antimalarial medicine.

Her path, and also the way for our designers, is the direction and way forward for many other disciplines. This is a living example that only by building on our traditions and cultures can we generate first-class results. If our designers still subscribe to the old thinking, we will never excel. And we will carry on going to Italy to be criticized.

Credit: Furniture & Furnishing Export International

I often share this view: design must be built on a people’s cultures and traditions. I think most would agree with this view. Of course, there will be some who will differ.

While in agreement, the common belief is that it cannot be practiced in China, at least for now. The most direct reason often given is that customers do not like such designs – the customers like “European-American” designs. In reality, these so-called European- American designs are Chinese interpretations of European and American designs.

Another reason is the interference of the factory bosses. Although they are not trained in design and often with little formal education, they like to influence their designers and meddle with the design process. Factory owners believe they are close to the market and understand the needs of the customers. They also believe in gearing designs towards products of other companies that are selling well. What about traditional culture? These bosses do not understand nor do not want to understand!

Under the circumstances of market economy, those designers who agree with me are unable to do much either.

Some of those who do not agree with my point of view feel that:
• Design ar e without bor dersl
• Modern people do not accept traditional culturel
• We should lear n good for eign designsl
• The facade of our buildings are mostly European- and American-styled, and so are the decoration. As such the furniture design should match them.
• There is nothing good in our tradition

As such there are some designers who think that my point of view is too narrow, and even some pedantic. These designers are very keen on Nordic and Italian designs, going for their “pilgrimage” in Milan to worship and come home bragging about the greatness. However, I have always believed that these are foreign which belong to other people. No matter how much you praise and imitate, you can never be as good.

This self-imposed “weakness” has a long history. It started during the May Fourth Movement, when China abandoned all traditions, with the belief that our ancestors are inferior in every aspect. Therefore the eagerness to learn from the “foreign teachers”. This happened in philosophy, politics and so on.

In the furniture domain, it happened during 1911-1949, with the introduction of the socalled “Republic-styled furniture”. The Chinese people were desperately trying to imitate Western furniture. There were foreigners who brought drawings to allow the Chinese people to copy. Materials used were largely redwood such as rosewood and ebony. The carving methods were still Chinese style with many lines, patterns. It was a poor imitation producing “hybrid” products, which became the characteristics of the “Republic-styled furniture”. There were two broad categories:
• Predominantly Western with Chinese elements
• Predominantly Chinese with Western elements

Such hybrid designs have blossomed once again with the opening of the Chinese economy. However, now even the Chinese element has even been done away with. The current hybrid is to start with Italian and end with Spanish. I believe one cannot produce first class with such a foreign hybrid. If you do not believe, just look at Youyou Tu, a Chinese who had won the Nobel Prize in medicine. There were all kinds of talk regarding Tu Youyou’s winning. She did not have a PhD; she is not an academician; she did not study abroad nor even understand English. However, she took the right path focusing solely on the study of Chinese traditional medicine. She first gathered more than two thousand kinds of traditional prescriptions, screened them and adopted modern means of extraction which helped her to finally developed antimalarial medicine.

Her path, and also the way for our designers, is the direction and way forward for many other disciplines. This is a living example that only by building on our traditions and cultures can we generate first-class results. If our designers still subscribe to the old thinking, we will never excel. And we will carry on going to Italy to be criticized.

Credit: Furniture & Furnishing Export International

ANZ bank released a report some time ago. In it is a forecast that owing to the cheap labor advantage enjoyed by countries such as Myanmar and others located along the Mekong River, the Southeast Asia region will replace China as the “world’s factory” in the next 10-15 years.

Japanese media got really excited by this with wanton reporting by publications such as Fuji Sankei Business Daily, Japanese Economic News. On a daily basis, Japanese Economic News reported that such and such business has gone to invest in Southeast Asia, or highlighted the prospects for the Southeast Asian market and more.

They are actually amusing themselves. The business community were not in sync. Companies interviewed generally believed that the migration of businesses to Southeast Asia did not gain momentum.

The head of a Japanese owned electronics factory in Shenzhen once said: there were considerations to setup a factory in Vietnam a few years ago because of the increased labor costs in China. However only when in Vietnam did the company realise the many problems such as the frequent power outages which will affect normal factory operation. Meanwhile, Vietnam’s local market is small and products can only be exported.

ANZ created a chart which compared wages amongst Asia’s emerging economies

Although wage is certainly a very important factor for production enterprises, it is not the sole factor. The following should be included:
– Government policy;
– Infrastructure;
– Upstream and downstream supply chain;
– Domestic market;
– Raw material;
– Land Supply

Our discussion is confined to the furniture industry.. Let us look at the conditions in Southeast Asia.

According to a report by ANZ Banking Group’s economists, in 2030, more than half of the 650 million people in Southeast Asia will be less than 30 year olds. They belong to the emerging middle class with huge spending power.

We can classify the ten ASEAN countries into three groups:
Group I: Myanmar, Cambodia, Laos, Indonesia;
Group II: Malaysia, Thailand, Vietnam, the Philippines;
Group III: Singapore, Brunei.

Within Group III, Singapore is already a first world economy with high wages, limited land. Thus it is unlikely to develop its furniture industry. Brunei, with a population of only 200,000 to 300,000, cannot engage in the production of furniture in a significant way. As such we will not consider the third group.

Group II refers to countries with moderate development. They have certain foundations built. For example, Vietnamese furniture exports has reached 10% of that of China. Malaysia also has strong production capabilities. The following are statistics on these countries.

As Vietnam is not a member of the Council of Asian Furniture Associations, their export import data are not available. However, their export is approximately US$5 billion, which is about 10% of China’s total export. This makes Vietnam the largest furniture exporter in Southeast Asia Countries in Group II are able to undertake part of Chinese production. For example, Vietnam basically inherited the Chinese export of solid wood bedroom furniture to the USA after the antidumping duties were imposed on the Chinese ten years ago.

Vietnam’s upstream supply chain have become increasingly complete in recent years. There are MDF plants, paint factories, hardware manufacturers etc. With prices of rubber wood at just 1600-1800 yuan, 1,000 yuan cheaper than China, the potential of Vietnam is huge.

