China solidifies dominance in furniture making
BY EVELYN IRITANI
Seattle Times Dec. 1, 2002

  DONGGUAN, China - In a vast climate-controlled room far from the dust and din of the woodcutting ma-chines, rows of young Chinese women create elabo-rate patterns from thin strips of wood. Fingers flying, they shape veneer into complex patterns of contrasting grains and colors, wooden tapestries meant to trans-form mere cabinets into objets d'art.
  The workers who craft these designs are paid 40 cents an hour, which allows factory owner Samuel Kuo to make high-end furniture for American consumers for 30 percent less than his U.S. competitors can.
  By tapping into the aspirations of China's poor, Kuo has helped turn a remote stretch of rice paddies in the Pearl River Delta into a furniture-making powerhouse. His factory is one of thousands churning out dining room sets, sofas, china cabinets and coffee tables. In less than a decade, China has become one of the world's leading furniture producers and the top exporter to the United States.
  “For the next 10 or 15 years, China will be the manufacturing base for all of the world,” said Kuo, 47, whose Lacquer Craft Manufacturing ships 1,400 containers of furniture - the equivalent of 18,200 bedroom sets - to the United States each month. “For anything that involves people, China is the place.”
  An outpouring of Chinese products is reshaping the global economy. Around the world, makers of everything from bicycles to bath towels are struggling to survive intense competition from inexpensive, high-quality Chinese goods. Thousands of factories have closed as production jobs have moved to China.
  That migration has been driven, above all, by low wages. In furniture, for instance, labor represents 30 percent of the cost of production in the United States. In China, it is less than 7 percent.
  As furniture factories have moved to China, their suppliers and related businesses have followed, making the country an exceptionally efficient place to operate. Akzo Nobel, a Dutch-Swedish conglomerate that is one of the largest suppliers of furniture finishes, has closed plants in the United States and Europe and is opening three factories in China.
  “We can't expand fast enough,” said Michael Keith Estes, a managing director at Akzo Nobel. He predicted that 90 percent of U.S. furniture production would move to China within five years. “It's a sleeping dragon, and it woke up.”

Taiwan led the way
  Among the first to move to China were furniture producers from Taiwan, which were being squeezed by rising wages and land costs at home.
  Kuo, whose family manufactured wooden pool cues in Taichung, a city in central Taiwan, was among the pioneers. After completing his military service, Kuo took over the family business, expanded into furniture and began looking across the Taiwan Strait for a cheaper place to operate.


A comparison of production costs: In Marion, N.C., a center of the U.S. industry, and Dongguan, China’s main-furniture manufacturing area

Marion, N.C.                                                                                           Dongguan, China

$25,049                               Factory worker, annual wages                     $1,205-$1,445
                                                                                                              (includes housing,
                                                                                                              subsidized meals)
$44,985                                line supervisor annual wages                          $4,819-$6,024
                                              
$66,217                               Plant manager, annual wages                    $40,000-$50,000

$35-$40 per square foot.         Cost to build a factory                          $7 per square foot

  That was in the early 1990s, and China was eager to attract foreign investors. The government wanted to convert the southern city of Dongguan, 50 miles north of Hong Kong, to an industrial zone specializing in exports. Officials there offered Kuo tax breaks, inexpensive land and light regulation.
  Long-standing animosity between Taiwan and Beijing complicated such a move. At the time, Taiwan prohibited direct investments in the mainland. But entrepreneurs devised ways around the rules, and the government generally looked the other way.
  Kuo set up a factory in Dongguan and started making simple wooden tables, which he shipped to the United States at bargain prices. Quality was unpredictable. Shoddy packaging fell apart in transit and the furniture arrived with nicks and dents. It was hard to find a steady supply of top--grade wood, because China's forests had been depleted by years of unrestrained logging.
  Gradually, Kuo turned things around. He imported high-quality wood, upgraded his machinery and brought in experienced managers from Taiwan and the United States. Soon, his Dongguan factory was able to meet the standards of a growing list of U.S. customers, including prominent brands such as Ashley, Standard and Progressive. In 1994 he closed his factory in Taiwan.
  Competitors took note of Kuo's success and followed him across the strait. Today, 2,000 foreign furniture companies operate in southern China, 350 of them owned by investors from Taiwan.
  Those Taiwanese-owned factories produce nearly three--quarters of China's wooden furniture exports. Kuo hopes this mutual dependence will reduce the likelihood of military conflict between the island and the mainland. "We speak the same language," said Kuo, whose wife, Grace, handles the company's finances. "We're all Chinese."

