China targets its domestic markets

- Updated June 28, 2010
Exports continue to rise, but China’s largest upholstery manufacturers also are concentrating on booming business at home.

This sofa sleeper from Yuexing Group combines comfort with a sleek contemporary style. The company is one of China’s best-known furniture manufacturers, but it doesn’t have a recognizable brand name overseas.

Yuexing Group has one of the biggest brand names in China when it comes to furniture. It has eight mega-sized furniture shopping centers in China, each more than 80,000 square meters, in six major cities.

But overseas, the company doesn’t have a recognizable name with consumers.

“Why can Ikea open stores in China, but Chinese furniture companies can’t open our stores abroad?” Yuexing president Ding Zuohong asked at a recent Chinese furniture industry conference.

Last year Dongguan-based Lacquer Craft Manufacturing Co., which already owns Universal Furniture and Legacy Classic, acquired North Carolina upholstery maker Craftmaster Furniture. But few other Chinese upholstery manufacturers have followed suit in seeking their own foreign presence.

“I can’t say it’s impossible, but it’s not easy,” says Xu Meiqi, deputy director of the Shanghai Furniture Institute, a government-owned furniture industry R&D and consulting organization. “At least in the near future, I don’t see any trend of this. Co-operation [with U.S. firms] is more feasible, because we just need their sales networks.”

Exports still growing

Meanwhile, Chinese upholstered furniture exports are growing, but at a slightly smaller rate than furniture exports as a whole. In 2005, China exported more than $3.67 billion worth of upholstered furniture, which is a growth rate of 30.6 percent over $2.8 billion in 2004, according to Chinese customs statistics.

By comparison, general furniture exports rose from $10.3 billion to $13.7 billion during the same period, an increase of 33 percent, according to data from the China National Furniture Association.

Almost half of China’s upholstered furniture exports go to the United States. According to industry sources, that amounted to $1.3 billion worth of upholstered furniture in 2004, rising to $1.8 billion in 2005.

But the domestic Chinese market for furniture has been taking off. The heart of China’s furniture business, Zhejiang province, was home to just 250 mostly government-owned furniture manufacturers in 1980. Today, there are more than 2,500 companies, most of them private.

According to the National Furniture Association’s Beijing office, Chinese consumers are now spending 34.8 billion yuan (U.S. $4.5 billion) on furniture annually.

“The new generation of Chinese is adopting a new lifestyle,” says Louis Liu, advertising manager at Markor Furnishing Co. Ltd. “Before, a simple sofa could be used forever. But now, more and more people want something unique and they are also willing to update their furniture when they feel like it.”

Markor, a high-end Chinese furniture group, is known for an American-European furniture design style and its sofas and chairs that feature New Rococo details. Markor was also the first Chinese furniture company to go public.

“We didn’t do an acquisition of a U.S. company because we have a totally different sales strategy from Lacquer,” says Liu. “Lacquer has always been focused on the U.S. market, ever since they founded the company, so it makes sense that they used this way to expand their business and promote their name in the United States. But for Markor Furnishing, we prefer satisfying the domestic market first. The Chinese market is booming and we definitely don’t want to lose it.”

Imports from the United States

In fact, the company has begun importing upholstered furniture from the United States into China to satisfy local demand for high-end, well-designed pieces. Currently, Markor Furnishing is promoting its new “American classics” series from Ethan Allen. The two companies have been working together since 2001. The high point of this series is the upholstered furniture covered by fabrics inspired by men’s fashions.

Other Chinese furniture manufacturers are also looking to the domestic market. “OEM [export-focused original equipment manufacturing] is only a part of our business; currently we have no plan to expand it,” says a manager at Shanghai-based Jisheng Wellborn, one of Yuexing’s leading competitors. To make a name for itself within China, Jisheng Wellborn has been opening new furniture shopping centers in mainland China and holding high-end furniture exhibitions. Now, the company is working on establishing a world-class furniture and exhibition center in Shanghai.

