Tablewhere
Back in April 2013 the European Union adopted the Anti Dumping Duty Rates on Chinese ceramic
tableware and fully implemented them – though there had been much ‘anger’ from the retail industry. The belief was, quite rightly in many respects, that China was effectively umping ware, below cost in the European Union to the detriment of European Union manufacturers. The maneuvering over the Anti Dumping Duty had been going on for some months and what the impact of this duty would be on the Chinese tableware industry was of great interest and worthy of an Asian Ceramics article. But since then it is apparent that there is a bigger story that needs to be told not just about duty rates. To understand what will happen to the Asian tableware market we need to understand what the situation was and what factors are changing the tableware industry situation not just in China, but in Asia and the world.
Where will tableware be in the future, what will the trends be and who will be the winners and the losers. It is hard to look at the state of the tableware industry now and not use the term ‘under stress’ or ‘challenged’ with regard to austerity measures in Europe or smaller orders from the USA – traditionally the major two export blocs for Asian and specifically Chinese ceramic tableware. However we can look back to the 1980’s and see that tableware has been in a constant state of change, that areas of production have shifted quite dramatically and that customers requirements have become ever more demanding whether we are talking price, packaging, lead times, designs or product specifications as diverse as food contact legislation or physical strength or chemical (detergent) durability. Given that ‘the industry’ has grown and prospered though the individual companies involved may have changed, some exiting forever and new companies making a name for themselves.
Go back to the 1980’s and most Europeans would name companies with brand names making tableware in their home countries. German, English & French companies with proud histories and traditions, famous names that the general public would have heard of even if they were not familiar with the intricacies of the ceramic industry. Visit the USA and customers there would mention Lenox or Homer Laughlin but they might also mention brand name shops rather than manufacturers themselves and there is the first clue as to what has happened to the industry and why it has changed forever; maybe.
In the late Eighties I sat at the local Uni listening to a ceramic lecturer – he presented to us two blue mugs of similar appearance. One made in Stoke on Trent and the other from China. ‘What’, he asked us ‘is the difference?’ Frankly we were not especially impressed – the mugs looked nearly identical and we couldn’t think of anything to say. Turning over the mugs he revealed the foot of each mug, ‘Look – this Chinese one is once fired; you can tell by the way the foot has been wiped.’ ‘So what?’ – ‘It’s going to be cheaper than a twice fired mug and the labour cost is lower.’ The impact didn’t really hit us.
A little later at my then place of employment I attended a meeting where one of the Directors was presenting our companies products to a Chinese delegation, picking up a similar Chinese mug he said ‘This mug is made in China – but it uses colours from England – surely an international business!’ and we promptly escorted the Chinese on a full tour of the factory, showing them how we made our wonderful products.
This was not unusual and at the same time we must remember that as Asia was developing more people were taking an interest in sourcing products from Asia either to sell themselves or through the supermarkets which were starting to dominate shopping by building big stores, out of town, on cheaper land that sold under one roof nearly anything you would want to buy. Compare and contrast a UK town high street (as an example) today with its few chain stores and charity shops interspersed with bargain stores and coffee shops with a high street of thirty years ago – a massive change in buying habits has occurred. The mega malls and supermarkets today are scientifically planned, using psychologist’s skills Tablewhere? January - April 2016 81 to get us to part with our cash as fast and efficiently as possible. They know how to slow us down when we enter, they know they need to put our necessities in the middle of the store so we have to walk past most aisles and goods , they know to put offers at the ends of aisles where we will see them, they know that putting wines and spirits at the end of the store before check out means we’ll feel like ‘rewarding’ ourselves and they can use loss leader practices to sell below cost some items to encourage us to buy more of other high margin items. This degree in sophistication in the selling of products is more than mirrored in the sourcing of products and that is where we need to look at next.
But first let us touch on some of the things happening through the Nineties that were having their impact on tableware. The fall of the Soviet empire opened up new markets and brought new suppliers but mostly it also acted as a catalyst that heralded a general change from the prejudices and policies of the Cold War world to a more open and developing New World and in Asia that meant a shift from dictatorial regimes to greater democracy and development – an emergence of a huge middle class with aspirations for prosperity and the most obvious symptom of this is property and consumerism. This middle class was better educated and also brand aware from a very early stage, and early age.
The development of course relied on increased industrial development, now ceramics can more or less be made anywhere there is clay, fuel and labour and the human race has been successful making ceramic wares (starting off with figurines) since about 24,000BC and it fair to say that it is relatively easy today to make a useable piece of tableware – but it is frustratingly difficult and demanding to not only make a high quality product of exacting technical performance and to do so efficiently and affordably. During the Nineties we see both an increasing domestic demand in Asia for the middle class primarily but working classes too move away from enamelware to ceramics and glass. Supporting this are two things – increase in investment in ceramic tableware factories throughout South East Asia and the Diaspora of ceramic technicians and consultants that move to and throughout the region. Not only technicians and engineers from Germany, Italy, Spain and the UK but Japanese and South Koreans and Taiwanese; who have the advantage often of cultural & language familiarity. We must not forget technicians from the Philippines, usually very well trained by international companies and more than happy to work overseas for long periods for their families benefit back home. Today after a ceramic exhibition in say Thailand it is normal to be sitting in a bar discussing ceramic opportunities in Myanmar with expats from all over Europe and Asia, ceramics and its shared language are truly international.
