China exported about $5 billion worth of living room furniture in 2004. This figure accounted for approximately 30 percent of all furniture exports from the country. In terms of volume, overseas shipments comprised an estimated 15 million coffee and end tables, 7 million sofas and 5 million entertainment units.
Although export sales are growing by about 20 percent annually, the industry could be headed for rough times as it deals with numerous challenges including rising material costs, power shortages, and increasing competition.
The following are some of the trends we see in China's living room furniture export industry:
China's living room furniture exports are dominated by upholstered furniture such as sofas, and wood-based models including entertainment units, and coffee and end tables. These are also the scope of this report.
The Products & Prices section in this report details the features and prices of these three main living room furniture products. The latest trends in design and function are discussed in the R&D/design module.
The Manufacturing section explains the processes involved in living room furniture production and how these differ in small and large-scale companies.
Industry Overview
Living room furniture is one of the fastest-growing segments in China's furniture industry. However, the industry is heading toward a potential shakeout as it grapples with rising material costs, inadequate power supply and increasing competition from large foreign-invested companies.
One of the main challenges facing China's living room furniture makers today is the increasing cost of raw materials, particularly wood. The cost of imported timber has been continuously moving up since last year. This is mainly due to steadily escalating oil and freight costs coupled with soaring timber demand from within the country. According to a report published by World Wildlife Fund in 2004, China is the second largest consumer of timber in the world after the US. The high demand is driven primarily by the furniture industry, which consumes about one-third of the country's wood supply.
Moreover, while China has banned domestic timber logging, it has continued to import heavily from countries such as Russia, Malaysia, and Indonesia. In fact, heavy demand from China has helped foster illegal logging in these countries. According to the Environmental Investigation Agency of Britain, about 40 percent of China's imported timber may be considered to be of suspicious or illegal origin.
However, the supply of illegal timber could diminish in coming months as a number of the wood-exporting countries in Asia are now taking strict measures to curb the practice, after many environmentalprotection organizations have raised concerns.
The voracious demand from China has also prompted some countries to limit exports in order to protect their own industries. Malaysia, for instance, has restricted its rubberwood exports to China.
Aside from wood, suppliers have also had to deal with increasing costs of other materials such as metal. Steel prices increased more than 50 percent in the latter part of 2004, while those of aluminum went up by almost 30 percent.
Since the living room furniture industry is concentrated in the heavily industrialized provinces, power shortages are also pushing production costs up. Many companies have had to invest in power generators to ensure delivery times are met. However, the cost of one kilowatt produced by generators is about US$0.06 higher than regular power.
Apart from escalating production costs, competition is another concern in the industry. Rising domestic demand for living room furniture has attracted a number of foreign furniture makers, especially from the US, to invest in or set up their own factories in China. Not only do these makers cater to the local market but they export their production too. In fact, the surge in living room furniture exports is in part attributed to these large foreign-invested companies.
In addition, a number of bedroom furniture exporters have shifted to manufacturing living room furniture after the US imposed antidumping duties on wooden bedroom furniture from China. This has added to the competition, although only marginally.
Supplier Profile
Baotian Furniture Co. Ltd
Locally owned Baotian specializes in leather sofas. Established in 1985, the company also manufactures mattresses, bedding, and quilts. Total revenue in 2004 amounted to US$6 million, 83 percent of which came from sofa sales.
All 6,000 sofas produced each month are exported, mainly to the US, Germany and Canada. Half of the outbound shipments are under OEM contracts.
Products meet the BS7177 and BS5852 standards of Britain and the TB603 standards of the US. Some models are even patented in the US and Canada.
Products
Apart from leather sofas, Baotian also offers microfiber models, but these comprise only 5 percent of output. Eighty percent of leather sofas are made of top grain leather while the rest use aniline. A few models are also made from split grain leather. However, since the material is not too strong but is easy to laminate, it is mostly used at the back.
Aniline leather sofa sets, comprising an armchair, a two-seater and a three-seater sofa, are pegged at US$900 to US$1,100 while top grain sofa sets range from US$650 to US$800. Sofa prices depend mainly on the type of leather, which usually takes up 70 percent of total product cost.
Baotian imports leather from Italy, Australia and the US and subcontracts dyeing. Untreated aniline leather costs around US$1.60 to US$1.90 per square feet while top grain leather is about US$1.25 per square feet. Wood is sourced from Guangdong province, and other accessories are sourced locally as well.
The R&D team takes seven to 10 days to develop a new product. Design focus in coming months will be on adding more functions. The supplier will be developing new models of recliners, massage chairs and sofa beds.
Manufacturing
The company's 50,000sqm production facility is capable of producing 144,000 sofas every year.
The first step in production is cutting wood for the frames. Once the frames are ready, they are sent to the third floor of the facility to affix the padding, and the springs covered with Dacron fabric. There are 15 workers cutting and pasting the foam here. Simultaneously, leather is cut in a separate workshop and then sent to the sewing area.
Finally, the padded frames are upholstered with the stitched leather on the fourth floor, where other components are also attached. Finished products are then cleaned using detergents and wiped with a sponge. Each corner of the sofa is wrapped in foam and then the entire sofa is wrapped in EPE and paper. Each packed product is labeled and placed in a non-woven bag.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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