TURNING THE TABLES – an industry on a comeback trail

As Fluent In Foreign expands its global network, we are always seeking to forge relationships with publications and other media resources, which  provide unbiased, thorough, interesting and useful coverage of international business issues.  It is my pleasure to announce that the Global Trade Magazine has become our latest media partner and we will be working together to promote international business development, highlight complex issues and feature success stories to help our readers and clients navigate their cross-border journeys.  This week’s post features two articles from the Global Trade Magazine. I hope you enjoy and as always welcome your comments.

CHINESE IMPORTS KNOCKED THE STUFFING OUT OF THE U.S. FURNITURE INDUSTRY A DECADE AGO. NOW THE INDUSTRY IS COMING BACK AND SELLING TO CHINA.

By Warren Strugatch

The Cochrane clan of North Carolina began making furniture in the latnineteenth century, producing wooden benches, carved showcases and decorative mantels first from Charleston, then from Lincolnton. In 1905 Cochrane Furniture was formally incorporated and for the next nine decades its workers turned regional supplies of pine, maple and oak into tables, chairs and cabinets. Sales continued to grow and in 1982 the company opened a new factory. Payroll exceeded a thousand workers. In the management suite, a fifth generation readied to lead the company into the next century.The transition never happened. Bruce Cochrane, son of the company’s president, entered his 40s facing an industry in free fall. In 1997 his father and uncle sold the company to Chromecraft-Revington. The new owner soon emptied the factory and began laying off workers.

With no family business, Bruce Cochrane was at a crossroads. He found himself a business partner and—why not?—launched a consultancy specializing in sourcing Asian suppliers. The partners jetted to Asia and back twice each month and participated in China’s massive export boom. They were a small cog in a generational transformation that turned China, the world’s largest labor market, into a vast skilled-manufacturing workforce—and helped create that country’s burgeoning middle class.

Last October, Bruce Cochrane returned to Lincolnton to make an emotional announcement. Having reacquired the old family factory, Cochrane was now reopening it, installing state-of-the-art advanced manufacturing equipment, and rounding up customers for—of all things—a wood-furniture manufacturing business. In the grand, centuries-old tradition of North Carolina cabinetmakers, Cochrane named the company Lincolnton Furniture. Up went Help Wanted signs. In came the calls and the drop-in visits from folks who worked for his father and his uncle back in the day. He staffed up and by December was shipping Lincolnton solid-wood furniture to retailers across the country.

Meanwhile, the founder was reaching out to his wide network of overseas contacts, exploring export possibilities.

China? “Definitely on the radar,” he says.

The phoenix-like resurgence has made Cochrane something of a folk hero. Throughout the fall and into the spring, he has been taking phone calls from the Made In America crowd, getting chatted up by TV journalists and cable commentators, answering questions from media pundits and shaking hands with President Barack Obama, who proclaimed Cochrane’s job-creating virtues at a White House gala. A modest man who prefers citing his father’s legacy to touting his own projects, Cochrane insists his initiative is strictly economics.

“When I was in China,” he says, “I saw the hiccups in the supply chain. I saw the labor market changing. Workers have more choices today. Companies that depend entirely on Chinese labor are vulnerable. Now is a good time for Americans to return to manufacturing.”

Still, the opportunity to rehire workers laid off so long ago was gratifying—and worrisome. A number of his returning craftsmen hadn’t cashed a paycheck since the factory closed. Their choices had been few, really. In the towns and villages of the Piedmont Triad, the heart of the U.S. furniture industry, workers laid off from jobs that once employed their fathers and grandfathers looked fitfully for similar work, eventually giving up.

In launching a manufacturing company for the twenty-first century, Cochrane recalls advice formulated in the twentieth. “One of the things I learned from my father,” says Cochrane, “was that you don’t make good furniture, you hire good people who make furniture.”

Tens of thousands of furniture-making jobs disappeared over the past generation, as the industry thrashed about, pointed fingers, and ranted at their fate. Home to one out of every six furniture industry jobs in the U.S, North Carolina furniture manufacturers employed about 89,000 people in 1990; the number dropped to 81,500 the next year and continued falling. By 2005, more than a third of 1990’s jobs were gone. The bleeding continues at companies large and small. Since 2005, Furniture Brands International, the largest manufacturer of furniture in the U.S, has closed 11 of its 27 domestic factories, including nine in the state. Today, the Piedmont Triad region, home to most of the state’s furniture and decor manufacturing jobs, employes about 16,000.

