17139 Thu, 10/08/2009 - 4:58pm
HFN Staff Report
Consider, if you will:
1 China’s currency has risen in value perhaps as much as 20 percent over the past few years, making imports from the country more expensive. There have also been acute shortages in both labor and manufacturing resources as the marketplace matures.
2 India’s political situation remains troubled and the country is still woefully behind in the kind of infrastructure needed to support large-scale exports.
3 Pakistan remains a political pariah to many Americans and is one of the least favorite places in the world for U.S. businessmen to travel to.
4 The developing nations of Southeast Asia—Vietnam, Sri Lanka, Thailand and others—have few manufacturing facilities large enough to service American customers and have little hands-on knowledge of the American marketplace.
5 Freight rates from all of Asia, which dipped a little while ago, are on their way up again as ships and containers are taken out of the system to decrease supply and increase prices.
6 The U.S. political climate is acutely sensitive to over-reliance on foreign sourcing and the buy-American movement is regaining momentum.
Put that all together and one would think that we are about to see a dramatic decline in imported home furnishings products from all throughout Asia and a fundamental shift in worldwide manufacturing dynamics.
If so, one would be wrong. Dead wrong.
Despite a laundry list of issues facing American companies wanting to do business with Asian resources, one fundamental fact remains constant and it overrides every other single factor: Asia is the cheapest place on the face of the earth to make things.
And nothing else matters.
In conversations with vendors all across the home furnishings spectrum—from small products like kitchen gadgets and towels to bigger items like kitchen electrics, furniture and even major appliances—HFN has learned that there is virtually no let-up in the level of products coming out of Asian countries, save for the general worldwide slowdown in the economy.
But as a percentage of the whole, Asia remains the number one place for U.S. companies to import from.
Some of it is very simple: Americans want cheap products—and lots of them—and Asian countries do that better than anybody else.
Some of it is much more complicated, tied up in global macroeconomics: The Asian economies are built on exports and even with their own domestic consumption rates rising and the U.S. in decline, they still need America just about as much as America needs them.
It’s a two-way street and even if there have been some good-sized potholes the past 18 months, the road is still very much open for business.
“We need to go overseas to make product (that is) more enhanced and delivers greater value,” said Mike Zippelli, chief executive officer of mattress company Classic Sleep Products, in announcing a new program of imported bedding from China last month at the Las Vegas Market. “It just doesn’t make sense to me to force price points the consumer is not interested in right now.”
What may happen, however, is that there will be shifts within Asia on exports. As American buyers become more sophisticated, they will fine-tune their orders to the best possible place. The Asian countries, in return, are focusing more on specific products and disciplines.
“Whether it’s China versus India versus wherever, each region has its strengths,” said Amir Loloi, president of Loloi Rugs, which imports from Asia. “You have to understand and recognize those and know what product should be made where.”
“The trick is to discover the capabilities of the factories and work around what they do,” said Mark Phillips, president of the Phillips Collection, the specialized furniture and home décor resource that sources from around the world.
HFN looked at each major player in the Asian theater to see where the balance of power might or might not be shifting.
China: Still the King
It is China that continues to be the 800-pound gorilla in an Asian market that is seeing the other players gaining strength every day. And nothing that has happened in China recently is likely to change that anytime soon.
“China delivers everything from soup to nuts,” said Maria Scutaro, vice president of merchandising for Murray Feiss, the big lighting resource. “They might not understand something today, but they will tomorrow.”
“You can’t replace China, we tried India and the Philippines,” said John Scott, CEO of the major gift supplier Sterling Industries. The other countries just don’t have the resources, he said. “China is open to do whatever it takes to make it successful. They like to feel like they are progressing. Americans taught them that.”
Other countries, more traditional with business structures that developed earlier “are not going to change how they do things.”
“Other countries are not interested in learning,” what the American consumer wants, added Scutaro.
Not that China is without problems. “Factory closings have certainly impacted our sourcing,” said David Zrike, president of the Zrike Co., a major dinnerware and tabletop resource. “Some estimates suggest that almost 50 percent of ceramic factories will close before the end of this economic downturn.”
Labor remains an issue, at least in the hand-painted ceramics category, he said. “Many of the workers never came back after Chinese New Year (last winter) and chose to stay in their local areas.”
In other categories too, it seems. “Definitely, we have seen a great workers’ turnover,” said Francesco De Flaviis, marketing director for De’Longhi USA, the appliance company that credits owning and operating its own factories in Asia as a key strength. Never the less, “finding and retaining skilled works has become a bit more difficult because of the current uncertain economic situation.”
That same economic slowdown has had some positive effects on doing business in China, vendors said, easing some labor shortages but also reversing an earlier shift in currency rates.
“The RemB (the official name for the Chinese currency, more commonly referred to as the Yuan) strengthened significantly about 18 months ago,” said Barry Leonard, president of Excell, Croscill and Glenoit, three home textiles firms that are jointly owned. “But with the economic slowdown, the currency rate increases came to a halt.”
“The RemB seems stable at this point,” Tom Gottlieb, president of the well-known gift resource Two’s Company, said, “but in the heat of the downturn we were certainly afraid of a steeper fall.”
Bob Hamilton, director of marketing for Welspun, agreed. Although the textiles company is based in India, it does source some product from China. “There were some significant shifts in currency about six months to a year ago, but the currency has been stable for the past few quarters.”
However, shifting priorities by the Chinese government, away from labor-intensive, perhaps less-glamorous products like home furnishings to more high tech industries has impacted some businesses.
