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Foshan: China’s Mega Furniture City

Guangzhou, Dongguan and Shenzhen have frequently and widely been considered the major furniture-manufacturing nuclei of the Guangdong province, largely due to the well-established trade exhibitions in these cities. But there is another furniture city in the province that is alit and believed to be China’s largest furniture and lighting wholesale market and manufacturer – Foshan.

According to KC Zhang, Secretary General of the Foshan Furniture Association (FSFA), there are about 2,800 manufacturers there, producing all kinds of furniture for indoor, outdoor and office use. This does not include the hardware and component suppliers.

Shunde and Nanhai are the two main districts in Foshan that house these seemingly endless stretch of wholesale centres.

Within Shunde, towns Longjiang and Lecong are where the industry is concentrated. The former was in 2007 named the Key Furniture Manufacturing Town and Capital of Furniture Materials by the China National Furniture Association (CNFA). Since the 1990s, Longjiang has been the base to source for office and upholstered furniture, as well as components and hardware. This was at the same time when Shenzhen and Dongguan became furniture-exporting giants.

Less than 30km from Guangzhou, Lecong in 2004 was conferred Capital of Furniture Trading, also by CNFA. According to CNFA, by 1996, Lecong’s furniture trading market had spawned to cover 1 million sq m. In 2000, the town was given a facelift with RMB 200 million investments. Within six months, a 10-mile modernised and structured furniture street sprang. Today, there are more than 3,000 furniture retailers and 180 furniture malls here, totalling an area of above 2.8 million sq m.

In this report, our editor-in-chief, Casey Loo, speaks to the FSFA and several other furniture players in Foshan to catch a glimpse of its grandness and development.

Zuo Nai Qiang

Chairman
Foshan Furniture Association (FSFA)

“China is a strong manufacturer of furniture products for the world market. However, I observe that there are market irregularities. For example, there are many good quality furniture produced on OEM basis for foreign companies. Such products are 100 percent exported and not available to consumers locally.

As the Chinese economy strengthens, foreign products have become commonplace here. For example many foreign world-leading brands of electrical appliances are now easily available. Chinese consumers prefer them to local brands.

From a protectionist perspective, we do not welcome foreign competition. However, in the long-term view, having foreign furniture companies manufacturing locally or exporting to China will help to raise industry standards. This forces local manufacturers to enhance their competitiveness. For the general public, it would mean being able to enjoy more choices and better quality. It can be a win-win situation.

For those foreign furniture brands viewing China from the outside, there is no need not be afraid of the Chinese market. To take an analogy from the consumer electrics sector; why do foreign brands of mobile phones dominate the Chinese market? The prices of many of these brands and models are many times that of those offered by local companies. There are also knock offs available but these foreign brands continue to command their share of the market.

There are some foreign brands currently available to consumers in China through local agents and distributors. However, they mark up the prices so much, creating a barrier to consumers. There should be a balance between pricing and market share. There is a price value that brand image, design and quality together command. A reasonable pricing will encourage greater consumption of these products.”

The Mega Furniture City: Current developments

Foshan Internatational Furniture Expo City

Factors that Chairman Zuo of the FSFA pointed out led to the building of the Foshan International Furniture Expo City (CFEM), to help both local and foreign companies reach out to the Chinese market. Zuo is also the president for this project.

With full government backing, it is developed under the overall framework of ‘Forming Modern Urban Construction in Foshan’. It hopes to attract spending from trade buyers and local consumers, as well as tenants from local and foreign companies.

The project will be carried out in two phases in the Lecong town of Shunde district in Foshan. The first phase covering 1 million sq m will be ready by end of 2009. We expect the construction to be fully complete by June 2010. The 10-storey building, including a basement car park, will house furniture, bathroom ware, home textiles, decorative accessories as well as business, catering and entertainment services. Logistics services will be offered here too. Annual transaction at the CFEM is estimated to be worth RMB 35 billion.

A ‘maintenance and renewal’ facility can also be found here, where furniture can be repaired, cleaned and maintained. An ‘online exhibition room’ will offer a floor plan of the CFEM and 360º panoramic view of each store, so that buyers and consumers can remote-shop without being physically there.

It is located along the Lanshi Bridge on National Highway 325, and just across the Guangzhou-Foshan Metro Station. With an area totalling 2 million sq m, CFEM will house mid to high-end brands.

Asia Star: Furniture Materials Trading Centre

Besides this mega project for finished furniture, the construction of Asia Star, a one-stop furniture materials trading centre, is also underway. The 1.2 million sq m materials trading platform will be divided into nine sections, to be completed in two phases at the Longjiang, a town in the Shunde district of Foshan.

Phase I (400,000 sq m, 2004-2007)

• Leather
• Fabrics and textiles
• Hardware
• Components
• Logistics centre
• Warehousing

Phase II (800,000 sq m, 2008-2009)

• Raw materials flagship stores
• Conference halls
• Business hotel
• Business centre
• China Furniture Industry Headquarters

“Bed frames are our main product offering, accounting for about 70 percent of our total output. Manufactured under the Vollodis brand, they target the mid-end market. About 80 percent of our products are for domestic consumption. Leather sofas and recliners account for the remaining of our operations.

With regards to export, our main markets are North America, as well as East and West Europe. We have some businesses in emerging markets such as Brazil, India and South Africa. Demand for our products in the Middle Eastern market is not strong, possibly because of the styles we offer, or a lack of aggressive marketing there.