So long as the local governments of the other countries are inclined to grow their furniture industries, it should be easy task to develop their respective industries. This is because of their strong foundation in furniture production. For example the Philippines’ rattan furniture is of good quality; the Thai teak furniture and Malaysian dining furniture are well made and price competitive.

In the third group, with the exception of Indonesia, Cambodia, Laos and Myanmar belong to the Mekong River area. They are characterized by an abundance of labour and very low wages. However their furniture industry has not yet industralised. Most remain in the manual workshop stage.

Although Indonesia was supposed to belong to Group II, they were placed in Group III taking into account their relatively low industrialization and mechanization. In fact, Indonesia’s furniture industry is equipped with many favourable conditions:

Timber Resources: There is a wealth of tropical hardwood forests, mahogany, teak and so on. An early ban on the export of logs, domestic prices for timber are cheap.

Land Supply: There is very adequate supply of land. There is no distinction of land for industrial or agriculture use. Many factories are built on former farmlands. As it is located in the tropics with constantly hot climate, building costs are low as factories are erected needing only pillars and roof. Human Resource: Very adequate supply. Indonesia has a population of nearly 400 million with ten thousand islands large and small. There are ample supply of workers including world-class cravers and craftsmen.

Regarding taxation, it is said that it is open to discussion with the local mayor. However, with such attractive conditions, what is the reason for the slow pace? Why is the yield lower than Malaysia? I think the most important is people and the lack of entrepreneurship spirit.

I went last year to Semarang and Jepara as well as other localities to survey. I noticed that the craving work was all by hand with simple setup. The wood drying was very basic.

I asked why they do not use machinery. All the replies are almost the same: “What happens if we have no order after buying the equipment?”. As such the heavy reliance on manual labour. Someone from Singapore once built a modern kiln in Jepara, it was torched in the middle of the night.

With mutual supervision, no one would dare be the first to modernize. Thus, foreign importers cannot buy furniture that have not been kiln-dried, this caused a vicious cycle and thus the present day, exports is limited to merely less than 2 billion, a tiny fraction of China’s numbers.

After over thirty years of rapid development in the Chinese furniture industry, its total export is more than 50 billion US dollar, way surpassing the performance of the various Southeast Asian countries.

China is a major exporter to Southeast Asian countries but the total exports in Southeast Asia is not even half that of China’s total exports. However there are problems experienced in the development of China’s furniture industry:

– The rise in productivity does not match that of wage increases (TFP) thus leading to a net increase in costs;
– Overly extensive employment. Low per capita productivity compared to developed countries and the phenomenon of recruitment difficulties;
– Education has not kept pace. There is insufficient vocational training school. Therefore there will be a lack of traditional craftsmen, operators of advanced machinery and programmers.

A look at the following set of data will perhaps illustrate where the problems lie more vividly:

1. China’s furniture production is about two to three times that of the United States. The Americans claimed that about 50 percent of production are domestic. I do not agree, as any furniture even if a screw is added in the US is considered US made. As such I think those custom made, decoration furniture, it really is the US domestic production, equivalent to 30-40% of China’s total production. But they have only 4,972 companies. The other hand, China three times, the number of enterprises not the United States, but a dozen times, reaching some 60,000.

The Japanese furniture production volume is estimated to be about one-tenth of China. However they only employ more than a hundred thousand people for the manufacturing as compared to China using 2.5 million workers.Their productivity is 4-5 times of ours.

From the above data, we can say there are too many furniture enterprises, and too many small ones. At the same time we use too much labour. To sum it up, if we can increase productivity, we will not lack workers and our costs should not be too high.

Chinese enterprises are currently transforming and upgrading. However, it cannot be at the expense of giving up their traditional manufacturing advantages. It should be through intelligent manufacturing and green manufacturing to transform traditional manufacturing.

Japan’s furniture industry has a per capita productivity of more than one million yuan. That is 4-5 times higher than China. Our transformation and upgrading in essence is to increase productivity. There is a long way to go and how can Southeast Asia replace China’s dominance?

Unless the Chinese stagnates.

Southeast Asian countries and China can play complementary roles. For example, some special type of material resources such as rattan furniture would be Indonesia’s strength. Certain materials that are banned from export such as redwood from the Mekong Basin, may be processed into parts for export to China.

I believe there are people already engaged in these activities. There is no need for others to try match-making.

Credit: Furniture & Furnishing Export International

In recent years, many well-known furniture makers have gone bankrupted. This has led to much discussion on the reasons leading to their collapse:

* Dragged down by the real estate downturn;
* A particular category in the market facing downturn, such as panel furniture;
* Negative impact from factory-operated retail stores;
* Low profit margins;
* Poor management;
* High labour costs

There are many so-called experts who attributed the cause to the following:
* disappearance of demographic dividend;
* as economic development reaches a certain level, growth naturally slowed. Those enterprises that do not keep up with the trends are eliminated.

Let me share my take regarding the experts’ opinions.

This is not uncommon when discussing the prospects of industrial production of different countries/regions that people tend to focus on population size, the so-called deomographic dividend, regardless of the industry.

According to the World Bank, China’s total population has reached 1.357 billion in 2013. India’s population had reached 1.257 billion while the total population of ten countries in Southeast Asia is more than 600 million people.

China’s average population growth rate is 0.5 percent, India is three times that of China’s growth rate. Southeast Asia as a whole, baring individual countries, has also a growth rate higher than that of China.

On the other hand, China’s population is entering a rapidly aging period, whereas the populations of India and Southeast Asia remain young, with an average age below 30 years old.

Therefore, some experts jump to the conclusion that at one moment India, and other times Southeast Asia, will grow faster than China economically in future.

However, some scholars in China believe that China can take advantage of smart devices and equipment, and even industrial robots to replace workers.

There are many in Europe, Japan and especially the United States who believe that smart devices, industrial robots and artificial intelligence can help them regain their traditional manufacturing industries.

However, after so many years, in spite of these very loud slogans, few traditional manufacturing have returned to the developed countries. The reason is that the use of smart devices, industrial robots etc, are only the means. The purpose of all these are to improve productivity, which is the key.

We often hear the talks about intelligent production etc, but seldom do we hear about improvement on productivity. This is unlike Chinese habits. The Chinese people has always been more practical, paying more attention to the goals and are results-oriented. They are less concerned with the means and process. In this matter, the Chinese are very different from the others.

