The Chinese cabinet industry is expected to begin a round of consolidations as government policies and more discerning consumers will make it harder for smaller and more marginal players to remain in business.
Meanwhile, the larger companies are improving quality and are increasingly looking overseas for new markets.
Bihui Zhao, the manager of the planning department at the Chengdu BaiV Kitchen Company, said the larger cabinet manufacturers used to see a lot of competition from smaller players who attracted customers with dirt-cheap prices – and shoddy quality.
But the tide has begun to shift, with consumers starting to look for better products – and large manufacturers starting to see the benefits of scale.
Today, Chengdu BaiV has more than 600 employees and is the largest cabinet company in southwest China, says Zhao. It produces about 3,500 sets of kitchen cabinets a month. Its cabinets feature hard core wood and solid wood doors, and the company makes both face-framed and frameless cabinets. It exports overseas through intermediaries.
At furniture manufacturer OKELO, exports to the U.S. started just two or three years ago, but it’s definitely an important market for the company.
“America is a big market and the average price is four or five times more than the same quality products that are made in China,” said Jiangang Jiao, manager of chain shops for the factory. So far, US orders are mostly for cabinet doors, he said.
One problem that is hurting the growth prospects for his and other firms is the lack of talent. Even if a company upgrades its equipment to the latest tools from overseas, there is still the problem of finding trained people to run the machinery. The fast growth of the Chinese economy means that experienced staffers and managers can easily find jobs elsewhere, and skills shortages are starting to appear in almost every field.
‘We lack every kind of specialist — business manager, designer, skilled worker,” said Zhao. “It is the biggest problem not only in our company but in the whole industry.”
Zhao is not the only one who is feeling the heat. Yanjun Gu, general manager of Anshan Yameiju Furniture Co. also has problem finding skilled workers to keep the machines running.
“Our factory has 200 workers and we have advanced German equipment, but we still produce inefficiently,” he said. “Those machines don’t help us a lot. So equipment is not the most important problem – it’s human resources.”
Anshan, with factories in both Shanghai and Beijing, says that it exports about 95% of its production overseas, mostly to the U.S. and Europe.
OKELO’s Jiao says there’s also another human-resources related problems when it comes to selling overseas – when Americans buy cabinets, someone needs to come out to their houses and design, install, and service the cabinets.
“These functions take time,” he said. “In addition, Americans like solid wood instead of particle board. So we prefer to focus on the domestic market.”
Another obstacle for Chinese companies looking at the US market is the fact that there are different standards in the two countries.
According to Sabrina Mao, spokesperson for the Dongguan Lamex Furniture Co., the cabinets that are exported to America is taller than those sold in China.
Zhao also noticed this.
“Cabinets produced for Europe or America are a bit higher than those for Chinese because of the height between the different populations,” he said.
There’s also a difference in style between European and US cabinet designs.
“Right now, we don’t export any cabinets to the US market,” said Chaofu He, director of production at Beijing-based Kebao & Boloni Kitchen & Bathroom Furniture Co. Ltd. “Our products follow Italian design. There’s quite a difference between European design and American design. It’s hard to switch over, and it’s difficult to change the marketing.”
As a result of all these factors, cabinet doors currently dominate Chinese exports to the US, said Changling Zhu, director of the China National Furniture Association’s Cabinet Department.
Despite these obstacles, some Chinese cabinet companies are making a go of selling to the United States.
“Exporting to the US is a big thing for the Xiamen Jianpan Cabinet Company,” said Jianjun Wu, spokesman. “We just started exporting to America through a Hong Kong agent in 2005. We exported $1 million dollars worth of products to America, Singapore and South Africa — and the US took forty percent of the share.”
This year, the company plans to expand exports to the United States even further, Wu added.
Other companies are focusing on markets closer to home.
Jian Jiang, manager of the purchasing department at Yadier Decoration & Garment Co. Ltd said his company has very little trading to the US.
“We do have a goal to become a global brand, but that’s still a few years away,” Jiang said. “We now mostly export to Japan.”
Japan is hot place for Chinese exports because the Japanese cabinet standards have recently been adopted in China, said Kebing Zhang, general manager of the Shanghai Oupu Kitchen Cabinet Company.