Despite that, we still need to continue to expand, though not blindly. Right now, Russia is a suitable market for us since we’ve been visiting and exhibiting the exhibition there for the past five years. We’ve also met several Norwegian and Finnish buyers there.

Chinese companies enjoy many advantages there. Firstly, the quality of our products is accepted by Russian consumers. Secondly, the prices we offer are more competitive than east European companies’. Our production facilities are also more advanced.

Import taxes are, however, too high. If this is resolved, Russia can be China’s playground. We have already met many who are requesting us to set up factories there as partnerships, as part of technology transfer.

In general, Vollodis’ core competitiveness lies in its R&D and brand image. We work with a design company in Italy, which provides 10 to 20 designs for us every year. They get a share of the profits made from products made using their designs. Locally, we work with another design firm in Shenzhen for products sold in China.

We are also very concerned about environmental friendliness. We obtained the relevant certification in China, which is awarded to only about 30 Chinese furniture companies. This certification is increasingly recognised in Europe and America.

Our other point of differentiation is our brand image. Working with each provincial partner, we advertise our products in print and outdoor media, and on the radio. An effective brand image is really what matters most. A brand cannot be replicated; a product can be. Without branding, the value is different.

This is why we are selective about who we work with on an OEM basis and are careful not to neglect our in-house brands. If we go all out to take on more OEM orders, the risks are high, especially if these orders are not consistent. That said, OEM is still a very good way to improve and upgrade our product quality, technology and design.”

Hong Qiao Furniture Co Ltd (Rainbow) specialises in modern office chair, and diversified into other products for office spaces in 2008 with the introduction of office tables. In the local market, Rainbow’s products are considered mid to high-end. The company adopts a low to mid end pricing strategy for the export market.

Zuo Bo Yang, the company’s board chairman, admits that in the company’s formative years, most of its designs were replicated from others’ designs. Nevertheless, it has since progressed rapidly to have its own R&D team. Now, Rainbow collaborates with Italian and German organisations to come up with new designs.

“The high-end market in China is in its fledging stage. Consumers in China are less aware and as a result less demanding of quality and features. So there lacks a competitive and nurturing environment to innovate. This is unlike the case in the developed countries,” Zuo said.

To be pragmatic, Rainbow is oriented towards the mass-market. It manufactured 1.5 million units of chairs in 2008. Its factory currently employs about 700 workers. It implements automation as much as possible, for example in the area of welding and finishing.

With the global downturn, Zuo is aiming for a 30 percent increase in domestic sales, which will help to mediate the drop in export business. About 70 percent of its output is sold through a chief distributor in each province and city, who then distributes to others down the line throughout China.

As businesses in the US, Japan and Korea has been hurt by unfavourable exchange rates, Zuo expects orders from Eastern Europe, the Middle East and India to be stable for the year.

The key focus for Zuo now is to develop new products and markets. In line with this, he has devised the following 5 steps:

• Provide quality assurance for Rainbow’s products
• Provide good after sales service
• Organise an annual distributor forum
• Stay connected with the market with a bi-monthly newsletter
• Dispatch district managers to study market conditions and provide support

Trade fairs and the Internet are Rainbow’s main avenues to market and promote itself. Staffs sent overseas are expected to return with ideas and feedback to contribute to the company’s product development. About three to five new collections are launched each year.

Zuo noted that in China, there is an ever-growing demand for modern and functional seating with ergonomic designs. However, Chinese products still lag behind European ones significantly. Although quality has improved, there is little innovation. Unlike Italy, for example, which can command a premium based on its brand image, designs and concepts, Chinese products thrive on their low prices. Although this competitive edge can be sustained for the next five to 10 years, Chinese companies will have to develop other strengths quickly, he added.

“Zhi Hao Furniture has been manufacturing leather sofa for the past 18 years. We diversified into living room panel furniture in 2008.

At the moment, our turnover is approximately US$40 million. Export and domestic sales each account for about 50 percent. Locally, we sell through regional wholesalers and distributors throughout China’s first tier cities. We focus on doing one thing well and that is production.

For the export markets, we have customers in Europe, South America, North America, Korea and etc. Our export market is inevitably affected but we are holding up well.

Our company’s position in the market place is mid-high. The key differences between our products and others in the market are our design and materials used. Besides good workmanship, we use imported high-end materials. We have our own design capability with about a dozen in-house designers. We also work with foreign designers. On average, Zhi Hao Furniture comes up with 50 new designs each year,” Peng said.

Peng is projecting a 30 percent growth for 2009 despite the global slump and the increasing competitiveness of the Chinese domestic market. By ordering raw materials in bulk, Zhihao is able to command competitive prices. The cost savings is then passed onto its customer.

The company’s new factory is undergoing construction. Located in Jiangmen, it is three times the size of the current 150,000 sq m site in Foshan. The new plant will be for manufacturing of mid-tier products while the existing plant will focus on high-end products.

There are three key brands under Zhi Hao Furniure: Menoir (high-end), Kouma (mid-high-end) and Sotifa (mid-end).

Peng feels that the flexible and hardworking attitudes of Chinese manufacturers give them a further dimension of competitiveness besides just being cost competitive. In addition, management standards have improved sharply through the years.

The weakness however lies in the general lack of innovation and good design. This in large part is the result of the lack of an conducive environment. Also, Peng feels the need for deliberate efforts on improving the image of Chinese factories and products. Chinese factories are a lot better than that in the minds of foreigners.