As such I suspect such talks remain at the scholars and intellectual level. As ideas taken directly from the West, they have not been assimilated nor have the means been fully understood to identify the end. If an entrepreneur were to look at the issue at hand, the target should become “increasing productivity”. It is only with improved productivity that companies can survive. Making money is only possible if a business is not eliminated.

Improving productivity is crucial to enterprises. Likewise to countries. Let us make a comparison between countries like Japan and China: Japan (1956 – 1970). During this period, the per capita income is US$ 7,000 with its economic growth rate at an average of 9.7%.

On the other hand, looking at China, the per capita income has just reach US$ 7,000 with economic growth rate at only 7%. Why is this so? According to the Bank of Japan’s analysis: Between 1960-1973, the labour supply growth in Japan was over 3% per year;

Since 2012, China’s working-age population began to decline, with a decline of more than 3 million people a year.

An analysis of the demographic dividend. In fact, during this period, the annual productivity growth in Japan is 10%. This high productivity is the main reason for the high rates of economic growth.

China’s current growth in productivity is unlikely to hold above 3 percent. There are even negative growth in recent years. Economic growth is sustained by capital injection. Last year’s growth was sustained at 7% and the future may be lower. The problem lies in productivity.

As such some people believe that once an economy develops to a certain degree, GDP growth will naturally slow down. This sentence is not wrong. However, China’s economy has yet to arrive at that high “degree”. There is still a distance from that so-called “a certain degree”.

There is a theory known as “convergence hypothesis” which hypothesize that once the per capita income in developing countries reaches 60% the per capita income of the United States in 2005, economic growth will slow. This applies to the four Asian tigers of Hong Kong, Singapore, South Korea and Taiwan. It seems so even for Japan.

Today, however, China’s economy has started to slow down before its per capita income has even reached 20% of the United States per capita income in 2005.

The issue now seems to be more clear – with increases in productivity, the Chinese economy will be able to grow at a higher rate.

One way to calculate: China wants to maintain 9% growth rate before 2025, the annual productivity growth needs to stay between 4.3-4.8%. However in the past 30 years, it has only been 4%. At the moment, it is declining annually. As such the 9-percent growth cannot be achieved.

That is at the national level. For the furniture industry, increased productivity should be relatively fast, because advanced countries have walked the paths. Live examples are available to us. We only need to learn, to imitate countries such as Japan, whose per capita annual output is valued at about 1 million yuan, which is 4-5 times of China. As long as this gap is narrowed, it will signifies double the increase in productivity. Then we can use fewer people to produce more furniture. This equates to greater competitiveness in the international market. With increased productivity, profits will improve, how then will companies collapse?

However, productivity is an attitude. In addition to updating equipment, changing production processes etc, how to bring out the best in employees, changing the attitudes of the employees toward work are the key (topics for Human Resources management).

Furniture industry belongs to the traditional manufacturing industry. It may not be an industry that the government values. However the industry has fed tens of millions of Chinese people, with export of up to US$50 billion. The advantages of the traditional manufacturing industry cannot be given up in transformation and upgrading of China’s furniture industry.

In the past, the British and Americans have gone into the banking and financial services through their upgrading efforts. The Germans have turned to the machinery and equipment industry. We should, through smart manufacturing and green manufacturing, transform the huge traditional manufacturing industry.

This is because at the current phase, with low per capita income, it is a long way and will take another 40-50 years to achieve the 60% per capita income of the United States in 2005.

Credit: Furniture & Furnishing Export International

Acccording to an estimation by the Electronic Commerce Department of the Chinese Ministry of Commerce, the annual e-commerce turnover in 2014 reached 13 trillion RMB.

Based on their monitoring of some 5000 retail enterprises in the various sectors, they discovered the following:
• E-retailing grew 33.2% (+1.3% yoy);
• Specialty Store………5.8% (-1.7% yoy);
• Supermarket …………5.5% (-2.8% yoy);
• Department store……4.1% (-6.2% yoy);
• Shopping centre……..7.7% (-7.7% yoy)

With the exception of online-retail, the retail sales of all other forms experienced a lower growth rate compared to the year 2013 (the figures in bracket is the year-on-year comparison with that of 2013).

This indicates e-commerce is still booming. I believe the same applies for retail sales of furniture with only online-retail sales experiencing growth last year. Under such favourable circumstances, e-commerce enterprises should quickly turn themselves into real furniture companies.

A few days ago, I talked to one senior executive of IBM, he was surprised that today’s Chinese online furniture retailers were made up of people from the IT sector, instead of coming from the furniture industry. This is unlike that in developed countries. For example American online furniture retailers are basically a part of traditional furniture companies. He suggested that some of the IT companies like IBM, have ready software to aid furniture companies, both their online and offline businesses. These packaged software may be not perfect for e-retailers, however, they are sufficient for individual furniture companies.

At present, many local governments encourage local enterprises to develop their e-commerce capabilities, offering them all kinds of subsidies. It is said that in Ningjin county of Shandong province, e-commerce takes up 36% of all furniture turnover. In addition, there are a lot of companies that have their own O2O platforms, and in the wake of such momentum, the percentage of e-commerce would surely double in no more than two years.

As a result, it is time for domestic e-commerce companies to familiarise with their own offline business in a year or two.

Having frequent encounters with e-commerce companies lately, I believe there are different requirements of the furniture product between them and traditional furniture companies. This is because the two are distinct in their operational forms, scales, targets, scope and so forth.

1. CATEGORISATION
This is probably a tough task for e-commerce companies. There is a vast variety of furniture, especially in China. So e-commerce companies will have to differentiate the categories based on their target markets.

One way to categorise furniture may be on the raw materials used:
• panel furniture
• panel and solid wood furniture
• solid wood furniture
• upholstery
• metal-wood, metal, glass and so on

The classification may also be according to styles:
• European-style furniture
• American-style furniture
• Chinese-style redwood furniture, new Chinesestyle furniture
• Modern furniture
• Chinese-style and Korean-style furniture and so forth

But nowadays a mixture may be adopted:
• European-American、Japanese-Korean style: wood and panel furniture
• Chinese-style redwood furniture: solid wood
• New Chinese-style: may be wood and panel furniture
• Modern furniture: panel (perhaps mainly consisting panel, solid wood and redwood are also included)

Up until now, the Chinese-style redwood furniture have rarely been seen for sales on the Internet. This is probably because of their high prices and the limited market.