The increase in production capacity and the international input meant that export markets, and especially the big two blocs of USA and the EU could be exploited; Asian factories wanted to earn US dollars and Euros. International exhibitions for housewares in Chicago, Frankfurt and Hong Kong attracted and encouraged international buyers that were under pressure to improve margins by reducing the cost of products on sale and find new exciting designs and shapes. However communication with factories directly was difficult not just on issues of language but the communication of specifications, payment, packaging and logistics. We start to see specialist traders, Taiwanese and Hong Kong especially who swiftly developed ceramic knowledge and design understanding and coupled it to an aggressive trading / merchant mentality and shrewd business minds. Slowly but surely the business of tableware like so many consumer based industries was seeing a shift in power from specialist manufacturers who marketed their own products to a more complex but ruthlessly efficient supply chain coordinating the disparate functions and materials needed to buy and sell ceramic ware across the globe.
Other things had massive and destructive impacts on the traditional manufacturers in the now post industrial societies. Legislation effecting health and safety the environment and labour increased (quite rightly) – but this increased the costs that the now ‘retail only’ malls and super markets were reluctant to pay. They increased their sourcing departments and looked further for cheaper. The traditional manufacturers too had their eye off the ball and were missing the shift in demographic that would buy their products. Rather than focusing on selling more in Asia and the new world they looked to maintain sales in the USA & EU where consumers were changing the way they bought and what they bought.
Secondly a piece of legislation in the USA known as Prop 65, a safe drinking water supporting, labeling requirement bill that scared the industry as it meant labeling products if they contained materials known to The State of California to cause cancer or reproductive harm. The industry panicked. You can’t possibly label a food contact item with such a warning and lead and cadmium were on the list (though ironically these warnings can be seen everywhere now – even at the entrances to hotels). Very aggressive lawyers in California chased after shops, brands and suppliers extracting out of court settlements and the industry decided to move lead and cadmium free. Whether we are safer now or not is unknown as no assessment of physiological impact of the ‘new’ decorative materials or glazes has been done to the best of my knowledge. Interestingly the FDA (Foodand Drug Administration) limits in the USA and the EU limits for Pb & Cd remain similar to what they were thirty years ago; which tells you a lot I think. There are increased restrictions on ‘heavy metals’ related to children’s toys or from certain countries which impact ceramic tableware and often this legislation is reactionary, poorly researched and very costly to comply with. The net result for many traditional manufacturers is that their business was being put under stress on price, on costs and on legislation; money was spent moving ‘unleaded’, money was not spent on designs and marketing. It became too difficult and costly to be a manufacturer.
This didn’t harm the international buyers much if at all. The thing was – the substrates in the Nineties and early Noughties that were most popular were stoneware that was underglaze hand painted or ‘solid coloured’ and porcelain that was undecorated and thus unleaded or could be decorated with unleaded decals. There were mistakes as the new traders often didn’t understand the substrates they were trading – but these mistakes could be absorbed into the vast volumes and profits that existed.
But as yet I’ve hardly mentioned China so it is important now to explain why the Chinese became the predominate suppliers for tableware.
Prior to China opening up to the world its manufacturing was state controlled and everybody had a job, an iron rice bowl that was unbreakable. You would be told which State company to work for and though not well paid these jobs, pensions and welfare were for life. The state Companies were very big. They made for domestic demands and the government granted quotas for export to certain people and companies for all sorts of merchandise – these people often being based in Hong Kong but with Mainland Chinese connections. It was such hard work actually using these quotas that the quotas would be traded to other companies thus some people got very rich for doing relatively little – but this meant the trading companies and merchants in Hong Kong had a lot of volume available – they also had increasing international buyers so they had increasing markets…and as few people wanted to go to China – they could hide the suppliers from the customers and chop themselves a healthy margin. Not that it was all easy.
What happened next in Asia pushed more business the Chinese way. In the late Nineties there was the Asian economic crisis starting in ’97. The result of the crash put businesses that had borrowed dollars under pressure and many collapsed. This put doubts into the existing supply chain and this was exacerbated with social unrest in Indonesia which up until then had been the biggest volume supplier of tableware. Buyers do not go where they may be killed. Panicked about having shelves with no stock on there was one country ready to take advantage. China was hardly a small supplier to the world but after the late Nineties and with it increasingly becoming open, improving infrastructure and building hotels and airports…it seemed suddenly that China was the world’s factory. Entering the WTO in 2001 put the icing on the cake – or let’s say decoration on the tableware.
That’s not to say it was plain sailing – things needed to develop and adapt to really cement China as the major supplier.
