Outsourcing to Asia: Why It's Good for the American Furniture Industry

Little round stickers with the “Made in China” mark have adorned cheap toys and trinkets for years. Now, the same phrase is on the labels of beautiful hardwood and upholstered furniture selling at some of the higher price points. American furniture manufacturers are working with factories in China and other Asian countries at a rapidly increasing rate. How is this affecting the furniture world, and what does it mean for the future of making and selling furniture both globally and here at home?

The biggest players
It’s not just China anymore. Many other Asian countries are turning out high-quality tables, chairs, beds, casegoods and more.

“Asia is pretty much the manufacturing hub of the world of furniture,” said Abethan Kanthasamy, managing director of Lifestyle Solutions. “Brazil makes a little bit of furniture competitively, but they’re limited to the type of timber they have available, which is predominantly pine, and their currency has gone up, so they’re not as competitive anymore.”

Kanthasamy comes from a Sri Lankan heritage, and he lives full time in Malaysia, managing Lifestyle Solutions’ biggest factory. Lifestyle Solutions has a sawmilling operation in Sri Lanka, where they have a joint venture with a plantation company for timber. Lifestyle Solutions is also building two more plants in Sri Lanka in order to make casual convertible sofa beds for the Indian market.

“The United States is still number one in the furniture world, but China is certainly catching up,” said Tom Erdman of Handy Living. “Vietnam, Indonesia, Malaysia, the Philippines, it seems as though the whole region is emerging.” Handy Living has joint ventures and partnerships with factories throughout China, Erdman said, and their upholstery operations are located near Shanghai, where they work with existing factories to produce their goods. Erdman spends one week out of every two months
in Shanghai.

Each country and region in Asia has its particular specialties in furniture production, depending on available raw materials and the talent of local artists, designers and workers.

“In upholstery, [the biggest player is] China,” said Howard Slavin, president of Shanghai, a Lifestyle Enterprises company. “Now our case goods division is doing business in Northern China, Southern China, Vietnam, Malaysia, Singapore…those countries can compete in wood.”

Slavin’s company works with upholstery factories outside of Shanghai and case goods factories outside of Saigon, Vietnam and in other Asian countries. Slavin travels to China every six to eight weeks to do quality control and supervise the communication channels between his company, the factories, the retailers and their end consumers’ needs.

Big Tree Big Sleep works with factories all over China, including Kunming, Beijing, Shanghai and Guangzhou. Bob Pecoraro, the company’s president, spends about 60 days a year in China and also plans three trips to Vietnam this year. He said that Indonesia is known for artistic new designs and ideas while China excels at producing products from blue prints handed to them by American manufacturers.

“The Philippines is the Italy of Asia,” Kanthasamy said. “They come up with beautiful original designs there.”

“The Philippines seem to be better at fine woodwork and carving, although the other countries certainly have their areas where they do well,” Erdman said. “Vietnam seems to be really coming out in the wood area. But China seems to be able to do everything, and they seem to be able to do from the very high end to the very low end.”

Why outsource to Asia?
“The biggest issue obviously is cost,” Erdman said. “We are able to put product in the retailer’s and consumer’s hands at the prices they want to pay. It seems as though if we manufacture domestically, we’re not able to hit the price points that are necessary to be successful, so we need to go to where we can be successful, and Asia seems to be that place.”

“China, Malaysia, Indonesia, Vietnam, the Philippines, Thailand, they’ve got a price advantage,” Kanthasamy said. “Price is the key factor, and the quality is just as good as what they make here [in the US].” Many factors add up to make Asian manufacturing less expensive than domestic manufacturing. “They’ve got the timber, they’ve got the quality,” he said. “It’s not just raw materials, it’s labor as well...there are fewer regulations…the supporting industry is really set up well, infrastructure is great, their highways are as good as ours here, they’ve just got all of it going for them. Incentives by the government–in Vietnam’s trade zone you can set up a plant and you don’t have to pay taxes for 5 to 10 years.”

“What’s happened in every other industry has finally caught up to the furniture industry,” Slavin said. “It’s a globalization. By 2010, 90 percent of all the furniture in the world will be produced in China…The value we can bring to the domestic market is a product that’s made better…at much cheaper prices. When I was a buyer at Macy’s in the early 70s, the magic retail price point for an upholstered sofa was $399. Now in 2006 you get the same price point. This industry is inflation proof!...By taking advantage of this globalization, the name of the game is the opportunity to make more money…We’re almost a half a billion dollar company, and that’s because we can offer value to the consumer. And it’s all because of what is happening in China.”

Economy of scale is one of the biggest reasons Asian manufacturing makes sense, Erdman believes. “It seems as though most of the companies there [in China] are set up for scale, and they also create some efficiencies that we’re not able to create because of the size of their operations,” he said. “In the US, a lot of manufacturers will take orders from people who do two and five and seven–whatever number of pieces the retailer wants to buy. Asia’s not set up that way–they’re set up to do tonnage, and so their lines run 100 percent all the time, and because of that they don’t slow things down… While in the US we tend to cater to everybody, they’ve made a decision there to cater to the large order. On top of labor savings and probably some raw materials savings, they also get savings through the efficiencies of the large-orders-only strategy.”

