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China Polishes Off Rivals in Furniture Production

Backed by cheap labor, the country has become the top exporter to the U.S. in less than 10 years.

October 21, 2002|Evelyn Iritani | Times Staff Writer

DONGGUAN, China — In a vast climate-controlled room far from the dust and din of the woodcutting machines, rows of young Chinese women create elaborate patterns from thin strips of wood. Fingers flying, they shape veneer into complex patterns of contrasting grains and colors, wooden tapestries meant to transform 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% 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 U.S.

"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 Co. 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% of the cost of production in the U.S. In China, it is less than 7%.

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 U.S. 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% of U.S. furniture production would move to China within five years. "It's a sleeping dragon, and it woke up."


Crossing the Strait

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.

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 U.S. 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 U.S. 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 while his teenage children attend school in Taiwan and Australia. "We're all Chinese."


Economy and Quality

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.

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