As such, we can generally divide into three main categories: foreign designs including European, American, Japanese and Korean; new Chinesestyle; and modern panel furniture.

European and American designs are regarded as the mainstream in today’s market with French style leading, such as the Rococo. Then comes the Italian new classics. The American-style furniture also plays a big part. However, because of its large dimensions, the Chinese have come up with simplified and smaller-dimensions American style furniture. Although such designs are confusing to the Americans, to some extent they suit Chinese demands. The reduced sizes, the absence of knots on the surface, the absence of age and signs of usage, no longer rustic look.

2. RAW MATERIALS
E-commerce companies regard the whole nation as their target market. China is a vast country and thus the natural conditions in the north and south, east and west can be extremely different. Temperature and humidity differences have huge impact on the selection of furniture raw materials.

Ancient emperors in Beijing ordered craftsmen who came from south of the Yangtze River to make furniture with wood having seasoned in local areas for years. They all realized that the furniture made in the south would cracked in the north. (Here I will not discuss about issues regarding the drying and changing the nature of wood)

Hence, furniture sold by e-commerce companies must be made with materials suitable for the whole country. This is easier said than done. Our designers often have little knowledge about the comprehensive utilization of raw materials for furniture. It is already good for them not to follow the so-called 100% solid wood furniture on the market blindly. Currently the Chinese markets preach solid wood furniture blindly, which will expose its faults when the products are sold to the north, because the raw materials are not properly treated during production.

As a result, there is a need for careful selection of raw materials, and understanding the comprehensive usage to ensure the integrity of the product under varying temperature and humidity. Otherwise, complains and returns from customers would cause great losses.

3. ASSEMBLY
Because of the high cost of logistics in China, it is ideal to develop knock-down furniture that can be assembled. However, the only method to assemble cabinets in today’s China, is with the use of the 32mm system. Few have thought about other methods and few designers understand structural design.

The 32mm system, is appropriate for application in kitchen cabinets. However, it is not ideal for large wardrobes, especially for custom wardrobes. Many kinds of fittings and corresponding tools are used. If the cabinet is too huge, the 32mm system will not be strong enough.

The principles of assembling large wardrobes and custom wardrobes are: simple, easy, strong, low chances for error, requires few hardware and tools. You should not believe that you can find a qualified craftsman in a remote area to help you assemble a large 32mm system wardrobe without making mistakes. An online retailer have asked my help regarding this problem, and because of which I developed a new patent.

4. PRICING
Pricing is especially worthy of discussion for online sales and to understand the upper and lower limit of prices.

I do not have access to relevant statistics, but I thought that a set of furniture pricing more than 40,000-50,000 RMB would be relatively hard to sell online. If the prices are too low and cannot offset the cost of administration and logistics, it would not be worth the efforts of the retailers.

Thus online retailers will have to set the upper and lower limits depending on their own data. That would set the basis for the selection of raw materials, quality and so on.

A point to note: when labeling the raw materials used, perhaps broader terms should be adopted. This is because online retailers may not be able to figure out all materials at once. For example when labeling wood materials, it is sufficient to label as tropical hardwood, or medium hardwood in temperate zone. This is to avoid unnecessary problems that may arise from troublemakers seeking to take advantage.

Credit: Furniture & Furnishing Export International

THERE ARE SOME GROUPS OF NUMBERS WORTH PONDERING OVER.

First is the per capita consumption of furniture from different countries:
Germany: 390 Euro per year per person;
U.S.: 210 Euro per year per person;
Russia: 70 Euro per year per person;
China: 44 Euro per year per person.

The above data comes from the Germany Furniture Association. It demonstrates that Germans have the highest per capita spend for furniture, which is nine times more than the Chinese. This amount is also higher than the Americans. Perhaps the Americans are more geared towards the lower prices while the Germans seek higher-quality products.

The most interesting thing about the data is Russia’s higher per capita consumption in comparison to the Chinese, rather unexpectedly. Taking a look at the furniture market of Russia, we can see that in Russia most of the furniture are imported either from the former eastern bloc countries or Asian countries like China. Prices of furniture in Russia is naturally higher than that in China taking into account the freight, import duty and importers’ profits.

In any case, the Chinese furniture consumption still stand at a low level due to the following reasons:
1. Consumption habit. The Chinese are not used to replacing furniture frequently except when moving to a new house or preparing for marriage.
2. The supply exceeds demand in domestic production, thus the market price is depressed.
3. The per capita income is rather low in China, which is the equivalent of one-eighth to one-ninth in developed countries. As such, consumption is consistent with income.
4. Inadequate urbanization. Industrialization goes hand in hand with urbanization but although the industrialization rate nowadays has gone beyond 65%, urbanization lags behind at about 50%. The consumption of furniture in rural area is much smaller than that in urban area.

From the data of per capita consumption, we can calculate the scale of the furniture markets of the various countries.

Germany: with a population of 80.8 million has a market of €31.5 billion (the equivalent of RMB236.3 billion).

Russia: With a population of 143.7 million has a market of €10 billion (RMB75 billion).

China: With a population of 1.3 billion has a market of €57.2 billion (RMB429 billion)

It is US that still takes the lead as the largest furniture market in the world, with €10billion (RMB70 billion) more than China. From this, we can make many interesting observations. Here let’s focus on production and marketing.

Industrial Production
According to various reports concerning the US furniture market, half of its furniture is imported while the remaining half is produced locally in the US. But according to an IBIS world industry report, the revenue of America’s furniture industry in 2014 reached US$25.5 billion (RMB158 billion), which was less than half of China’s.

Imported furniture accounted for 66% and domestic production accounted for 34%. However I would assume that the actual import volume to be more than that. This is because with imports, the goods may be reclassified as locally manufactured so long as they are not completely finished. For example, if a table is not assembled with a top or if some small components are added in the US. As such, I would estimate the amount of US domestically manufactured furniture to be just 20%.

Even with twenty percent, their per capita productivity is still high. There are only 4,900 furniture factories in US, in which there are 1.2 million employees (source: Chen Jiaan, US Furniture Industry Analysis, Woodworking & Furniture Digest 360th edition). The output value is RMB90 billion. I am skeptical about such high productivity.

