Archive for the ‘Home Depot’ Category

Economic and Fiscal Reality Closing In On China

October 19, 2008

Unemployed worker Wang Wenming was angry at his boss for shutting down a massive Chinese factory this week that made toys for Mattel Inc., Hasbro Inc. and other American companies.

By Associated Press Writer William Foreman

But the assembly line worker was also furious at the United States.

“This financial crisis in America is going to kill us. It’s already taking food out of our mouths,” the 42-year-old laborer said Friday as he stood outside the shuttered Smart Union Group (Holdings) Ltd. factory in the southern city of Dongguan.

A vendor sell vegetables on a street in Chongqing in China's ...
A vendor sell vegetables on a street in Chongqing in China’s Sichuan province. China’s strong economy appeared to put the nation on the global high ground when the financial tsunami first struck last month, but as the storm continues to rage, that position is looking less sure.(AFP/File/Peter Parks)

The company, which has struggled as global growth has slowed in recent months, employed 7,000 people in mainland China and Hong Kong. It wasn’t immediately clear how many have lost their jobs.

Economic upheaval in the U.S. is already changing and shrinking China‘s vast manufacturing hub in the southern province of Guangdong, long regarded as the world’s factory floor. However, factory closures won’t just be a China problem — shoppers will feel the effect in malls and stores in the U.S. and Europe.

“When these companies go bust, the outcome is higher prices,” said Andy Xie, an independent economist in Shanghai. “Labor costs have gone up 70 to 100 percent in the last three or four years. But these guys have not been able to raise their prices because Toys “R” Us, Home Depot and Wal-Mart are saying no price increase. How is that possible?”

File photo shows construction workers passing high rise commercial ... 
Construction workers passing high rise commercial buildings in Beijing. China’s economic growth has slowed to 9 percent in the third quarter as global financial woes started taking a toll on the country’s staggering development the government has said.(AFP/File/Teh Eng Koon)

For years, there were too many factories competing to win bids from foreign buyers demanding prices that were often unrealistically low. The winners were American and European consumers, who enjoyed rock-bottom prices.

But many factories were scrimping on materials and stiffing their suppliers just to survive, Xie said. The financial crisis will be the final culling factor that forces many wobbly factories to go belly up and end an unsustainable situation, he added.

Already, China’s toy industry is hurting. The official Xinhua News Agency reported this week that 3,631 toy exporters — 52.7 percent of the industry’s enterprises — went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan, the report said.

Nor is Christmas likely to make much difference. Big toy giants generally put in their Christmas orders months in advance so toys can be shipped to them in time.

Even before the financial crisis, China’s exports were dropping because of the slowdown in America and Europe. For the first time in three years, the growth rate for Chinese exports in the first quarter of 2008 declined, according to customs figures.

Chan Cheung-yau, chairman of toy and games subcommittee under the Chinese Manufacturers’ Association of Hong Kong, agreed that the outlook was gloomy for toy makers. He predicted that thousands more factories would close in China next year.

“The tightening credit market has made it more difficult for manufacturers to raise funds,” he said. “It has created a huge cash flow problem.”

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In Northwest Georgia, Manufacturers Worry About China

October 24, 2007

By Jamie Jones
Dalton (Georgia) Daily Citizen

The United States will continue to be the dominant player in the broadloom carpet market, but domestic manufacturers must keep an eye to the Far East as China’s burgeoning economy continues to expand, a veteran floorcovering executive said Tuesday.“If China decides they want to enter the (broadloom carpet) market, watch out,” said Dan Frierson, chief executive officer and chairman of the board/director of Chattanooga-based carpet manufacturer The Dixie Group. “It doesn’t have to make economic sense. I think we have to be ever vigilant in watching that and seeing what they’re doing, but based purely on what is most likely to happen, I don’t think we’ll be sitting here in two or three years worrying about broadloom carpet imports.”

Frierson and Joe Williams, who has been Beaulieu of America’s director of international sales for the past two years, spoke about “The Challenges of Globalization” during a panel discussion at the opening of the FloorTek trade show at the Northwest Georgia Trade and Convention Center. The show continues through Thursday.

Williams said Beaulieu of America has been successful in exporting its floorcovering products, particularly to Australia and Europe. The main reason? Knowing the markets, he said.

“A product that works in the U.K. isn’t going to work in Germany,” Williams said. “It’s just that simple. You must have people in those countries that understand the market.”

Business is currently “soft” in the floorcovering industry due to a slowdown in the housing market, both in new construction and existing sales, and because of the escalating cost of raw materials. The third quarter of 2005 was the recent high point for the floorcovering industry, Frierson said. Since, the hardwood market is down 25 percent, the carpet segment is down 20 percent and the laminate market is down 15 percent.

“That’s a huge decline,” Frierson said. “We haven’t seen anything like that in our industry probably since the early ‘80s.”

Carpet and rugs are currently 12 percent of the U.S. floorcovering import market, but Frierson said carpet is only a small part of that after rugs, woven and wool products are taken out of the equation. Products such as tile and laminate are much larger components of U.S. imports. Low labor costs make China an attractive manufacturing location, but high costs of shipping and inferior infrastructure are detriments.

“I don’t think you have a critical mass (in broadloom) to build on as you do in the other markets (such as hardwood and tile),” Frierson said. “I still think you have a competitive advantage in the manufacturing of carpet in this country. Half of the broadloom carpet manufactured in the world is done here. No other country has the kind of scale it takes to be highly competitive.”

When asked if a foreign manufacturer could provide a low style product, such as beige broadloom carpet, to one of the large home improvement chains, Frierson said it could be a possibility.

“The good thing about the carpet industry is although Lowe’s and Home Depot are large sellers, they aren’t dominant like Wal-Mart of Target is with apparel,” Frierson said. “There are 20,000 retailers out there that you have to get placement on their floor, you have to service them once you get your product there. It’s a very different kind of business.”

The panel was moderated by Kemp Harr, editor of the monthly trade magazine Floor Focus. Two panel members were unable to attend: Michael Harris, chief executive officer and president of Minnesota-based Faribault Mills, and Richard Williams Sr., president and chief executive officer of Williams Companies.