Gold Bond, which has been bringing in furniture from China for some time, experienced it first-hand, according to Bob Naboicheck, president. “With rising costs as a result of raw materials being shifted from furniture to other industries, the limited remaining supplies skyrocketed in price, no longer making China the lowest-cost producer in this segment of the business.
“This forced us to look elsewhere and take this business away from our Chinese partners.”
Nonetheless, China will remain atop the Asian export pyramid, importers agreed.
“China is so far ahead of the other low-labor producing countries,” at least in ceramics, said Sal Gabbay, president of Gibson, the large tabletop and housewares resource.
And there may even be a bright side—literally—to the Chinese situation these days. “I’ve noticed less pollution now” in China,” said Scutaro of Murray Feiss. Because there are fewer factories running, “I can see the sun now.”
India and Pakistan:
Twins Separated at Birth
While the countries of India and Pakistan couldn’t be more different, they are often grouped together in some trade discussions. In fact they are mirror images of each other.
One is predominately Hindu, the other Muslim. One is known for its handcrafted work and cottage industries, the other for its highly industrialized manufacturing base, particularly in textiles. And right now, one is politically correct to most American consumers and one is not.
It is a situation that American importers maneuver around on a continuing basis. Unlike China, which doesn’t link its currency to the U.S. dollar on an absolute basis, India and Pakistan do, making currency shifts a non-issue in trade with them for the most part.
That fact alone makes both nations attractive to U.S. companies looking to source in Asia.
“India has the most creative people, in general,” said Loloi of the rug company bearing his name. “They have a better understanding of product.”
India has emerged as a key resource for some products, said Gabbay of Gibson, particularly items that use stainless steel like flatware and kitchenware.
Other suppliers maintain sourcing operations in both India and China, using one to balance the other as conditions shift. “We source from both,” said the head of a home textiles resource that declined to be identified, “so factory closings and labor shortages have had no affect on our sourcing.
“We have good, healthy relationships with them on both a professional and personal level,” he continued. “Domestic politics in those countries have had no impact on us.”
Most importers would agree, though they said they continually monitor things in India and Pakistan, particularly the latter.
“In Pakistan, politics has been a concern, but our shipments haven’t been disrupted,” said Michael Lichtenberg, president of S. Lichtenberg & Co., the long-time window treatment resource.
“You find a lot of dye mills that have closed, but it’s not a problem for me. We’ve had minimal disruptions and our sources of supply have been stable.”
Added the anonymous textiles executive, “We do a fair amount of business in Pakistan and we always have our eyes open. It’s not to say we’re not worried about the situation, but we need to be assured that we can bring in product.”
For others, politics is still a hot button. “We’ve been careful about Pakistan,” said Leonard of the Croscill, Excell and Glenoit textiles trio. “For some categories, it’s a good resource, but for our products, there are better options because of the political situation.”
Southeast Asia: China Junior?
There are two things virtually all American importers can agree on when it comes to sourcing from the countries of Southeast Asia, namely Vietnam, the Philippines, Thailand and others: the product is great, but often shipments are unreliable.
Many said that because these countries are less developed in their export businesses than China, there were still many smaller resources that were producing specialized, handcrafted products that can’t be found in the more developed Asian countries.
But those perceptions are gradually changing.
“We’ve dabbled in China,” said Phillips of the furnishings company, “but we want everything to look like it was touched by hand. It’s not worth $3 less to have it done in China.”
He cites the Philippines as a good example of the evolution that has taken place in these countries. “They’ve always had the artistry and the materials and now they are getting the understanding.”
Vietnam is often cited as a great resource for specialized product. “They produce beautiful designs,” said Scutaro of Murray Feiss, a fact that she attributes to the French heritage of the country. “And you can sell that design in the U.S.”
Those traditional crafts, such as lacquerware, may be in jeopardy as these nations such as Vietnam get more developed, Phillips added. “They’ve lost some of their intimacy as they’ve grown more commercial and less special. They’ve grown up and gotten with the program.”
But there is still much to be learned, according to Scutaro, who said a country like Vietnam is not set up for the lighting product Feiss sells. “Some of the materials are interesting and you can find great bodies, but then they are not UL or up to standards.”
It’s still a work in progress, said Leonard. “We have looked a lot at Vietnam. We spent a lot of time and effort there, made a couple of trips. We decided not to move in there and open a factory. The inflation rate is not stable and we’re concerned about large fluctuations in prices as a result.”
But that could all change someday, said Gibson’s Gabbay, whose company has offices in Vietnam as well as in Thailand. “We are constantly exploring all categories of business (there) to see what opportunities are available to us.”
The Asian Equation
All in all, Asia will continue to be the number one sourcing center for U.S. home furnishings products. Countries like Mexico and those in Africa or the Middle East may increase their market share and perhaps some limited production will trickle back into the U.S.
But any thoughts about a massive shift back to domestic manufacturing remains unrealistic. Most of the factories that had been used to produce home furnishings products in the U.S. are gone: shut down, converted to other uses or empty as their equipment was shipped overseas.
It took decades for the home industry to export its manufacturing base overseas, so even if conditions radically change, it can’t be reversed overnight.
That’s why, irregardless of any short-term changes in the world economy, business models or consumer spending habits, Asia will remain, as one published report it, the “manufacturing floor” for America.
Perhaps Steely Dan put it best, when they were singing about their Asia:
When all my dime dancin’ is done
I run to you.”