Cultural differences
Working cross-culturally creates communication difficulties on the small scale and the large scale. Manufacturers who spend a lot of time in Asia learn insightful lessons about person-to-person communication as well as business-to-business communication.

Because Chinese students are required to learn English, Erdman said he has never had to learn Mandarin to communicate with his Chinese colleagues. However, he has learned to keep in mind that Chinese schools don't necessarily teach idiomatic or casual English. "When you're speaking English all the time, you forget that the person on the other end of the conversation doesn't have your background," Erdman said. "So you say a phrase that's commonly known in the US and not commonly known over there and it's very, very easy to send the wrong message, so you have to take English in very literal terms. When you're speaking you try not to use words that negate the word, like 'unrealistic'-you don't want to say that, you want to say 'realistic,' because using suffixes and prefixes makes it more difficult for them to understand. You tend to say 'yes' and 'no' and you tend to use words in their root forms."

Differing cultural standards and priorities make quality control vitally important. Jane Arason of Arason Enterprises, which outsources the manufacture of the Fu-Chest and ZZZ-Chest lines, said that the philosophy of the Chinese plant they work with is, "Cheaper is always better. If you want finish A on your furniture but finish X is cheaper, they will use X even if you want A," she said. "In America, they would use A and tell you how much more it would cost."

"The Chinese, and I say this in a positive light, do everything they can to please," Slavin said. "They will do anything they can to be accommodating, but that doesn't always translate. Their intent is sincere, but it doesn't always come off that way. In their culture, they see nothing wrong with, if an item is doing very, very well, and one of my competitors comes to them with the same thing," they won't hesitate to produce it, he said. "That's always a challenge.if you went to any of the other importers, you'd probably see similar looks."

America can learn a lot from the focused approach of the Chinese educational system and the analytical minds it turns out, Erdman believes. "Their whole government educational system is based on science and engineering and mathematics." They also focus on learning English, because "they understand that that is the market and that's who they're going to be working with and talking to."

He shared a humorous anecdote about those engineering-educated minds at work. "Chinese Pizza Huts have a one-trip salad bar. The Chinese are not embarrassed by how their plate looks. If someone is offering something at a price, they want all they can get. In the course of one trip, a person can build a salad a foot tall, and they'll use cucumbers as bricks, they'll use salad dressing as mortar, and create this huge, huge salad. It looks like an engineering thing more than it does like food. They'll feed three and four people off of this one salad."

The Asian retailer
As more international companies turn to Asia as a manufacturing hub, producing more jobs and better pay, the middle class in those countries is growing. Manufacturers are seeing an increase in interest in their products–from Asian consumers.

“The growth in China is just electric,” Erdman said. “Twenty percent of the world’s high rise cranes are in Shanghai. The population is 18 million, which compares to that of New York City. Since the land mass in Shanghai is not as great as NYC, you see more people living in smaller homes.”

Close quarters in big Asian cities affect the product demand. “The products we develop for the Chinese market are smaller, because obviously space is an issue,” Slavin said. “They’re also a lot firmer.”

“What’s selling at retail in China? Smaller pieces, more colorful, a lot of dual purpose, click clack type items,” Erdman said.

“The Chinese have had click clacks for over 15 years in their local markets,” Kanthasamy said. “In China, it’s definitely a very low cost, very low price, low comfort type of click clacks. The click clacks sold here in America are beefed up.”

While there are differences between American consumers and Chinese consumers, there are also many similarities. “They want to be American,” Erdman said. “Have homes and furniture that look like ours if they can afford it.”

“In Shanghai, you see all these designer stores,” Slavin said. “They are emulating the West. That’s certainly something to reckon with as their economy is growing. China consumes more Coca-Cola than Americans do. They smoke more cigarettes than Americans do. You think of the other industries that are exporting to China, they’re doing great business.”

American retailers, Asian goods
While "Buy American" can be a good selling point, American retailers can sell value and quality no matter where the product is made. By educating themselves about the Asian furniture manufacturing world, retailers can show consumers the many benefits of buying Asian-manufactured products.

"Retailers need to understand that the market has moved," Erdman said. "We are in a global economy.we can be jingoistic and think if it's not built here, it's not good enough for me, but that's not the reality. If we accept that, and we understand the role of the Chinese as a manufacturer, then we can understand that they can do good work, actually great work. For the retailer, they don't have to be afraid of that product. The Chinese are very aware of how to do business here. They are probably as well equipped as people in Mississippi and North Carolina are. They also have the ability to grow. Where we might place an ad in a newspaper and hope to get 10 applicants, they have 1.3 billion people-people are waiting in line for jobs. Asian factories are not sweatshops-people want to work there. The factories I've seen look just like American factories."

The increase of furniture manufacturing in Asia is clearly affecting the American furniture market as prices go down and production increases. The retailers that survive and thrive will be the ones that adapt to the changing worldscape and enjoy the quality, variety and prices of the Asian-made goods they can offer consumers. FLLS