Shanghai Home Expo, a Shanghai-based upholstery company, is also looking away from exports. “It’s just not our business,” says marketing manager Mautolin Zhu. “We are an agency for many high-end brand names from abroad, including Rockland’s curtains from the United States. Now the only thing we want to do is to make our company more and more famous inside China.”

“We prefer satisfying the domestic market first. The Chinese market is booming and we definitely don’t want to lose it.” Louis Liu, advertising manager, Markor Furnishing Co. Ltd”Now the only thing we want to do is to make our company more and more famous inside China.” Mautolin Zhu, marketing manager, Shanghai Home ExpoThe market for imported curtains is very small, so the company doesn’t import much, says an employee in the curtain department in Shanghai Home Expo. Several years ago, they started importing some sofas from UTP, an American company.

For other companies, lack of money or qualified labor is a problem. Beijing Furniture Co. is facing both of these issues, says a marketing manager who asked not to be named. “We don’t have enough money to import advanced manufacturing technology,” he says. “And, because we don’t pay high salaries, it’s difficult to find qualified staff. Fortunately, we have a good domestic business and we are very busy at it.”

Better designs

Yuexing’s is also focusing on the domestic business, and working to raise its image by improving design. “We have different brands targeted at different customers,” says Ruan Renjie, Yuexing’s deputy general manager. “For youth-oriented and creative lines, we choose to ask Western designers for help. For traditional styles, we use our own designers.”

Markor, which specializes in bedding and sofas, is also bringing in foreign design expertise to improve some of its furniture lines.

“It depends on the consumers we want to attract,” says Markor’s Liu. “For the series for middle-class buyers with Western education backgrounds, we ask some international design firms to work for us. For lines aimed at traditional Chinese consumers, we prefer our own designers.”

That doesn’t mean that Chinese firms can’t learn anything by making upholstery for foreign distributors.

“I’m strongly against copying, but I can’t deny that sometimes creative inspiration comes from imitation,” Xu says. “OEM business can also be a good way to learn. And, for most Chinese manufacturers, if they want to go out of China, OEM is the only way they can go.”

Learn from OEM business

Yuexing’s Ruan agrees.

“We can learn a lot from OEM business design, quality and new technology,” he says.

OEM business is also a stepping-stone to the foreign market for many Chinese manufacturers.

“Most importantly, we can learn what kind of furniture is popular in the United States now,” says Ruan. “To us, OEM business is not only for the money.”

Red Star Group, one of China’s 10 largest furniture manufacturers, imported new production machinery to better serve the needs of its international customers. The company makes a wide variety of furniture, ranging from hard wooden furniture to steel, glass and upholstery.

“As a furniture maker, who doesn’t want to be another Ikea?” says factory director Su Tianhong. “But it requires a lot of money and time. It’s very difficult. Partnerships with foreign firms sound good, but we have to wait for the right opportunity, and choosing a good business partner is also not easy. So at present, we just focus on our OEM business.”

Destination of choice

The United States is the destination of choice, with Chinese upholstery exports growing 38 percent from 2004 to 2005, outpacing upholstery exports as a whole and furniture exports in general.

“U.S. buyers have big orders, they have good credit records and the prices are usually more reasonable than from buyers from other countries,” says a sales manager at Shanghai-based sofa and office chair manufacturer Hu Jing Furniture Co. “They’re always our first choice when it comes to exports.”

After OEM business, the next step for Chinese manufacturers looking to make a mark overseas is partnerships with local retailers and distributors.

Yuexing Group has a partnership with the Spanish furniture company Antico. The two firms have created a high-end series called “Empire Craftsman.” This furniture line, which is aimed at the Chinese middle class, is also sold in some Antico stores overseas, such as in Japan. Since the beginning of this year, the company has also been manufacturing furniture for Ethan Allen.

“Entering the U.S. market is our biggest aim,” Ruan says. “Our strategy is to either partner with local companies or open our own stores.”

Wang Fangqing contributed to this report.

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