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Hong Kong's Furniture & Furnishing Industry
‐Update: June 2003／

Hong Kong's Furniture & Furnishing Industry

Overview

• Hong Kong's furniture manufacturers engage in the production of a wide range of products including household, office and kitchen furniture, as well as mattresses, bedding and parts of furniture. Wooden furniture is the major production and exports of the industry.

• On the back of the ongoing outsourcing trends of US buyers and manufacturers, Hong Kong's total exports of furniture increased by 11% in 2002. Hong Kong's furniture makers also became more dependent on the US market, which made up nearly 70% of its total exports for the year.

• Hong Kong furniture manufacturers strive to reduce costs, initiate quality control, improve design concepts and capability, upgrade management skills and increase marketing and sales effectiveness. The majority of them have set up production facilities on the Chinese mainland to reduce operation costs and stay competitive.

• Hong Kong companies have strong design capability, while accommodating to OEM orders from overseas buyers. Some specialise in the manufacture of higher-end set furniture for hotels, offices and other real estate projects under tender-contracts.

Industry Features

Note: Industry statistics cover activities in Hong Kong only.

The furniture and furnishing industry is a manufacturing sector in Hong Kong with a long history. It includes the production of household, office and kitchen furniture, as well as mattresses, bedding and parts of furniture. There were 249 furniture manufacturers in Hong Kong, employing more than 704 people as at Sep 2002. Around 90% of them were small companies engaging less than 10 people.

Similar to other manufacturing sectors in Hong Kong, most of the manufacturing activities of the furniture industry are now carried out on the Chinese mainland. With the head office in Hong Kong, acting as a trading firm/agency principally responsible for high value-added services such as management, finance, accounting and marketing, production plants have been set up on the Chinese mainland to exploit the advantage of lower operation cost and abundant land supply there. Establishments of this kind have been classified as engaging in "import-export trade."

At the end of the year 2001, the number of establishments involved in the import-export trade of furniture increased to 1,357, representing a growth of 15% from 2000. Direct workforce employed by these establishments grew by 5% from the year 2000.

A vast variety of raw materials is used in production, including wood, rattan, plastic and metal. Wooden furniture is the major production and exports of the industry. It includes furniture in rosewood and black-wood, especially wooden tables, chairs and wardrobes. To many Hong Kong furniture makers, Asian countries are the major source of raw materials. For example, solid wood is mainly sourced from Malaysia and Thailand, while veneer and plywood are sourced from Taiwan. Indonesia is the major supplier of rattan. Japan and Taiwan supply iron and steel for Hong Kong companies' production.

Performance of Hong Kong Furniture Exports ^

In 2002, Hong Kong's total exports of furniture recorded a growth of 11% from 2001 on the back of global recovery. This marked a significant improvement compared with 2001, when total exports of furniture fell by 8%. Domestic exports decreased by 54% from 2001 whereas re-exports achieved a growth of 11%. Re-exports originated from the Chinese mainland made up more than 96% of Hong Kong's total exports of furniture in 2002.

The US remains the largest market for Hong Kong's furniture exports. Furniture exports to the US grew by 20% in 2002 on the back of recovery from the 911 terrorist attacks and the ongoing outsourcing trends of US buyers and manufacturers. Hong Kong's furniture exports become more dependent on the US market, whose share in total exports grew from 65% in 1999 to 70% in 2002. The American Furniture Manufacturers Association predicts that furniture demand in the US will rise by 2.4% in 2003, with China being the largest supplier.

In 2002, Hong Kong's furniture exports to Japan dropped by 10% from the year 2001. European and American furniture remains appealing to Japanese consumers by their superior design, style, quality and brand names. In addition, the price of such goods has been lowered on the back of the efforts given by Japan's importers and retailers in lowering the distribution cost. Japanese shoppers generally tend to buy lower-priced furniture than previously.

The Chinese mainland accounted for 4.4% of Hong Kong's total furniture exports in 2002. But due to keen competition from indigenous manufacturers in the lower to medium-end segments, Hong Kong's furniture exports to the mainland dropped by 2% in 2002. Hong Kong's furniture exports to EU also decreased by 10% amid its generally sluggish economy.

It is worth-noting that exports to Saudi Arabia and Kuwait have sustained a three-year consecutive growth. Furniture exports to these two countries reached HK$44 million and HK$17 million respectively in 2002. It marked a significant growth from 2001 when total exports were only HK$37 million and HK$14 million respectively.


Sales Channels

On the retail side, chain stores and hypermarkets are the most popular sales channels in North America. In Japan, imported furniture is mainly sold in specialty stores, as well as department stores. In these matured markets, buyers increasingly source furniture directly from manufacturers, while some still purchase through agents and distributors. Specialised furniture districts are popular on the Chinese mainland for both retail and wholesale business, such as the "furniture street" in Dongguan and the Meiju Centre in Guangzhou, a mega furnishing mart which began operation in 2002.

Most Hong Kong manufacturers produce on an OEM/ODM basis for major foreign brands. Some establish their own retail outlets in overseas markets, particularly on the mainland. Lamex, China Resources Logic, Fortune, Sun Hing and Four Seas Furniture hold subsidiaries, branch offices and showrooms in major Chinese cities to facilitate domestic sales.

Low to medium-end products are often sold in hypermarkets. For mass production products such as garden chairs, folding chairs, shoes racks and mattress, Hong Kong manufacturers mainly rely on trading firms, foreign buying houses stationed in Hong Kong, or appoint sales agents to sell in overseas markets.