Furniture Marketing
Here I refer to the domestic market. First let’s have a look at the sales through furniture stores in the U.S.

We measure the performance of retail stores using the following standards:
1. Profits: usually 46%-48% gross profit.
2. Inventory turns: about 5-6 times.
3. Per square meter sales: average RMB25,000 per square meter per year.

Therefore, the total retail area in US is supposed to be 2.5 million-3 million square meters.

The gross profit of China’s furniture stores is 45%-50%, identifcal to that in the America. However the rent in China is much higher than that in the US. Besides, it is low in per square meter sales, thus the net profit is much lower, so much so that many stores suffer losses.

In China most of the statistics are estimated. If there is only RMB429 billion in our market and divided by so many stores, each square meter will achieve an annual sales of less than 4,000 yuan. It is little wonder that stores loses money with such low sales numbers.

Even if we use an estimated RMB600 billion for calculating the Chinese domestic sales, each square meter will have achieved sales of 6,000 yuan, which amounts to one-fourth of America’s per square meter sales. Outlets in China still suffer losses.

However, more stores are being built in China. It is said that the total has exceeded more than one hundred million square meters. If the expansion continues, the retail market will face further dilution. Both retailers and mall operators will suffer great losses.

The €44 (RMB 330) per capita consumption in China refers to the retail price. If it is converted into ex-factory price, then the domestic sales would be RMB300 billion. Adding that amount to the export sales of less than RMB300 billion, the surplus output would be staggering if the total output value is really in the trillions as estimated by the Furniture Association.

These numbers really ought to be straightened out.

Credit: Furniture & Furnishing Export International

Some weeks ago while in Chengdu, I talked about the scale of furniture enterprises in Sichuan during a local interview. Sichuan has some of the world’s largest panel furniture manufacturers such as Quan You, Ming Zhu, Shuang Hu, Nan Fang. This is worth discussing as there does not seem to be any other manufacturers of such scale elsewhere in the world.

Doing business is an investment with the hope to gain the maximum return with every dollar put in. As a result, return on investment would be a key consideration. It is not always the case that the greater the investment, the higher the return. Every industry, every market and every product, has different scale requirements and limitations. Economies of scale sometimes cannot be achieved if investments are too low and in turn provide little return. The investment size has to be right. Theoretically, the point of diminishing returns marks the best investment scale. Exceeding this point maximum return will be lost.

I reckon few in the Chinese furniture industry would study this. Perhaps some would expand incessantly due to the encouragement by other leaders, which leads to inefficient, even futile investments.

In the manufacturing of panel furniture, the production equipment used are not complex. Some Sichuan entrepreneurs complicate the simple things. We may say in no exaggeration that panel furniture should be close to the market and be market-oriented. However, our Sichuan friends have turned the business into production-oriented, setting up a large factory in Sichuan and distributing products nationwide. In the process, money is lost on the road. The logistics cost in China takes up 13% of sales cost, 5% higher than that of America on average.

Instead, panel furniture enterprises should scatter their production in every corner of the country. Production via numeric-controlled machinery need not be that large scale and complicated and certainly should not be built not for show. Production should be close to the market for a variety of reasons:

* Saving distribution cost: it is quite unlikely that logistics cost would be lower in future unless price of energy prices falls substantially.

* Serving customers nearby: If a factory is close to the market, it will have a better appreciation of the needs of local consumers, and at the same time, is able to supply furniture made to order. Most custom made furniture are panel furniture. With the rise in the income of the Chinese, the demand for customized furniture would grow.

* Different cultures: With differing cultures in the different regions, the need for furniture in areas such as functions, appearances and sizes would differ. It cannot be the same throughout the country.

* After-sale service: Occasional damages are unavoidable during transportation and improper use by customers etc give rise to repair work needed. Only close proximity can address this. While local contractors can also deal with such scenarios, it is never as good or prompt as services provided by own factories.

* Local protectionism: Even within a country, some form of local protectionism may exists. Take tendering of projects as an example, project owners would take logistics cost and after-sale service into account, with tendancy towards factories within the province or nearby.

The larger the scale of panel furniture production, the higher cost of production than that of an ideal scale. Dr. Schuler, an expert from the Ministry of Agriculture in America, criticized that in the furniture industry, the majority of producers lack communication with the end consumers. They often rely excessively on retailers to establish the demands and expectations of the customers.

He believes there should be a new business model in which manufacturers can learn to get close to end consumers to better meet consumers’ needs for profitability. This depends on better marketing ability and better sales network, efficient and flexible production capabilities, and timely supply.

What he said refers to the competitive theory of Michael Porter. Although somewhat theoretical, his perspective is right. Factories have to be close to market, especially panel furniture and customized furniture (which majority are panel furniture).

In his article entitled “Past and present of the American furniture industry… will there be tomorrow?” concerning competitive tactics of American furniture industry, Schuler emphasized repeatedly some obvious negligence: lack of effective market analysis, lack of communications with the customers and inflexible manufacturing strategies.

This is correct. It is the same in the Chinese furniture industry. Take for example, how do gigantic panel furniture manufacturers located in remote Chongzhou, Sichuan, understand the national market? How do they communicate with the customers? And how do they respond to the different demands of the various markets? This new business model is certainly worth pondering over, not only for panel furniture manufacturers, but also for us all.

Credit: Furniture & Furnishing Export International

THE OTHER DAY I went to Chengdu for a business trip. When I talked to one of my old friends who makes a living retailing furniture, I found that traditional retailers/dealers are in deep distress.

They are squeezed both by upstream and downstream. This in addition to severe oversupply problem. This retailer in particular has been in deficit for two successive years. The upstream pressure refers to manufactures while the downstream refers to furniture malls/ landlords. We have talked too much about the latter so I will skip it and focus on the former.

Many manufacturers seem indifferent about what is going on in the market and appear only to care about their own interests:

They demand that the display area must be large; They keep on developing new products while reluctant to abandon old models. As a result the display area will need to keep on enlarging to accommodate more designs, which in turn means more rent. In the past when demand exceeds supply, it is no big deal to dealers. However, when business is tough, this will drive dealers to their demise.

I turn to an old friend for tips and here are some suggestions: The whole display area should be limited to less than 200 square meters and those non-popular and non-moving products should be taken off (per season).