“The new industry standard copies some Japan cabinet standards because oriental countries are more focused on the kitchen usability, whereas Western countries lean more towards entertainment,” Zhang said.
According to the China National Furniture Association, the standard Zhang refers to is China’s first “Entire Residential Kitchen” industry standard, which standardized and unified the measurements of kitchen cabinets. It was adopted by the National Construction Department in October 2005.
Growth in China’s cabinet industry has been remarkable – and mirrors the country’s progress in many other sectors of manufacturing.
The cabinet industry in China was really born at the beginning of 1990s, when residential construction began to take off in the big cities.
Originally, the southern cities of Shenzhen and Canton dominated, due to their proximity to Hong Kong and Taiwan. In 2000, the biggest cabinet manufacturer in Shenzhen went bankrupt and the epicenter of the industry shifted to Shanghai.
Then Beijing started taking the lead, especially when it comes to high-tech manufacturing.
Today, the cabinet industry sees about 5 billion yuan (US $622 million) per year in domestic sales, according to the China National Furniture Association.
Last summer, cabinet manufacturers saw the formation of their own national association in China, the Cabinet Specialist Subcommittee of the Furniture Decoration Industry Chamber of Commerce (CFDCC), part of the Chinese National Association of Industry and Commerce.
Brand-name cabinets are starting to gain ground, but unbranded, unlicensed companies still survive since their prices can be five, six, even ten times lower than those of the brand-name competitors.
With the new standards and increased consumer demand for better quality, the cabinet industry in China is likely to see some major consolidation this year.
In addition, a government crackdown on the industry can put as many as 60 percent of firms out of business – though many doubt that the government will be completely effective in enforcing its new policies.
According to Kebing Zhang, general manager of Shanghai’s Oupu Kitchen Cabinet Company, it would be difficult to implement a crackdown. As a result, some marginal players will be able to continue selling low-quality cabinets and trick consumers into thinking that they are buying the same materials as in brand-name goods.
“There will be many companies closed but not sixty percent,” he said.
HAND-MADE IS NO SELLING POINT
In China, small shops still make furniture by hand, but it’s not the same business as in the West. In general, hand-made goods are lower quality than those made by large, automated factories, and cost much less. These workers typically use hand tools.
Small factories use simple machinery. Large, brand-name companies use modern machinery, often bought overseas.
“The modern machinery makes a big difference in efficiency and quality for the big brand companies,” said Patton Tsui, business manager at Homag China, a German maker of woodworking machinery.
One of his customers is Chengdu BaiV, which switched from Korean equipment in 2003.
“The South Korean machinery met our demand at the time, but now we use Homag,” Chengdu BaiV’s Zhao said. “As a result, we’ve made great strides in quality and the output has doubled.”
The company uses panel saws, edge banders, boring machines, machining centers, and solid-wood equipment, Zhao said.
It was modern machinery has helped Ganton Opier, Beijing Kebao, Shanghai Yadier and Qingdao Haier become China’s four biggest kitchen cabinet companies.
Equipped with the advanced machine and brand new concept, people in the business seem to be more optimistic than the officials.
“Chinese cabinet industry will be mature in the coming years, and we can see a bright future in becoming a global brand,” said Jianpan’s Wu.
Travis Qian and Linda Kiang contributed to this report.
- Optima (Ganton) (www.optima-china.com), is the largest and earliest kitchen cabinet manufacturer and the leading brand of the industry in China.
- YDE (Shanghai) (www.yadier.com.cn), is the biggest kitchen cabinet in East China.
- Kebao (Beijing) (www.kebao.cn)
- Pirnor (Zhongshan) (www.pianor.com)
Company: Homag China
Company: Chengdu BaiV Kitchen Company
Company: Anshan Yameiju Furniture Co.
Company: Yadier Decoration & Garment Co., Ltd
Company: Beijing Kebao & Boloni Kitchen & Bathroom Furniture Co., Ltd.
Company: Xiamen Jianpan Cabinet Company
Company: Shanghai Oupu Kitchen Cabinet Company