As Paul Simon lyricized years ago, one man’s ceiling is another man’s floor. While U.S. furniture manufacturers blamed unfair competition and economic bad luck, their Asian rivals saw huge global opportunity—and seized it. In 1999, according to the Dept. of Commerce, the state imported over $13.1 million in furniture, while exporting about $2.6 million. For the next four years, spanning the industry’s greatest turmoil, imports grew 10.5 percent year over year, approaching $20 million in 2003. The new competitors never loosened their grip; imports today account for more than half of U.S. consumer furniture purchases.

Rather than capitalizing on the increasingly global furniture market, U.S. furniture companies essentially wrote it off. During this time of rapid globalization, U.S. exports remained, amazingly, flat. Viewed in this context, the industry’s horrendous contraction seems almost willful.

China, meanwhile, moved rapidly. From 1995 through 2002, furniture exports nearly tripled to $20 billion a year, displacing Canada as the top furniture exporter into U.S. ports, a position it continues to solidify.

Bad times can produce good lessons, and perhaps that’s what has happened here. In their struggle to survive, North Carolina’s furniture manufacturers have deployed various strategies, including mergers, cost-cutting, off-shore manufacture and integrated supply chain management, the more extravagant examples of which so blurred the distinction between imports and domestic products that even consumers who once championed Made in USA quality became suspicious of furniture described as domestically made. Today, nearly every North Carolina manufacturer sources components or labor overseas. Some Asian manufacturers whose low-cost look-alike exports once fueled tariff campaigns amidst cries of dumping and infringement have quietly morphed into today’s supply chain partners.

Meanwhile, the billions of dollars Chinese manufacturers were making in global markets began to fuel a massive expansion—call it trickle up economics—that continues to this day. Having absorbed the benefits of an economic expansion fueled by cheap exports, its citizens are now adamant about furnishing their lives with goods made by manufacturers they nearly rendered extinct. The emergence of the Chinese middle-class is an economic event that, like the preceding wave of aggressive exporters, has the potential of changing the economic paradigm by sheer dint of its size and appetite. Already, it has helped refuel the U.S. economy, emitting a rare ray of sunshine in what has been a dark, damp and dreary post-recession recovery. As American consumers learn to do more with less, Chinese shoppers have been lining up, shopping bags at the ready.

Mike Padjen, the state government’s point man for promoting furniture exports, and a veteran of many trade missions to China, believes Chinese consumers view North Carolina’s furniture as conveying greater status than domestic products, based on presumed higher quality. The fact that many American products are actually made in China, or other Asian countries, does not tarnish the mystique. Says Padjen: “Even American branded or designed furniture, which is made in Asia, has seen a big uptick in sales around the world and especially in China for what I perceive as similar reasons.”

This year, North Carolina’s manufacturers will export about $52 million in furniture to China. While the number is relatively compact, it’s growing fast, says Padjen, up nearly 500 percent over the last three years. That number is probably doubled by furniture manufactured in China or other parts of Asia working for U.S. brands.

Ethan Allen, the furniture giant known for its resolutely traditional home furnishings—George Washington if he came back to life could furnish Mount Vernon from one of its showrooms—has found China an enthusiastic consumer of colonial-style tables and chairs and cabinets. The Connecticut company opened its first furniture store in China 10 years ago in the city of Tianjin. Since then the chain has opened about 50 more stores, while maintaining heavy sourcing operations in China.

It’s hardly alone. Ashley Furniture Industries announced plans to open an undisclosed number of stores in China last year. In March La-Z-Boy, known for its upholstered recliners and other adjustable-seating pieces—a category known as motion furniture—announced plans to open several hundred branded retail stores in China. The Michigan firm is partnering with Kuka Home, one of China’s largest upholstery manufacturers and retailers, in order to reach a retail network of over 1,500 stores.

