15 November 2007
China feels pressures on pricing
Posted by Roger under: Business in China; Chinese Suppliers; Furniture Industry; Industry Trends; Pricing; Suppliers .
(Though a reprint, I thought this article was definately a trend we see ourselves, very relevant and something to always consider)
By Thomas Russell — Furniture Today, 11/12/2007
Shanghai, China— When it comes to raising prices on what they sell, Chinese furniture producers have to walk a fine line between keeping their customers happy and keeping their factories open.To avoid losing customers, some manufacturers absorb most of their cost increases. But to stay profitable, others pass along some of the cost increases in the form of price hikes
For more than a year, Chinese manufacturers have faced pressure from rising costs in such key areas as labor and raw materials.Factories in coastal areas also are facing a surcharge on sales to enforce antipollution rules. The surcharge eventually gets refunded for companies that prove they meet the standards. However, environmental reviews also can hold up plant expansions, industry observers say.
The change in the value of the Chinese currency is another big factor. In the more than two years since China altered its policies to allow the yuan to fluctuate, its value against the dollar has increased by about 9%. As of late October, one dollar was worth 7.46 yuan
The currency rate change means that for every dollar they receive from U.S. customers, Chinese manufacturers in effect get 9% fewer yuan.
At trade shows in China in September, manufacturers talked about how much their costs have increased
Sherry Ji, a sales department manager for case goods producer Full House Furniture Mfg., said materials and labor are now more expensive. Labor costs, she said, have risen as much as 40% from last year. The price of woods such as birch has nearly doubled
She said it has been hard to pass that along to the U.S. market, which represents some 90% of sales
“Our customers say no price increases,” she said
Zhongshan Gainwell Furniture also has seen cost increases on items such as hardware, which is up 20% since mid-2006, said Freddie Mac, a company advertising and planning department representative. Costs for items such as wood and fabric also have risen, Mac said
He said the company is able to pass along some of these increases to its customers. But many simply say no
Case goods producer H.C. International has seen the cost of hardware rise as much as 50% since mid-2006, and the cost of pine rise 20% over the same period. It shares such increases with some customers, while others simply switch suppliers, said Christine Liu, company marketing manager
“Some accept it and some go away,” she said, noting that most of the company’s sales are to Europe. H.C. International plans to begin selling to the domestic market this year and will open some company stores
Case goods producer Davon Furniture has been facing cost pressures on labor and packaging materials, and also a reduction in the rebates on China’s value-added tax that the government has been offering on exported goods
“Price is a challenge,” said Anlin Chen, the company’s market research and development manager. “From last October until now, it’s difficult for most factories.
To limit the effect on its bottom line, Davon has had two price hikes since last fall. Chen did not reveal the size of the increases or say whether they were across the board
Leather sofa producer Kuka Technics is expecting to raise prices 6% to 10% this year to help offset increases in costs and the lower VAT rebate
But CEO Jason Gu said he doesn’t expect the price hikes to hurt Kuka’s growing business in the United States and other markets. He said that’s largely because the company plans to improve product quality and value through various efficiencies in its manufacturing operations
“The customer will pay for that increase in quality,” Gu said.
HaoHao This
