Sustaining Results, Continuing Operations


2012-12-03
Lin Zuoxin is Chairman of the Council of Asia Pacific Furniture Association, as well as Honorary President of the Singapore Furniture Association

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This year at the 112th Session of the Canton Fair in October, there were fewer European and American businessmen and even less from Japan. There were many unfamiliar faces, just looking around and no one seemed interested enough to inquire about prices. This is the evaluation from Director General Mr. Zhou Zhi Tong of the Foshan Bureau of Foreign Trade. The current international economic situation continues to worsen, while a full-blown debt crisis seems inevitable. Since the financial crisis dragged down the U.S. economy, it remains weak. Japan's economy is still hovering at low growth since 2011at 0.2% this year, and even if the Diaoyu Islands issue were not an issue, it would still show negative growth.

China's economic development is shifting and they are adjusting its economic structure. The Chinese government understands that its reliance on external demand and high investment rates to boost economic growth must be changed. The economies of our four top trade partners are in a slump, so our export figures are certainly not good. With the restructuring of our domestic economy, increasing costs of land, raw materials and wages in recent years, the cost of doing business shows a generally substantial increase.

Enterprises in Guangdong exhibit declining corporate profits, and reports indicate that from January to May this year, profits fell from between 19.2% to 22.8%. Enterprises taking losses have increased to 105.2%. We are unable to analyze the accounts of private companies, but we do have access to the accounts of listed companies. Let's refer to Royal Furniture and Markor as examples: Hongkong Royal Furniture profit fell 90% the first six months of this year. For Markor, during the first six months of this year exports showed a year-on-year decline of 11.3%. The company's overall net profit fell 46.07%. I am afraid that this situation will continue for a very long time, potentially for up to 3-5 years.

Patterns in the Global Furniture Industry Production and export of Asian furniture has occupied half of the global market. According to the annual report in 2011 by CSIL of Italy, furniture production and exports from Asia account for lots of the world volume. — China:31% — Japan:3% — Vietnam:2% With further analysis of the charts of the world's furniture production, we will find that yield from smaller Asian countries like Indonesia, Malaysia, Thailand, India and the Philippines combined add up to 11%. Adding in Singapore, South Korea and 14% from Taiwan, figures reach as high as 61%. Of course the CSIL statistics are not a hundred percent accurate, but they do indicate that Asian furniture production and exports certainly exceed more than half of the global demand.

In my opinion, this pattern is firmly established. Of course things are changing in the region, such as growth in Indonesia and a little subsiding in China, but big changes will not occur again. The earth-shaking changes that have occurred in China during the last three decades will not continue. Entering a Low-Growth Period In Asia, Indonesia will grow. Unless there are new varieties due to the U.S. anti-dumping law, otherwise growth in Vietnam will be very limited. Perhaps in the future, India will enter a high-growth period, other than these I do not see much space for export growth among Asian countries. But in any case, most Asian countries, especially China, are entering low-growth periods and even economic decline.

Challenges we are faced with are: — How to maintain existing markets; — How to open up new markets; — Creating business models Maintaining Existing Markets Currently, there is an oversupply of furniture for export, so how to keep the existing market is very important. With China's rising costs and increase in wages, a new productivity mechanism must be established. Otherwise production costs will not be conducive to competition in the international market. Without changes it will be difficult to keep the original markets. Even so, consumers have more choices these days for the same prices. Exhibitions in Shanghai this year have revealed signs that buyers are choosing better quality. We must find ways to maintain our original markets in order to keep our total exports. Opening New Markets Our traditional markets exist in Europe, America, Japan, Korea, Southeast Asia, the Middle East, Australia and New Zealand. Except for South America and Africa, there are not many more potential markets to open. South America is too far away, and the high cost of shipping is discouraging. African market has not yet formed. This year we have entered the Russian market, but areas for expansion are very limited. We have gone to great lengths to cover four seas and five oceans, but we still have far to go.

New Business Models The next challenge is to find new business models, and I think we have to think about this in two ways: 1. Cooperation with well-known international manufacturers Many international century-old factories, in fact, are unsustainable. With their obsolete equipment and aging workers, those enterprises have little vitality. But they have a hundred years of brand name development as well as well received products. These are what Chinese manufacturers lack. If we cooperate and move their factories to China, the resurrection of these brands and products is highly possible. 2. Cooperation with Domestic manufacturers If we can integrate a single design company to a brand name, designate a group of factories to specialize in specific, simplified production tasks, and combine the components they produce into final products, our production efficiency will improve greatly. Productivity will greatly increase cost reduction, and quality will improve.

End products may then be better accepted in markets abroad as well as domestically. I think that China's furniture industry should not expect bigger and stronger output, but should calm down and streamline operations. This may ensure that we sustain results and continue operations.
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