Manufacturers specialised in the production of replicas of Chinese antique furniture rely on their established network with overseas agents, wholesalers and retailers, such as furniture specialty shops run by overseas Chinese in the US, EU, Canada and other major markets. In order to meet the taste of the local shoppers, some overseas retailers design their "modified Chinese furniture" and engage a Hong Kong agent for production in the mainland.

Apart from the above, many manufacturers would choose to attend international trade fairs to increase their exposure in overseas markets. Below is the schedule of some major trade fairs:

Industry Trends

Competition is keen in the furniture industry. Furniture manufacturers and exporters are suffering from decreasing profit margins. Many companies strive to reduce their cost of production and increase efficiency. Some relocate their manufacturing operations to other areas with lower operation cost, such as the Chinese mainland. On the other hand, foreign manufacturers are taking steps to strengthen their domestic production through product specialisation. For example, some US companies focus on popular wood species not available elsewhere.

To stay globally competitive, Hong Kong furniture manufacturers strive to reduce costs, initiate quality control, improve design concepts and capability, upgrade management skills and increase marketing and sales effectiveness. Many manufacturers have obtained or are applying for ISO 9000/9002 certification.

Hong Kong's furniture makers also started to develop their own brands. Notable examples include mattress makers marketing their own brands in the local and overseas markets. Furniture manufacturers also become more careful about the choice of raw materials to meet international standards, such as compliance with legal or other environmental requirements in their target markets.

China is the largest furniture exporter to many countries, including the US and Japan. The total furniture exports of China exceeded US$6,683 million in 2002, with the US being its largest market. Guangdong province is the major manufacturing centre of furniture on the Chinese mainland. Apart from Hong Kong, manufacturers from Taiwan and even the US have also set up production plants on the mainland. In China, most of the production is on an OEM basis.

China also offers a huge potential market for furniture makers. The increasing consumption power of Chinese people, its booming property market and promising tourist industry would drive the demand for both residential and hotel furniture, as well as other higher-end products. Some foreign companies are actively seeking for business partners in China to explore opportunities of setting up production operation in China. Hong Kong can act as a platform for these companies to enter the mainland market with its long-time experience in production and distribution network on the mainland, as well as the reputation for its quality, integrity, reliable delivery and management.

Trade Measures Affecting Furniture Exports

The import duties on furniture imposed by the major markets are generally lower than those by the developing countries, such as Thailand. However, certain folding metal tables and chairs originated from the Chinese mainland, when being exported to the US, are subject to an anti-dumping duty ranging from 0 to 70.71%. It is also reported that an US anti-dumping duty might be imposed on wooden furniture originated from the Chinese mainland.

Source: World Tariff Online

After China's accession to WTO, tariffs on furniture imports have been greatly reduced from 22% in 2001 to 7.3% in 2003. Except for seats made for aircraft and mattress, tariffs on furniture would be reduced to zero by 2005.

Exports of furniture are subject to relevant safety and environmental requirements. Safety requirements include, for example, the stability, strength and even height requirements for children furniture, and fire-safety requirements for bedding, mattresses, fabric sofas and curtains. In October 2002, a new law was passed in Japan to monitor and reduce harmful gas emissions from interiors which would hinder the use of materials.


Product Trends

Green furniture: As a result of the increasing awareness about environmental protection and more stringent legal requirements worldwide, furniture manufacturers are more cautious in choosing the materials for production. For example, they use fabrics that do not give off toxic fumes in the production process, such as polypropylene. In order to reduce the consumption of wood, some alternative materials are used in view of environmental concerns.

Except for recycled plastics and discarded metal, stone and even tri-wall, a strong cardboard commonly used in packaging, are used in making furniture. With innovative designs, some even become a fashion and have created the heat of "green furniture" in the western market. In the meantime, metal, which was rarely used in residential furniture, has increased its presence in the sector.

Multi-functionality: More flexible, functional and smaller furniture which incorporates more than one function is popular. The demand for this type of furniture is not limited to people living in small quarters but also people who are cluttering up with stuffs. Products such as a raised bed with lots of storage space underneath and folding chairs hung on a wall can help provide storage solution and free space on the floor.

Simplicity and neutral colours: Simple lines and clarity in design will be the main trend in terms of new furniture styles. Neutral colours, including earth tones, cream, and black and white to orange (softened to coral, peach and copper) and red, will be the major tone.

Retro and Chinese furniture popular in Japan and France: In Japan, home furnishing becomes a new hobby. Retro furniture, especially mid-century modern style, has become popular among the Japanese shoppers. Hong Kong companies are able to offer choices of this kind at a lower price than similar products available in Japan. In France, people are fond of stylish, well crafted but practical furniture. Chinese furniture, including Chinese antique furniture and replicas or even "modified Chinese furniture", is quite popular in France.

Home office in the US: In the US, there is an increasing demand for home offices in order to meet the need for people working from home, early retirements and layoffs due to the slowing economy. Leather and heavier durable fabrics are the majority for upholstered furniture.

Ready-to-assemble (RTA) and Do-it-yourself (DIY) furniture: RTA and DIY furniture and home furnishing products have gained popularity around the world, especially in Europe and North America. Fewer official working hours (e.g., in France), increasing aging population and early retirements will be the major drive for the growth in the sector.