14 September 2010
2010/2011 Chinese reproduction & solid wood furniture industry trends & outlook
Chat with any “old school buyer” of Chinese antiques about the late eighties/early nineties and stories of 200 RMB rosewood tables and Ming dynasty porcelain for a few hundred RMB will bubble quickly to the surface. In recent times, this period might be considered the modern birth of the industry, with western buyers in Hong Kong at the forefront. Ten years later, Chinese mainland buyers have become the dominant force with Hong Kong playing backseat to Beijing, Ningbo and Zhongshan – all playing equally major roles in the industry. How times have since changed! The last three years however, have seen lighting fast changes within many of China’s industries. And the antiques/reproductions segment has in no means, escaped this. So what can we expect in the future?
Labor Shortages:There has been much coverage in the media attesting to fact that, despite its 1.3 billion strong population, China is experiencing labor shortages in many industries/areas (particularly in the pearl river delta). In the furniture industry, the effect is evident in the average age of a carpenter with a glance inside any workshop revealing most are well into their 40ies. As many young people today have no desire to pursue a career perceived as dirty, backwards, low paid and labor intensive, expect this imbalance to continue. Its no secret within these circles that each year it becomes increasingly difficult to find/employ skilled Chinese carpenters and within five to ten years this will become a major problem for the industry.
Higher labor costs: In 2007, the starting salary of a college graduate ( w/computer and language skills) working in a foreign company was equal to or exceeded that of a Chinese carpenter. Its important to realize that office staff are generally individuals who live/work in the city, have college degrees, computer skills and likely foreign language skills as well. Yet by 2010, the monthly salary of carpenter from the countryside, with a middle school or high school education living and working in the factory will exceed (in many cases be double or more) that of entry level office worker. Therefore its no surprise the average monthly salary of a carpenter is a hot topic among workshops this year. Once treated as unskilled labor, carpenters and antique restorers are now essentially taking their rightful place as skilled craftsmen with compensation to match.
Diminished bargaining power: Chinese treat business as war and negotiating for a raise is no exception. Stories of the Nouveau riche coal miners snapping up high priced antiques, car buyers paying for their buicks with cash, the international spectacles of the Beijing Olympics, twenty years of strong growth and even the local media’s heavy propaganda coverage of the “communist economic miracle” have given rise to a “sky’s the limit” mentality. This combined with massive social pressure to get rich have turned many workers into mercenaries. Despite the global economic crisis and subsequent slow recovery, workers continue to demand increases and stories of workers defecting to the factory down the road for a mere extra 50 RMB are very common. In China loyalty in not earned but rather purchased.
- Both Chinese and foreign customers have a multitude of choices and are gradually demanding better quality-better value for their money.
- Foreign customers particularly import buyers, reluctant to pay higher costs will need extra incentives or greater value added. In cases where customers are unwilling to pay more, producers may need to operate under thinner margins, provide better value for the money or seek out new customers.
- Price was once the dominant (only) factor. Good design has now become an additional buying factor.
- Its no secret (or shame in) that China wants to climb up the value chain. In practical terms, this means industries perceived as unskilled, labor intensive or resource heavy can expect no assistance from the government in the form of tax breaks, incentives or loose regulations.
- The Lacy Act: More paperwork for exporters who are sending product to the US. See here for more info.
|Searches for “Chinese antique furniture” have decreased on Google since 2004,
yet on Baidu (Google’s chinese language competitor) an equivalent Chinese language term
has held steady and now after the economic crisis appears to be once again rising.
For mid-level and low level antiques and reproductions, market demand has steadily declined from its peak in 2004 (For high end, museum quality antiques 2010/2011 may be the peak). Yet while export demand has fallen, domestic demand has increased significantly and many suppliers have now turned inward to make up for the shortfall. While a new and/or adjusted business model may be required the growth of the domestic market should not be ignored. Which is why many suppliers who were export only in 2004 now have robust domestic sales channels and customer base.
