If you’ve ever wondered why furniture production is being outsourced to China, you’re not alone. The furniture giant IKEA recently opened 18 stores in China, making it the world’s largest furniture retailer, with about 22% of global purchases made locally. The Swedish retailer designs and develops its products in its home country of Sweden, but has many manufacturing operations in Asia. That’s because China offers lower labor costs and a highly competitive environment.
Economies of scale
Many of the benefits of outsourcing furniture production to China are cost-effective and are a major reason why companies consider it. The first major benefit is the fact that the labor cost is significantly lower than in Western countries. The second benefit is the comparatively higher skill level. Chinese factories are often comprised of former factory workers, and they are able to produce high-quality products at low costs and high speeds. This ecosystem consists of loosely coupled small to medium-sized factories, individual experts, and large factories. The economy of scale helps these smaller entities compete with larger factories in Shenzhen. The system benefits brands, designers, and manufacturers alike.
Low capital requirements
One of the most important issues for Chinese furniture industries is the low level of technical support and capital requirements. These two problems have led to the failure of Chinese furniture industries to attract the industrial transfer resources they need. The local government must create a conducive environment to encourage investment, innovation and public service platforms. The government should support the development of large furniture companies and select one company with high technology to lead the industry. Small and medium enterprises can contribute to the overall technological level of the industrial clusters.
Another factor that promotes furniture production in China is the government’s support for the construction of new housing in major cities. The Chinese government is aggressively promoting the construction of new urban housing. This policy can help the furniture industry grow as the Chinese people are increasingly upgrading their living space. However, a constant appreciation of the yuan weakens this low-cost advantage. Moreover, a decline in exports also slows down the growth of the furniture industry.
Another factor contributing to low capital requirements for furniture production in China is the large supply of raw materials and components in the country. Many Chinese furniture enterprises use imported components, but this does not mean that they do not exist in the United States. It is important to conduct a feasibility study and compare the costs of product components and materials. Failure to do this will lead to higher costs and a longer production time. Furthermore, contacting random furniture suppliers often results in exaggerated promises and unreliable service.
Export-oriented enterprises in China often use abundant local labor resources to produce their goods, thereby resulting in higher competitive pressure in the domestic market and on foreign markets. In fact, this export-oriented phenomenon is also known as the export-productivity paradox. However, this paradox isn’t universal, as it occurs in other sectors of industry. The same holds true for furniture production in China. For example, the ratio of the TFP of export enterprises compared to non-export firms is negative in both the case.
In recent years, the furniture production industry in China has achieved a profit margin of thirty to forty percent, but now it’s closer to fifteen to twenty percent, and some enterprises earn only five to ten percent. This means that competition for cheap production in the domestic market is becoming more difficult, as the cost of land, raw materials and labor is increasing. This micro-profit era is rapidly disappearing, and many industries are moving overseas in search of low-cost production bases.
While Chinese furniture industry is making great achievements, the industrial chain is still not ready for the international market. Many companies lack core technology, and the industrial chain is poorly developed. They should also focus on enhancing their R&D capacity instead of on learning. This can enhance their ability to produce products with high-value added. However, the Chinese market has many challenges and is ripe for innovation. The government must make the right environment and create an environment conducive to foreign investment.
Outsourcing furniture production to China has several advantages. The lowest cost of production, coupled with high imports, means that exports can be easily matched by the domestic production. The competitiveness of Chinese furniture factories is also reflected in the high exports compared to imports. The largest number of exports are furniture components, followed by upholstery and office interiors. A recent study by a major American furniture manufacturer, Ashley Furniture Inds., suggests that the competitiveness of Chinese manufacturing is in question.
A recent study of the furniture industry found that 76% of the largest North American firms outsourced some or all of their HR functions to China. China’s furniture industry is also competitive with other Asian countries, including India and Vietnam. While there are advantages to outsourcing manufacturing, the competitiveness of furniture production outsourced to China depends on the company’s business model. Some American companies are still struggling in the face of competition from China, which is flooded with cheaper goods. High gas prices and a nationwide housing foreclosure crisis are also contributing factors to this industry’s downturn.
A competitiveness assessment of furniture production outsourced to China includes the level of power balance between Chinese and foreign retailers. The largest retailers are resourceful corporations that can serve as the engines of low-cost competition. However, smaller manufacturers have less power, and may face more competitive threats from large OEMs. This is particularly true of large-scale furniture retail chains and specialized furniture manufacturers. In addition to price, China’s low-cost manufacturing infrastructure also supports the development of local manufacturing industries.
Productivity in China
While the growth of the Chinese manufacturing sector is generally positive, there are some worrying signs. Over the post-2000 period, manufacturing lost a significant amount of its labour. It decreased as a share of employment, while overall employment rose. The reasons for this decline are not clear. The rise in imports, however, is not necessarily a good thing. The rise in imports also has negative effects on productivity.
One possible reason for this decline in the unit labour cost is the decline in the number of new entrants to the labour force. The rise in productivity in the manufacturing sector is likely to result from both within-firm and across-firm composition effects. However, to disaggregate these effects, we need to obtain firm-level data on labour productivity. We estimate that the impact of Chinese import competition on output per worker is greatest for low-wage industries.
The decline in labor productivity was not limited to furniture. Some industries, such as textiles, have expanded to other countries. In the past decade, these industries have allowed China to develop economically and move into higher-end manufacturing. In addition, wages and education have increased. China now aims to focus on higher-end manufacturing and rely on domestic consumption to fuel its economy. However, it is still too early to tell if this will happen.
Cost of shipping products to the US
The cost of shipping furniture products to the US has increased fivefold in two years, thanks to the pandemic that has hit Asia and roaring consumer demand. A 40-foot shipping container can now cost upwards of $10,000, compared to less than two years ago. Many interior designers have been forced to seek out local manufacturers to complete their projects. Meanwhile, craftsmen have experienced a surge in orders for renovated, used furniture.
There are many factors that affect the cost of shipping furniture products to the US. There are two primary shipping methods: LTL and freight. LTL is the least expensive option, but it does incur a risk of damage. This method of shipping furniture requires multiple stops and changes trucks, so the delivery date can be difficult to determine. On the other hand, freight shipping is the most dependable method. If you can find a furniture company willing to make several stops and use LTL shipping, you can rest easy knowing that your furniture will arrive at its destination in good shape.
Shipping furniture can be an expensive affair for eCommerce businesses. There are many factors to consider, from calculating the cost to picking the most affordable courier. And don’t forget to properly package your furniture to prevent it from getting damaged on the way to its destination. For more information on how to calculate the cost of shipping furniture, check out the Easyship guide to get an idea of the cost of shipping furniture products. This can save your business time and money.