China Focus  



THE FURNITURE INDUSTRIES OF CHINA AND SOUTHEAST ASIA

By Dr CS Lim


ANZ bank released a report some time ago. In it is a forecast that owing to the cheap labor advantage enjoyed by countries such as Myanmar and others located along the Mekong River, the Southeast Asia region will replace China as the “world’s factory” in the next 10-15 years.

Japanese media got really excited by this with wanton reporting by publications such as Fuji Sankei Business Daily, Japanese Economic News. On a daily basis, Japanese Economic News reported that such and such business has gone to invest in Southeast Asia, or highlighted the prospects for the Southeast Asian market and more.

They are actually amusing themselves. The business community were not in sync. Companies interviewed generally believed that the migration of businesses to Southeast Asia did not gain momentum.

The head of a Japanese owned electronics factory in Shenzhen once said: there were considerations to setup a factory in Vietnam a few years ago because of the increased labor costs in China. However only when in Vietnam did the company realise the many problems such as the frequent power outages which will affect normal factory operation. Meanwhile, Vietnam’s local market is small and products can only be exported.

ANZ created a chart which compared wages amongst Asia’s emerging economies


Although wage is certainly a very important factor for production enterprises, it is not the sole factor. The following should be included:
- Government policy;
- Infrastructure;
- Upstream and downstream supply chain;
- Domestic market;
- Raw material;
- Land Supply

Our discussion is confined to the furniture industry.. Let us look at the conditions in Southeast Asia.

According to a report by ANZ Banking Group’s economists, in 2030, more than half of the 650 million people in Southeast Asia will be less than 30 year olds. They belong to the emerging middle class with huge spending power.

We can classify the ten ASEAN countries into three groups:
Group I: Myanmar, Cambodia, Laos, Indonesia;
Group II: Malaysia, Thailand, Vietnam, the Philippines;
Group III: Singapore, Brunei.

Within Group III, Singapore is already a first world economy with high wages, limited land. Thus it is unlikely to develop its furniture industry. Brunei, with a population of only 200,000 to 300,000, cannot engage in the production of furniture in a significant way. As such we will not consider the third group.

Group II refers to countries with moderate development. They have certain foundations built. For example, Vietnamese furniture exports has reached 10% of that of China. Malaysia also has strong production capabilities. The following are statistics on these countries.



As Vietnam is not a member of the Council of Asian Furniture Associations, their export import data are not available. However, their export is approximately US$5 billion, which is about 10% of China’s total export. This makes Vietnam the largest furniture exporter in Southeast Asia Countries in Group II are able to undertake part of Chinese production. For example, Vietnam basically inherited the Chinese export of solid wood bedroom furniture to the USA after the antidumping duties were imposed on the Chinese ten years ago.

Vietnam’s upstream supply chain have become increasingly complete in recent years. There are MDF plants, paint factories, hardware manufacturers etc. With prices of rubber wood at just 1600-1800 yuan, 1,000 yuan cheaper than China, the potential of Vietnam is huge.

So long as the local governments of the other countries are inclined to grow their furniture industries, it should be easy task to develop their respective industries. This is because of their strong foundation in furniture production. For example the Philippines’ rattan furniture is of good quality; the Thai teak furniture and Malaysian dining furniture are well made and price competitive.

In the third group, with the exception of Indonesia, Cambodia, Laos and Myanmar belong to the Mekong River area. They are characterized by an abundance of labour and very low wages. However their furniture industry has not yet industralised. Most remain in the manual workshop stage.


Although Indonesia was supposed to belong to Group II, they were placed in Group III taking into account their relatively low industrialization and mechanization. In fact, Indonesia’s furniture industry is equipped with many favourable conditions:

Timber Resources: There is a wealth of tropical hardwood forests, mahogany, teak and so on. An early ban on the export of logs, domestic prices for timber are cheap.