Opportunity!A gradual but steady recent wave of closures and consolidations has visibly changed the landscape with a noticeably diminished number of players in the industry. Smaller suppliers with inadequate capital and/or those lacking the skills needed to climb the value chain have closed down. Others have merged or moved into other more profitable businesses. Which in turn, presents additional opportunities to access previously unavailable talent, customers and business networks.
A gradual recovery!After the tsunami of the global economic crisis, this is music to our ears and most suppliers are seeing a slow but steady uptick. While the US market still remains below its normal buying capacity, growth in other markets as well as European buyers are picking up the slack.
Its all about money! Beijing Olympics related delays , a global economic crisis, rising material/labor costs, few government incentives along with a decrease in the popularity of Asian style furniture have taken a toll on workshops and manufacturers over the past few years. The cumulative effect, is that many suppliers (particularly smaller ones) are stretched extremely thin. As margins, cash-flow and business volume continue to decrease, expect less good will, minimal/no credit terms and a strong resistance to addressing bad product/poor product (or anything else that requires an additional cash outlay on the suppliers part). Vendors are now less concerned with past relationships or future business prospects and more interested in how much cash you can put into their pocket today. Expect some aspects of china’s rough and tumble business environment to get even rougher.
Things cost more (its normal): The days of cheap, inexpensive Ming style knock-offs are a thing of the past. In China where development occurs at breakneck speed, a factory/restoration facility’s operating expenses may increase anywhere from ten to twenty percent each year according to the rising costs of utilities, labor and materials. In practical terms, this means an item which in 2007 cost 100 RMB to produce, may in 2010 now cost 120 to 140 RMB for the exact same item. Yet a surprising number of customers continue to demand the same pricing for items year after year.
“How much do you think a carpenter earns monthly?” I often pose this question to customers. Many times the answers are quite surprising from 2500 RMB (high end) to 1200 RMB (low end). Some are downright silly, like 800 RMB. Media reports about the strikes at foxconn and Honda are misleading and confuse buyers, leading many to believe everyone in China makes 900 RMB a month. Trust me, when I say Chinese carpenters and artisans make significantly more monthly, with freelance master carvers now able to make upwards of 8000 to 10,000 RMB a month. So be realistic in your expectations and appreciate the costs/time/effort involved and compensate accordingly. The easiest question to ask is “would you spend days restoring an entire antique cabinet for 200 RMB?”
Things may cost a lot more: In cases where supply cannot keep up with demand, prices may seem to almost double overnight. Raw materials like brass and reclaimed wood have risen dramatically in price over the past few years. Certain antique styles have now become rare and expensive after years of being exported abroad in large numbers. Rising labor costs, improved local standards of living, greater domestic buying power and even a slow but steady increase in demand for quality are all contributing factors.
Design/Quality is improving: After years of suffering with “chao Ba Duo” product, cracks and who knows what else, I find myself surprised to say that quality has indeed improved. Years of overseas customers training local suppliers in quality expectations have had an effect. While I would not go as far as to say “this is the rule,” I must admit even many of the smaller workshops have improved various aspects of their furniture production techniques. And design wise, local designers have begun to creatively design/develop rather then simply “copy” resulting in interesting and unusual fusions of Asian-western-funky-cool.
Someone else may pay more:Western buyers were once sought after for their willingness to pay a premium for higher quality/better service. Chinese buyers on the other hand, were seen as “price sensitive bargainers.” Yet today, increasingly wealthy domestic Chinese antiques buyers have become the dominant force in classical hardwood furniture and genuine antiques. Reawakening to their own culture and possessing an “ingrained understanding” of hardwoods, periods and historical references, Chinese buyers are increasingly willing to pay a premium for such attributes. In the case of quality items, don’t be surprised if suppliers seem less eager in selling to you.
My question would be, what are the rest of you out there seeing in the industry at large?
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