The Kuka-LA-Z-Boy pairing began last October in High Point, when several executives from the Chinese company were in town for the celebrated furniture market, long a global see-and-be-seen event. Like many Chinese manufacturers, Kuka had been diversifying, which in its case meant expanding its retail footprint even while shedding the manufacturing operations that had produced most of its inventory, as manufacturing in China became more and more problematic. In order to replace that inventory, company executives have hit the road and been striking deals.

Quite a few deals. Let Doug Collier, La-Z-Boy’s chief marketing officer and president of its international division, pick up the story.

“Our interest in China starts with our strategic goal of expanding our business, and a big piece of that is outside North America,” he says. “One of our core markets is China. Now, China is notoriously difficult when it comes to finding a good way to do business. We were reluctant to throw money at it because we didn’t have local knowledge. Then, we come across Kula. They’re a dominant retailer. You can’t go to a mall in China and not see them.

“China is young and fractionalized but it is a great growth market. Kuka will handle advertising and marketing. We will handle design and rely on our manufacturing expertise.”

Later this year La-Z-Boy plans to manufacture specifically for sale to Chinese, emphasizing smaller furniture and more streamlined lines. Forget the overstuffed pieces they sell in the U.S.: most overseas markets demand contemporary looks, preferring cool to cozy. La-Z-Boy accommodates them.

“A lot of [foreign] markets tend to be a little more contemporary” than U.S. shoppers, notes Collier. “They’re not looking for the overstuffed, soft” furniture Americans select. In that sense, he says, Chinese shoppers are more like Europeans than like Americans.

To hear Brad Miller talk, overlooking the Chinese market is pure folly. Miller is vice president for international sales at Hooker Furniture Corporation, the Virginia company that designs and manufactures furniture under such labels as Bradington-Young and Sam Moore, as well as its own lines.

“We sell to 38 countries right now, and China is one of our top markets,” Miller said. “There is huge demand there. They want branded American product lines. They believe our standards and our quality control are higher than they can obtain from domestic brands.”

While Hooker actually manufactures much of its products in China, as well as the Philippines, the company considers its Asian operations a U.S. outpost, staffing the plants with American supervisors overseeing local workers.

Like many U.S. brands in China, Hooker has tried different approaches over the years, generally getting its lines into multiple retail chains. This year Hooker switched to a single-distributor approach and now works exclusively with Alexandre, a dominant brand in cities across China.

Whereas Hooker’s products are positioned as “affordable luxury” in the U.S. and other Western countries, in China the brand’s positioning reflects that country’s living standards. While China’s middle class is clearly ascendant, it still lacks the per-capita spending power found in western customers. “In the U.S., we’re not the most expensive, we’re certainly not the cheapest,” Miller said. “In China, we cater to the top 5 percent of the market.”

Bernhardt Furniture, a leading brand based in Hickory/Lenoir, N.C., entered the China market in 2010, and has seen steady sales growth since, says Peter Hancock, the company’s vice president for international sales. Like Hooker, Bernhardt has opted for an exclusive distributor relationship with Alexandre. As has often been the case, Bernhardt has seen his company’s relationship with China grow more complex over time.

“Sure, we were impacted by Chinese imports 10 years ago,” he says matter-of-factly. “But we’ve been buyers of finished goods and supplies from Asia for 20 years, which is how we got to know Alexandres.”

The company’s most popular line in China, he says, is the Casa Bella collection. A traditional line of living room pieces featuring pin knotty cherry, walnut burl veneers and hand-forged metal dark leather accents, Casa Bella embodies the kind of heavy, traditional furniture that once symbolized the North Carolina industry. As has been the case with so many traditional furniture lines, demand softened to the point where the end was near. Production had stopped on new merchandise last fall, when orders began coming in from China.

Slated for oblivion, Bella Casa got a second wind, and now is produced primarily for the Chinese market. The irony of this switch is not lost on many who lived through the furniture industry’s darkest days, times when the words Made in China could get a man into a fist fight in High Point and plenty of other places besides.

“Times change,” says Lincolnton Furniture founder Bruce Cochrane. “You have to put the past behind you. We all have. It’s about the present, and planning for the future.”

Across North Carolina, and wherever furniture is made, China is definitely part of that future.

Global Trade Magazine

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

One Response to TURNING THE TABLES – an industry on a comeback trail

  1. Pingback: TURNING THE TABLES – an industry on a comeback trail | exportcomms

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