All product series should follow the “20:80” theory. Those 20% of goods that are sellable be on display while the remaining 80% be marketed only via catalogue and video.

Manufacturers should be serious about the design of their products. Poor designs will not only incur manufacturers losses but also hurt their dealers. Changing designs frequently only mean there are flaws with the design and problem with the manufacturer.

At my Shandong factory which is in collaboration with the British, there had only been few minor updates to our product designs over the years. They remain in our main production categories. Why is this so?

The reason is because many designs in the market today are copies of European and American designs or the so-called international style which is not our culture or have no cultural basis. This explains why we are not able to handle the design well and why the designs cannot sustain in the market for the long term. Manufacturers will suffer if they take short cuts and do by trial and error. In the end, dealers will suffer too.

Some simple examples to substantiate my claim:
Did Ashley’s designs change? No!
Did Ikea’s designs change? No!

This is because their designs are in line with their own culture and this make it possible for the designs to remain the same for a long time. Take a look at our own market, we can accept that others designs remain unchanged, however when it comes to our “own” designs, we change yearly. This is a demonstration of weak culture.

Going back to the subject of discussion, the sandwiched dealers are dragged around by manufacturers and led through an arduous but fruitless exercise. At the end of the day, they are tired out and make no profits.

Now we are confronted with a sluggish market.
Do you know why?
There are too many furniture malls. The total sales area for furniture in China has already surpassed 100 million square meters. The amount divided by the total sales volume, each square meter makes only 4000 to 6000 RMB, which can barely cover the rent.

A rough estimate, those factory-owned direct retail stores of renowned companies earn between 400,000 to 800,000 RMB per store. Very few of them do exceed 1 million RMB. With display area that large, they can hardly make profits. Manufacturers must know that well, so they should not force dealers to rent those large spaces that will bring losses.

Mall owners and manufacturers gang up against retail dealers (perhaps manufacturers are held ransom by mall owners) to open stores. Wherever the mall operators go, they need to follow regardless and that is very immoral. However few dare to voice out because those two parties have deep pockets and no one wants to offend them.

As a result, dealers are suffering and shops close one by one. According to Zhao Zhizhong’s 2011 surveys on the well developed east china area, visitor traffic volume at larger stores such as Macalline, Moonstar’s and DERLLOOK is 5 to 8 people per day. It is approximately 11 to 18 people per day during the weekends. This is a horrible sight!

Under this kind of situation, dealers were craving to ask for advice from my friend Pan Shouzheng who accompanied me on the trip.

“How can we get connected with ecommerce?” most of them asked

Credit: Furniture & Furnishing Export International

ATEND MARCH, our Council of Asian Furniture Associations (CAFA) had a council meeting at JSWB, where many of our members wanted to find out whether its furniture village in ZhaoXiang is suitable for the establishment of an Asian Furniture pavilion.

Mr Zou Wenlong, the boss of JSWB, invited us to lunch. Seated beside him, he passed me a business card, and said, “30 years ago, I gave you my first card when I set off to Singapore while preparing to start JSWB. Now this is the last business card. JSWB has been acquired by Red Star Macalline.”

I have already learnt the news on the internet. But felt rather emotional hearing it from him. This M&A has been baffling me since the day I knew it but I could not ask him the reason in front of so many people. Moreover, he was in a light mood at the moment.

Soon, news came that the M&A had failed. There were many guesses most of which claim it was due to Red Star’s shortage of funds. The M&A is turned into a “strategic alliance”. First of all, I would like to discuss what an M&A is, the reasons for M&As. We will then return to talk about why this particular M&A had failed.

There is a western saying “don’t put all your eggs in one basket”. So this is often taken as a basis for strategic plans in the west: 60’s – Conglomerization;
70’s – Diversification;
80’s – Synergy;
90’s onwards – Convergence

This is the so-called M&A or strategic alliance which was first introduced and applied by NEC, a Japanese electronics corporation which set up the C&C Computer & Communications aiming at incorporating telephone, television and computers into one company. However at the end of the day, C&C dragged down NEC and resulted in NEC stocks’ sustained poor performance in the Japanese market.

Actually, integration violates the law of nature. In biology, according to the theory of evolution, the formation of new species’ is based on the division of a single species. Integration is the combination of the two species and creates a new species, like Catdog, a strange and unimaginable thing. Catdog is unreal. However, new breeds of dogs are continuously produced. Now there are more than 150 kinds of dog in the world with an average of one new kind appearing each year. Today, the impetus for international business is no longer integration but division.

Some Cases of M&A failures:
1984, IBM took over Rolm and sold it in 1989.
1982, Coca-Cola acquired Columbia Pictures and sold it in 1989.
1985, metropolitan life bought out Century 21real Estate and sold it in 1995.
1985, Chrysler purchased Gulfstream Aerospace and sold it in 1990.
1988, Eastman Kodak acquired Sterling Drug and sold it in 1994.
1989, Dow Chemical bought Marion Dow and sold it in 1995.
1990, Matsushita took over MCA and sold it out in 1995.

Michael Porter, a professor at Harvard Business School, did a study of 33 large corporations in the USA. He reached the conclusion that diversity causes more damage to shareholders’ equity then the benefits it brings.

How does the M&A in same industry work? Some say the growth of capitalistic enterprises is dependant on M&A. Only through M&A can an enterprise scale up rapidly.

Here are some objectives of M&A:
• expansion of size and generation of economies of scale;
• extension into upstream and downstream activities;
• access to technology, management, brands and markets;
• extension of brand effects;
• removal of vicious competition;
• Creation of monopoly on market.

Lenovo’s endeavour to buy IBM’s personal computer business was a move to enter international markets and take advantage of the strong branding as well as gain access to management and technology.

What can Red Star gain by acquiring JSWB?

Scale – When it comes to scale, Red Star has 130 malls while JSWB has only six. Management – Both are quite similar and perhaps Red Star appears more progressive Branding – Red Star has a superior brand due to its many branches. Market Segregation – There is no market segregation because they sell similar products.

It is irrelevant to speak of any attempt to monopolise the market. There is Easyhome in north China and HOBA located in the South. Both have regional malls in many cities and it is not possible for anyone to build any monopoly.

Furthermore, even if the large furniture malls business is not yet a “sunset” sector, this is where the industry is heading. Rumors have it that Red Star is even considering transforming some poor performing malls into shopping malls. I do not understand the shocking news of Red Star acquiring JSWB.

