Dongguan, a city in the Guangdong province of southern China, is one of the biggest furniture-making cities in the world, home to more than 2,000 furniture factories.

One of those factories is owned by the Aim Furniture Group, which sells the Meiqiao, Qiaoxin and Henli brands of high-quality residential furniture.

Moving to custom

With a corporate philosophy of "custom furniture for you," the company is focusing on moving into the upper, more profitable tiers of the industry and setting itself apart from its low-cost Chinese competitors.

"Ninety percent of domestic manufacturers don't have their own brands," said Xiaodong Zhang, who heads the company's foreign trade department. "Price has always been the core strength of domestic production, but then you're dependent on the demands from the overseas market. Now, quality is starting to dominate all other considerations, including price. With higher quality, you can charge a higher price."

Working on design

He admits that his company still needs to work on its design capabilities, and is partnering with foreign firms to help address this lack. Having its own brands is an advantage, he added. "Branding is playing an increasingly important role this year, unlike several years ago."

Aim's furniture is currently sold in the United States, Europe, the Middle East, Hong Kong and Taiwan, as well as at stores in more than 200 Chinese cities. Zhang said that he expects sales to climb higher next year, and said that his company hasn't felt the effects of anti-dumping sanctions levied this year by the U.S. Department of Commerce.

In fact, despite the sanctions, total exports of Chinese manufactured furniture were up quite a bit this year. Between January and August 2005, China exported $8.7 billion worth of furniture a 35 percent increase compared to the same period last year, according to the most recent Chinese customs statistics.

Industry experts said China is entering into the second phase of development, which is marked by a transformation from low-quality to high-quality manufacturing and the creation of domestic brands.

Building brands

"The furniture industry in China has developed a complete industry chain over the past 10 years," said Bingbing Zhang, general secretary of the China National Furniture Association (CNFA). "But so far, most factories are still acting as original equipment manufacturers for foreign brands and only some leading manufacturers have collaborated with foreign companies to build up their own brand."

Kuka Technics is a Hangzhou-based sofa manufacturer that is in the middle of this transformation. While it still acts as a manufacturer for foreign brands, it also exports under its own brand as well. The two are not mutually contradictory, the company says.

"Our strategy is to develop an international brand, and by acting as manufacturer for many famous brands, we can learn their craft and even their management style," said Berton Chen, the U.S. regional manager with the foreign trade department of Kuka Technics.

When price is the distinction

Too many small factories in China take part in hostile price competition, he said. When price is the distinction, then margins are too small and customers demand ever lower prices.

"It's a trend that large furniture groups take shape and small factories get wiped out," said Chen. "Only high quality allows one to stand firm."

In cooperation with design firms from Germany, France and Italy, Kuka develops new products every month. In addition, customers can also make their needs felt.

Miao Miao, a sales agent at Kuka Technics flagship store in Shanghai told FDM that Kuka builds to custom specifications for customers both at home and abroad. "If you are satisfied with the design but not with the color, size or leather choice, we can change it for you as you like," she said.

As a result, sales are rising, Chen said.

"The United States is our largest market and the export value reached US$8 million last month, at a 50 percent annual growth rate," he said. So far, Kuka hasn't shipped any custom-designed furniture to the United States. "But we will in the near future," Chen said.

The company will also send a team to the United States to study buying habits and lifestyle trends, and to work with American designers.

Office furniture challenges

Compared to the success of Chinese household furniture manufacturers, office furniture makers haven't done as well in overseas markets.

"We started exporting last year," said Xuefeng Qin, general manager of Shenzhen Howfine Office Furniture Co. Ltd., a mid-sized office furniture company in Shenzhen.

"Office furniture requires more advanced techniques than home furniture," he said. "But we don't have the advanced machines that foreign companies do."

Howfine's core products are office sofas and chairs. It hasn't made custom cabinets because panel furniture needs high mechanization, said Qin.

But that isn't stopping one of its competitors, Dongguan Lamex Furniture Co. Ltd. Lamex specializes in custom-made cabinets, and plans to expand into the U.S. marketplace next year.

Marketing key

"We are going to spend more money in marketing," said Sabrina Mao, deputy marketing manager for the firm. Lamex only started exporting last year, she added, but has seen fast growth. "I'm sure it will get much better in 2006 with more promotion and our core competitiveness quality."

Not everything is coming up roses, however, for Chinese furniture manufacturers.

"The rapid growth of the industry has put heavy pressure on natural resources," said Bingbing Zhang, CNFA general secretary. "And energy shortages and increased freight charges are also important issues worth consideration."

Since freight costs are calculated by volume, low value-added furniture quickly loses its price advantage in export markets with higher shipping costs, she said.

In addition, coal shortages and electric outages as well as increased oil and freight costs all add to manufacturing costs, CNFA deputy director Changling Zhu told FDM.

"On the other hand, it is difficult to raise the price," Zhu said. "With the increase of productivity and the intensity of competition, overseas purchasers know how to take advantage and bargain for the lowest possible price."

Trade protectionism has grown in recent years, he added. Last year's anti-dumping sanctions in the United States reflect the trend, he said.

"In addition, we suffer potential pressure from lack of human resources and environmental protection at home," said Zhu. "And all of this indicates that the period when Americans can still purchase cheap made-in-China furniture won't last long."

Maria Trombly is a writer based in Shanghai who covers business and financial news.

Wendy Yu and Michael Mackey contributed to this report.

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