Factory town
  The road to Kuo's factory in Dalingshan, a township within Dongguan, is lined with small shops selling wood, paints and furniture making supplies. Lacquer Craft is a sprawling complex of blue--and-white buildings with several huge manufacturing, assembly and warehouse facilities and four dormitories for Kuo's 5,000 employees.
  By midmorning, the factory is bustling. Young men wearing goggles feed wood into precision cutting machines that fill the room with a constant screech. Workers drive motorized carts between buildings, unloading supplies and moving furniture pieces to the next step in the production process. At the end of the assembly line, workers wrap dining room chairs and dressers with padding and plastic for the long sea voyage.
  By the time it reaches the showroom of a Macy's or a Levitz, the furniture commands prices ranging from $300 for an end table to as much as $4,000 for a dining room set.
  At each step of the manufacturing process, Kuo tries to shave costs without compromising quality. He does this by combining modem technology with manual labor.
  He has purchased some of the world's most expensive wood-measuring and cutting machines, so waste is minimized and furniture parts will fit together seamlessly. But he relies on human hands for fine decorative touches or for rote labor that in China can be done at low cost. For instance, Kuo economizes on raw materials by purchasing cheap wood for certain uses and paying workers to cut out the knotholes.
  In the "veneer room," hundreds of women piece together intricate designs. The ornamentation enhances the appearance of a cabinet or a bureau and thus its market value. That is not the only reason Kuo is fond of veneer. Every last piece of wood is used, so there is far less waste and more furniture can be made from the same quantity of timber.
  “He has the best veneer room in the world,” said Winsor White, an American furniture designer living in the Philippines who came out of semi-retirement to work for Kuo. “No one in the U.S. can afford to do that today.”
  Once a piece is completed, it heads down a mile-long, serpentine finishing line with 19 spraying stations and 300 workers, more than twice as many as would be found in a U.S. factory. Each item gets extra sanding, buffing and finishing, attention reserved for only the most expensive furniture in the United States.

A magnet for workers
  Kuo has no trouble filling jobs. An estimated 10 million laborers from across China, more than 60 percent of them women, are looking for work in Guangdong province. Their hours are long and the labor grueling, sometimes dangerous. They keep at it because their paychecks help feed the families they left behind.
  Kuo said it's in his interest to offer his workers progress toward a better life, however gradual. Employees who are treated well are less likely to defect to one of his competitors. Lower turnover reduces training costs.
  “Under communism, people all got the same pay,” he said. “Now, people will jump to another job for a penny an hour more.”
  As competitors flooded into China, Kuo realized that he couldn't compete on low prices alone. After studying the U.S. market, he became convinced that having a brand of his own was the best way to increase sales and profit.
  As a supplier, Kuo was not in control of his production. The large American furniture brands that were his major customers told him what to make and how much. Kuo wanted to sell directly to retailers. But he knew that an unknown Chinese brand stood little chance of success.
  Then Kuo heard that one of his biggest clients, Universal Furniture, based in High Point, N.C., was up for sale. Last year Kuo paid an undisclosed sum, believed by industry analysts to be at least $25 million, to acquire Universal's brand name and its sales and marketing network. He did not want its factories in the United States and Asia, which were sold or closed.
  The marriage of Universal Furniture's name with Kuo's low-cost production base has been lucrative, he reports. Though overall U.S. furniture sales have been slumping, Kuo said the demand for his ornately carved dining room sets and veneered cabinets has been so strong that he plans to spend $20million building new production capacity in China.
  Kuo said furniture manufacturing is in China to stay. One reason is that the country's population at 1.3 billion the world's largest ensures an almost endless supply of cheap labor. Millions of peasants will travel across the country for even a meager paycheck. As wages rise in industrial areas such as Dongguan, manufacturers can open factories elsewhere.
  Kuo has started building a second factory near Shanghai, where wages are lower than in southern China and government incentives even more appealing.
  “China is getting stronger and stronger," Kuo said. "It still has 10 to 15 years to go before it reaches the next level. But compared to 10 years ago, it has come a long, long ways.”