What was supposed to be a subtraction became an addition – I am stunned!

Now that Red Star is seemingly unable to fund the acquisition, the M&A has turned into a “strategic alliance”. I cannot see any area that might benefit from the strategic alliance.

I am concerned that having spent so much money which was all in vain, will Red Star harbour ideas about its customers?

God bless us!

Credit: Furniture & Furnishing Export International

CHINA NATIONAL FURNITURE ASSOCIATION (CNFA) estimated that Chinese national furniture production in 2013 amounted to 120 billion RMB, with export accounting for more than 300 billion RMB and the remaining amount for domestic sales.

I doubt these estimates. Last year, the domestic sales figure reported by the national statistic bureau is about 200 billion RMB. The difference between the two is great. If we had estimated the production amount with other parameters, we would arrive at comparatively more reliable figures.

In China, the population of the work force in the furniture industry is 5 million. Assuming 2.5 million – 3 million are engaged in manufacturing, with a per capita annual productivity of 23000 RMB, the total production should be between 600 billion to 700 billion RMB with export and domestic sales accounting for half each.

If so, the resulting amount would be closer to those which the statistic bureau had reported. In addition, if we multiply the product price by about 2.5, this will result in the retail sales of around 700 billion RMB, closer to the result estimated by CNFA.

No matter how the estimation is done, the overproduction and oversupply of Chinese furniture is an undeniable fact. And this is fully reflected at some of the Chinese fairs.

Owing to challenging market conditions and difficulties in finding dealers, many producers came up with all kinds of promotional tactics such as offering free samples, providing subsidies for decoration and advertisements etc. At the same time, in order to attract more customers, some companies have organized all sorts of presentations such as having young ladies stand on podiums a few metres high, some having musicians perform. One extreme case even had a young lady in miniskirt lie in the window display and to expose her underwear with a price tag attached.

Many business owners pay too much attention and waste money on this kind of promotion instead of focusing on developing new design and techniques. Eagerly seeking survival, they copy whatever is selling well in the market. Their so-called designers basically copy bulk of the time with occasional minor modifications made to designs. The end result is obvious – most products end up highly similar, and these businesses would have to end up competing on lowering prices, offering subsidies and engaging in gaudy promotional tactics. The core of the business is neglected and they continue to struggle.

Lots of designers, teachers and students in this trade have said to me: the bosses of the furniture industry would rather give treats to lavish dinners and entertainment than pay small money for design services. In addition, there is little respect shown towards the designers. Many bosses amend design works according to their wimps and fancies. This is one fundamental cause for today’s decline in the design for the domestic sales market.

Even in a booming year, few bosses will come up with new designs for the following year. They would prefer to snap photos of designs at foreign trade fairs and have their “designers” draw accordingly. The whole process has little to do with design. This may have something to do with the quality of some business owners in the field.

At this year’s Dongguan fair, a lot of emphasis was placed on solid wood, especially some northern factories and using much more materials. Amazingly their prices are set at lower price points than their southern counterparts. Consumers are misled by media and regional associations, while the factories just play along and creating a vicious circle. When will this unhealthy phenomenon stop? I wonder.

My biggest disappointment is with those larger companies with long history. Little progress were achieved in terms of product design and manufacturing. Management scholar David Hussis once described such a scenario: the early success helped a company set up its system and thinking model, however gradually the people in the company become more and more restricted by this self-built cage. What he meant is that if one cannot stay innovative and achieves break through, one may fail eventually.

Many of the domestic retailers and dealers participating at the fairs had little manners. They threw rubbish indiscriminately, made loud noises, messed up the exhibits, smoked and some even took naps on sofas.

Fairs overseas such as the High Point Market is also domestic oriented. However, the exhibition halls are exceptionally clean, and most booths only serve customers with appointments. Drinks and snacks maybe provided during business negotiations. Some of them are equipped with kitchens to serve lunch to customers. At fairs in Japanese fairs, booth personnel are not even allowed to sit during the show.

No loud noises and no talking on the phone – these etiquettes maybe small matters but they are a reflection of the quality of the people. With too much crowd, it is instead tough to do business.

I hope gradual improvements can be made in the near future.

Credit: Furniture & Furnishing Export International

Factories in the Pearl River Delta are facing labour shortage in recent years. In fact, most of the eastern coastal regions are facing the same problem as well. These factories are unanimous in response to industrial restructuring and upgrading to high-value-added industries.

HIDDEN WORKFORCE
According to a statistics compiled in 2008, among the 700 to 800 million working populations in China, 480 million are farmers. This figure is almost three times the agricultural population during the peak of the industry in 1957.

Considering a decrease in cultivated areas and an improvement in agricultural machinery, pesticides and fertilisers, 100 million agricultural population is more than enough. The remaining 200 to 300 hundred million working populations can be allocated to other industries.

In small towns, registered unemployment has already mounted to more than ten million, whereas the number of people being laid off is estimated at several tens of millions. Currently, there are approximately 200 million unemployed populations in cities and towns (taking middle-aged population into account). Hence, according to statistics, there should not be any labour shortage.

SHORTAGE OR SURPLUS

Labour shortage is reported prevalently in China. Let’s look at what is really happening.

In the Pearl River Delta and eastern coastal regions, companies complain about labour shortage. This happens only because they recruit just younger workers. According to record, 60 percent of the employees in the eastern coastal regions are 35 years old and below. None of the 40 to 50 year-old in the region is newly recruited. As time passes, the middle-aged population accept the fact that they are not wanted, and retire prematurely.

Life expectancy in China is increasing alongside with the development of economy, healthcare and medical care. Following that, retirement age should be extended. Current retirement age in Singapore is 65, and is expected to extend to 68 in a few years (the European Union plans to extend the retirement age to 69). If the retirement age in China is extended according to its increased life expectancy, China would have:

Year	Working Age	Working Population	No. of New Employment (per annum)
2010	15-59	9 hundred million	5 million
2020	15-64	10 hundred million	4 million
2030-2050	15-69	9 hundred million	3 million

If employers are willing to recruit middle-aged or senior workers, they would not have to worry about labour shortage.

LABOUR SURPLUS

China’s economy is slowly switching away from agriculture. A labour surplus will be observed. There is no room for development for labour-intensive industries.

