Furniture & Furnishing

Overview

• 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. A vast variety of raw materials are used in production, including wood, rattan, plastic and metal. Among others, wooden furniture is the major production and exports of the industry.
  
  
• Hong Kong companies have strong design capability, while accommodating themselves 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.
  
  
• Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland agreed to give all products of Hong Kong origin tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin, will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

Industry Features

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.

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 controlling office 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 utilise the advantage of lower operation cost and abundant land supply there.

A wide variety of raw materials are used in production, including wood, rattan, plastic and metal. Among others, 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 manufacturers, 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, whereas Japan and Taiwan supply iron and steel.

Performance of Hong Kong Furniture Exports^

	2005		2006		2007
	HK$ mn.	Growth %	HK$ mn.	Growth %	HK$ mn.	Growth %
Domestic Exports	16	-62	18	+8	14	- 19
Re-Exports	4,493	-31	3,806	-15	3,315	- 13
..Of Chinese Mainland Origin	4,234	-33	3,533	-17	3,066	- 13
Total Exports	4,509	-31	3,823	-15	3,329	- 13

By Market	2005		2006		2007
	Share %	Growth %	Share %	Growth %	Share %	Growth %
US	48.0	-46	37.4	-34	33.8	- 21
Chinese Mainland	8.9	+10	11.8	+12	15.3	+13
EU	10.8	+1	12.4	-3	14.2	*
...UK	4.1	-14	4.3	-13	4.6	- 6
...Germany	1.4	+15	1.3	-20	1.6	+8
...France	1.1	+4	1.2	-11	1.4	- 2
Japan	16.8	-12	15.8	-21	13.2	- 27
Australia	3.3	+8	3.3	-15	3.9	+4

By Category	2005		2006		2007
	Share %	Growth %	Share %	Growth %	Share %	Growth %
Wooden Furniture	43.4	-34	37.6	-27	33.2	- 23
Seats & Parts of Seats	25.2	-34	25.7	-14	28.9	- 2
Metal Furniture	10.5	-17	12.9	+5	16.1	+8
Mattresses	12.8	-17	13.3	-12	13.5	- 12
Plastic Furniture	1.3	+84	2.9	+91	4.0	+23
Parts of Furniture	2.2	-15	3.0	+17	3.0	- 14
Other Furniture	4.7	-54	4.6	-17	1.4	- 74

Note:
* Insignificant
^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

The US remains the largest market for Hong Kong's furniture exports. Following the US are the Chinese mainland, EU and Japan. Exports of wooden furniture which took up around 33% of Hong Kong's total exports of furniture, declined by 23% in 2007 while sales of plastic furniture recorded the strongest growth.

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 mature 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.

Many Hong Kong manufacturers produce on an OEM/ODM basis for major foreign brands. For example, JF Household Furnishings Ltd, a listed company in Hong Kong Stock Exchange, is one of the suppliers of IKEA. Some establish their own retail outlets in overseas markets, particularly on the mainland. Lamex, China Resources Logic and Four Seas Furniture have set up subsidiaries, branch offices and showrooms in major Chinese cities to facilitate domestic sales.

Low to medium-end products are often sold in hypermarkets. For standard products such as garden chairs, folding chairs, shoes racks and mattresses, Hong Kong manufacturers mainly rely on trading firms, foreign buying offices stationed in Hong Kong. They may also appoint sales agents to develop overseas markets.

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. Some 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.

Hong Kong's furniture manufacturers have also started to develop their own brands. Notable examples include mattress manufacturers 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.

The Chinese mainland is the largest furniture exporter to many countries, including the US and Japan. In the 2007, mainland's exports of furniture and parts amounted to US$ 27 billion, an increase of 29% from the previous year. 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.

China also offers a huge potential market for furniture manufacturers. The increasing consumption power of Chinese people, its booming property market and promising tourist industry serve to 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.

CEPA

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in June 2003 and subsequently expanded in 2004-06. All products made in Hong Kong, subject to CEPA's rules of origin, enjoy duty-free access to the Chinese mainland. Please refer to the Trade and Industry Department's CEPA web page: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2008.pdf for more information.

Trade Measures Affecting Furniture Exports

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 law was passed in Japan to monitor and reduce harmful gas emissions from interiors, which would hinder the use of materials.

On 28 December 2004, the US Department of Commerce amended its final affirmative determination in the anti-dumping duty investigation of wooden bedroom furniture from China, with amended margins ranging from 0.83% to 198.08% for the individually investigated respondents, 6.65% for the companies eligible for a "separate rate," and a China-wide rate of 198.08% applicable to all other imports. In May 2008, the US approved legislation that significantly tightens the requirements for the importation of plant and plant products, including products made of wood. Probably by November 2008, importers will be required to file a declaration upon importation that contains (i) the scientific name of any plant (including the genus and species) contained in the importation, (ii) a description of the value and quantity (including the unit of measure) of the importation and (iii) the name of the country from which the plant was taken.

On 28 October 2005, the Canadian Council of Furniture Manufacturers and constituent members filed their safeguard action under the Canadian International Trade Tribunal Act, claiming that imports of domestic wood and metal furniture, metal furniture categories and several types of mattresses caused or threatened market disruption to Canadian producers. On 15 March 2006, the Canadian International Trade Tribunal (CITT) concluded that the contents of the complaint did not meet the requirements of further investigations, and no further action had been taken.

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. Some manufacturers are also making furniture from recycled products, such as reclaimed wood and old teak from wood buildings.

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 cluttered 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.

Home office in the US: In the US, there is an increasing demand for home offices in order to meet the need of people working at home.

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, increasing aging population and early retirements will be the major drive for the growth in the sector.

Natural variations: According to the American Home Furnishings Alliance, the new American classic with simplicity designs is coming back. Furniture featured with clean lines and visible signs of hand workmanship is popular in the US. Wood species such as cherry, white oak, maple and pine are well-liked by the customers.

Modern style upholstered furniture: Contemporary and trendy upholstery is in demand in Europe with robust growth in the past few years. Popular designs include clear and simple lines which are made from different materials. Leather and heavier durable fabrics are the majority for upholstered furniture.