Land Supply: There is very adequate supply of land. There is no distinction of land for industrial or agriculture use. Many factories are built on former farmlands. As it is located in the tropics with constantly hot climate, building costs are low as factories are erected needing only pillars and roof. Human Resource: Very adequate supply. Indonesia has a population of nearly 400 million with ten thousand islands large and small. There are ample supply of workers including world-class cravers and craftsmen.

Regarding taxation, it is said that it is open to discussion with the local mayor. However, with such attractive conditions, what is the reason for the slow pace? Why is the yield lower than Malaysia? I think the most important is people and the lack of entrepreneurship spirit.

I went last year to Semarang and Jepara as well as other localities to survey. I noticed that the craving work was all by hand with simple setup. The wood drying was very basic.

I asked why they do not use machinery. All the replies are almost the same: “What happens if we have no order after buying the equipment?”. As such the heavy reliance on manual labour. Someone from Singapore once built a modern kiln in Jepara, it was torched in the middle of the night.

With mutual supervision, no one would dare be the first to modernize. Thus, foreign importers cannot buy furniture that have not been kiln-dried, this caused a vicious cycle and thus the present day, exports is limited to merely less than 2 billion, a tiny fraction of China’s numbers.

After over thirty years of rapid development in the Chinese furniture industry, its total export is more than 50 billion US dollar, way surpassing the performance of the various Southeast Asian countries.


China is a major exporter to Southeast Asian countries but the total exports in Southeast Asia is not even half that of China’s total exports. However there are problems experienced in the development of China’s furniture industry:

- The rise in productivity does not match that of wage increases (TFP) thus leading to a net increase in costs;
- Overly extensive employment. Low per capita productivity compared to developed countries and the phenomenon of recruitment difficulties;
- Education has not kept pace. There is insufficient vocational training school. Therefore there will be a lack of traditional craftsmen, operators of advanced machinery and programmers.

A look at the following set of data will perhaps illustrate where the problems lie more vividly:

1. China’s furniture production is about two to three times that of the United States. The Americans claimed that about 50 percent of production are domestic. I do not agree, as any furniture even if a screw is added in the US is considered US made. As such I think those custom made, decoration furniture, it really is the US domestic production, equivalent to 30-40% of China’s total production. But they have only 4,972 companies. The other hand, China three times, the number of enterprises not the United States, but a dozen times, reaching some 60,000.

The Japanese furniture production volume is estimated to be about one-tenth of China. However they only employ more than a hundred thousand people for the manufacturing as compared to China using 2.5 million workers.Their productivity is 4-5 times of ours.

From the above data, we can say there are too many furniture enterprises, and too many small ones. At the same time we use too much labour. To sum it up, if we can increase productivity, we will not lack workers and our costs should not be too high.

Chinese enterprises are currently transforming and upgrading. However, it cannot be at the expense of giving up their traditional manufacturing advantages. It should be through intelligent manufacturing and green manufacturing to transform traditional manufacturing.

Japan’s furniture industry has a per capita productivity of more than one million yuan. That is 4-5 times higher than China. Our transformation and upgrading in essence is to increase productivity. There is a long way to go and how can Southeast Asia replace China’s dominance?

Unless the Chinese stagnates.

Southeast Asian countries and China can play complementary roles. For example, some special type of material resources such as rattan furniture would be Indonesia’s strength. Certain materials that are banned from export such as redwood from the Mekong Basin, may be processed into parts for export to China.

I believe there are people already engaged in these activities. There is no need for others to try match-making.


DR LIM CHEOK SIN
President, Council of Asian Furniture Associations Professor, Beijing forestry University , currently the Chairman of the Council of Asian Furniture Association (CAFA). He read at Nanyang University in Singapore and completed his PHD at Beijing University of Forestry. He holds a Post Doctorate from Michigan State University and is a visiting scholar there. Dr Lim has been active in the Singapore furniture industry, chairing both the Singapore Furniture Association and Furniture Association of Asia and Pacific previously.