In 2010, furniture industry in China exported US$40 billion worth of goods. That was 40 percent of global furniture trade. The other industries attained even better results – footwear export was 70 percent of global trade, cameras 50 percent, watches 80 percent, mobile phones 60 percent, etc. In short, labour-intensive industries in China, made up mostly of manufacturing industries, are quite matured.

In addition, with competition from other populous countries like India and Indonesia, there is no room for development for labour-intensive industries like ready-made clothes and cotton cloth industries.

LOW PRODUCTIVITY INDUSTRIES DO NOT MAKE GOOD USE OF LABOUR FORCE.

Today, China’s economic dimension is equivalent to one-sixth of the sum of the US, German and Japan. China has three times more labour force than the sum of the three countries, but the country’s productivity is merely six percent of theirs.

In furniture industry, Japan was ten times higher in productivity several years back, and currently they are still seven to eight times higher than China’s.

Instead of complaining about shortage of experts and excess in manual labour, enterprises should make an effort to increase their productivity. Chinese workers are no less talented or capable. With relevant training, meticulously planning and execution of smart business ideas, production method and design can improve productivity of workers.

HIGH-VALUE-ADDED INDUSTRIES: THE ANSWER?

Is high-value-added industries a solution to China’s shortage of experts and excess in manual labour? First of all, let’s look at what are high-value-added industries. Is the production of electronic merchandises a high-value-added industry? No. The production of television and computers are simple assembly industry, even simpler than furniture production. Obtaining patents for electronic components is a high-value-added industry.

When high-value-added industries are planted and executed carefully, they can solve many problems pertaining to workforce. Take Japan for example. Their economic dimension is similar to China, but they have only 60 million working populations. America is another successful example. Their economic dimension is two to three times of China, with only a hundred million working populations.

However, without experts, without accumulation of and innovation in technology, advocate for high-value-added industries does not work. Moreover, high-value-added industries are not related to manual labour. Take Sino Huawei Technologies as an example. They employ only university graduates, believing that they are more professional.

Different from aforementioned nations, China has 700 to 800 million strong workforce. That is a huge number. As the population ages, China will need an even larger workforce. Therefore, China should not do what the other countries do; advocate what the other countries advocate. China should be aware of her own problems.

Today, China is short on experts, but has an excess of low skill workers. High-value-added industries cannot solve all the problems for China. We are in need of more experts to increase productivity. At the same time, we shall not give up labour-intensive industries like the furniture industry which provide the manual labour with job opportunities.

Madam Song Mei Yong, 50th-51st Term President of Singapore Furniture Association (SFA ) shares her review of the Singapore Furniture market in 2013 and the outlook for 2014.

REVIEW OF 2013
With a total turnover of approximately S$1billion per year, the Singapore furniture market pales in comparison with many other nations. For example, Ashley Furniture, the largest furniture chain in the America has an annual turnover of US$5.6 billion, or about S$6.7 billion. QuanYou, one of China’s largest furniture company, has an annual turnover of about S$2billion. In comparison to these figures, the scale of Singapore’s local market becomes obvious. Our national market size is dwarfed by one individual company.

One of the reasons for Singapore’s small furniture market is due to the average national expenditure on home furniture as well as its small population and country size. The average expenditure per annum on furniture is slightly lesser than S$200. Contrast this with America where the average expenditure is S$330, coupled with those reasons listed above and it becomes clear. It is not surprising to find old and dated furniture which has been used for years even in the homes located in high end residential areas. The key point is the Singapore consumers’ mindset towards furniture – generally cautious and conservative in nature.

Fortunately, being a cosmopolitan city, about 37% of its residents are from overseas, which is similar to other major cities such as New York and London. These new immigrants have helped to cushion our furniture market from shrinking.

In the past year, especially so during the second half as the property prices began to fall, this culminated in the end of the price growth momentum since 2009. Volume of property sales has also declined, particularly in HDB flats, dwelling of most of our citizens. The volume of resale flats has dropped by 32% as compared to 2012, and this had a major impact towards the furniture market. The drop in sales of furniture by 4% to below S$1 billion can be attributed to the decline of the property market.

Outlook for 2014
What is the prospect for 2014? To be honest, I would be a little cautious regarding the year’s outlook. For reasons such as the effect of government’s property cooling policies as well as the overall reduction in the supply of HDB flats. Looking at it from the surface value, we expect a reduction of only 3%. However, upon in-depth analysis, the larger flats (3-room and above) will be reduced by 18% and there will be an increase in 2-room flats. Taking all these into consideration, the outlook does not seem too promising for our furniture sector.

Yet on the other hand, the cost of operations is expected to increase which will further complicate matters. First of which is the ever increasing rental costs in Singapore. At more than S$10psf, it is very costly for furniture retailers especially when compared to other countries like America. As our rental rates are mainly controlled by a few large firms, and not to mention our small market size and high expenses, profits are increasingly harder to achieve. Therefore, it is time for the furniture trade to think out of the box regarding our business model.

At the moment, SFA is exploring this area of evolving business model to aid our members. We hope to gather the support of the industry once the plan has materialized.

In 2013, SFA collaborated with Small and Medium Enterprise Centre to organize seminars for our members to introduce the Work-Pro and Flexi Work schemes. We believe that many members have benefitted from the schemes and further assistance are available to members. SFA has also appealed to the government through SCCCI to extend a Productivity and Innovation Scheme for another three years and also to simplify the claims processes.

In summary, SFA will continue to play its important role to:

– help members to better understand and tap on government assistance measures. Members can participate in seminars organized by SCCCI to help them to take full advantage of these measures.

– help members to thrive in their business in the Furniture Mall and at APFF exhibitions by continuing to increase marketing and advertising activities to improve the traffic flow to these venues.

– help members to keep up to date with new business models such as O2O (Online-to- Offline). It is inevitable that we need to look into e-commerce platforms which are the current phase of evolution in retail industry as online shopping will continue to grow.

– help members to explore global opportunities which are available even in the current downturn, so as to generate new sources of revenue and to remain competitive. In conjunction with the Council of Asia Furniture Associations (CAFA), members can now have the opportunity to have exhibition and retail space in overseas market at special concessionary rates.

Credit: Furniture & Furnishing Export International