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Higher production, labor costs hit Guangdong furniture businesses

Chen Haoran would not have gone into the furniture business a decade ago if the labor and production costs were as high as they are today.

"As an owner of a furniture company, I have to re-evaluate the production and labor costs today," Chen says.

Chen Haoran, chairman of Uyork International (HK) Ltd, says the company will focus more on the new overseas market - the Middle East, Russia and Africa, following less demand in Europe and the US. Zou Zhongpin / China Daily

The chairman of Uyork International (HK) Ltd in Shunde, one of the furniture manufacturing bases in the country's Pearl River Delta region, says profits for manufacturing businesses - in both domestic and overseas markets - is becoming lower following rising production and labor costs.

Chen's company was founded in 1997. Like many furniture manufacturers in the region, his business enjoyed swift development in the last decade thanks to China's booming economy.

Besides the Chinese market, Uyork also exports its products to more than 30 countries and regions.

"Chinese companies are lucky since they enjoy a vast booming domestic market as well as the global market, which relies heavily on Chinese manufacturing," Chen says.

Furniture companies based in Guangdong province realized a year-on-year increase of 30 percent in exports to hit about $13.5 billion (9.8 billion euros) in 2010, sources with the Guangdong Furniture Association report.

But the association also expects export-oriented companies to face a tough situation this year as demand in the traditional markets of Europe and the United States decreases and the price of raw materials go up.

Still, Chen is not too worried about exports as his company develops new international markets.

"The real problem is that rising production cost, packed with increased wages, will definitely result in the lower profits for furniture companies," Chen says.

The Guangdong Furniture Association predicts that the prices of raw materials such as woods and paints will increase by at least 10 percent this year.

Although the current labor shortage - a problem faced by many manufacturing companies in the region - has not affected Chen's business, he says he has to keep existing workers by raising their wages.

The New Express paper based in the provincial capital of Guangzhou reported that at least 40,000 more workers are needed in furniture companies in the townships of Lecong and Longjiang in Shunde.

"I don't think there is a big labor shortage for furniture manufacturers. For my company alone, manufacturing has not been affected by the shortage," Chen says.

Chen's company, which has about 1,000 workers in five manufacturing centers, is expected to hire 200 more workers this year.

After Spring Festival, Chen promised to increase his workers' wages by 15 percent.

"The real problem that manufacturing companies face is not the labor shortage, but the lack of acknowledgement that their employees get for their work," Chen says.

Sources with the provincial human resource and social security department say that minimum wages in Guangdong will increase by 18.6 percent from March. That plan will see monthly minimum wages in Guangzhou reach a high of 1,300 yuan (144 euros).

"Workers in manufacturing businesses care more about their wages. Only through increasing salaries can they work for a longer time and develop a sense of acknowledgement for their work," Chen says.

Despite forecasts of declining exports by the Guangdong Furniture Association, Chen says Chinese furniture companies still expect a promising market - both at home and abroad.

"Chinese manufacturing companies are lucky since they still face a booming domestic market. Moreover, as the global economy has relied more on Chinese manufacturing, they can explore new overseas markets," Chen says.

Uyork registered an export volume of more than $10 million in 2010, or a year-on-year increase of 10 percent, although demand in the US and Europe decreased.

"There is still room for export. You will have overseas customers if you develop competitive products," Chen says.

To that effect, the company has set up its own store in Frankfurt and participated in many furniture fairs in Europe.

"We are building brand image in the traditional market. We are dedicated to developing an international brand for the long term," he says.

But following less demand in Europe and the US, Uyork will focus more on the new international markets - the Middle East, Russia and Africa, Chen says.

"The new market is booming," he says.

Uyork's sales in the Middle East increased by 50 percent last year, after the company set up its OODLIFE stores in Dubai in 2009, Chen says.

Currently, the company's sales in the Middle East account for nearly 20 percent of its exports.

"The booming Middle East market will help us maintain relatively rapid growth in the years ahead," Chen says.

Chen also expects to lead a furniture trend by designing competitive products in the new international market.

"In the traditional market of Europe and the US, Chinese manufacturers can only follow the trend that local manufacturers have already developed. But in the Middle East, you are developing a new trend by selling your newly designed products," Chen says.

"You will find more customers once your products have become a leading brand there."

Still, Chen says it will take a few years for Chinese companies to develop leading brands globally.

"The market in the Middle East is so different compared with the traditional overseas market," he says.

"From product design to sales, you have to develop a new sales system."

Uyork will continue to sell its products in the domestic market besides developing new international markets, Chen says.

"As many as 65 percent of products will be sold across the country this year," Chen says.

Uyork has already developed 200 sales agents and more than 400 flagship stores in the domestic market.

"We will develop more sales partners in the western and central regions, where the housing market has developed very fast."