As the factories in China were rather primitive, ceartainly the ex State Owned factories that were now being privatized, they needed to change improve and develop, something that only a few have been able to do – mostly they sought only to become bigger in the belief that bigger capacity would mean more profit and success. A seed planted that is coming to fruition now as we will see later. But there were individuals that set up small private companies with some regions such as Chouzhou doing so very aggressively but it must be said they tended to use the same simple technologies and did not focus on efficiency or innovations.
Contributing to this the Chinese remained insular, even trips overseas to exhibitions or trade events were seen predominately as sightseeing and shopping trips and a chance to impress the folks back home that they were upwardly mobile. The buyers, traders and merchants for a very good while benefited from this willful ignorance and arrogance. Because of this attitude the trading companies could control the prices; the buyers could pass specifications and demands via the traders limiting their time at complicated dirty ceramic factories and maximize their time buying other products, soft lines and hard lines for their stores. Spring shows in Canton (Guangzhou) meant buyers of all sizes and types could come armed with a shopping list and play the factories against each other on price. If one Chinese factory was successful – others swiftly copied, further making it a race to the bottom on price and discouraging investment in things we associate with ‘quality’.
But to the support this, the supply chain had to offer the services the factories couldn’t. With increasing customer interest in ‘Fair Trade’ with the exposure of sweat shops through the Kathy Lee Gifford debacle and through TV exposures of children working in factories and increased pollution there was a dramatic increase in standards compliance and ethics compliance and third party auditing. Basically the supply chain put in place the testing and monitoring as an external service – not part of the factory or the supplying companies own desire or attitude. This is the second seed that has grown under China’s manufacturing and caused cracks to appear.
Thirdly China’s growth has been incredibly fast and very dramatic – it is nearly unrecognizable to the place we would visit twenty years ago – this has bought great consumerism and demand but the get rich quick mentality and the lack of international standard business practices has caused the third and most malignant problem. The Chinese have been occupied far too much with the visible trappings of wealth and not with the firm foundations of business. Not just at a personal level of buying BMW’s and Luis Vuitton man bags but by not addressing poor practices and corruption. Looking at corruption we can take two examples. First when the EU began its ADD investigation there were 400 Chinese company respondents offering to cooperate, the commission selected five of the very big Chinese companies as examples of how Chinese business operated. These companies could choose to cooperate and could ask to be treated as Market Economy companies. However when asked to provide audited accounts to international accounting standards – they could not. They can’t because in China it is typical to have two accounts (at least) one for the government and the ‘real’ book. Neither book will be correctly audited. The companies also showed evidence that they benefited from previous ‘State economy’ models or that they were influenced by the State rather than the market. They were also found to be deficient or avoiding when it came to providing the Commission with the information needed for the investigation. That is of the 5 randomly selected (but very large) tableware companies none were acting as Market Economy companies – they were dumping. This is hardly a surprise – when I was researching this article it would have been nice to include data for Chinese tableware exports and domestic sales. No reliable data exists and it couldn’t exist because the two book system of accountancy would fail if it did. You can find data comparing tonnage of clay export but this data is years old and effectively useless. Look at China’s trade figures – we are told exports are still increasing – 12.7% in 2013 but the monthly data looks strange. China’s biggest export blocs are still USA & EU (~43%) – even in times of austerity – so why is it that the biggest invoice / export months are November & December? Apparently because of sales to Japan (7% export market) and S.Korea – absolute nonsense; to get to market in EU & USA the big months should be August and September. Reuter’s points out this 12.7% should be nearer 7.1% if you take out ‘hot money’ - a practice of over invoicing at year end then moving the money back into the country. This corruption mentality pervades Chinese business down to the level where everybody that can take a cut or an advantage does. It may be a case of paying off people at the port to move your container – or accept a certain lower value for tax reasons, to paying a local mayor to favour your planning of a new factory, to having to employ certain staff because of local ‘Party’ influence and so on. Worryingly for customers payments have to be made to the ‘Quality Assurance’ companies and Third Party auditors who supposedly guarantee ‘Fair Trade’ and ethics compliance. It is, in short, a mess – it has got rich quickly but regulation and enforcement have fallen well short of wealth creation. Without correct figures – how do you plan your business or a country plan its economy?
The preoccupation with the visible trappings of wealth and the inherited attitude from the State Owned days of ‘Big is Best’ means that Chinese factories whilst they may have shown innovation and talent in creating special shapes or decoration effects in huge numbers have not invested in the less visible aspects such as efficiency, cost savings and management. There has been a reluctance to bring in foreign equipment and knowledge especially if a Chinese copy or established practice can be made to make do. Large factories also tend to be composed of independent empires in competition with each other or at least avoiding responsibility; the glaze department say at odds over product development or improvement with the body plant & purchasing being a separate entity entirely.
Chinese management is poor – mostly the ‘Big Boss’ is in charge and has total control – lower managers acquiesce to all his whims (otherwise they’ll lose their positions) and staff and workers will not show any initiative for that reason and the fact they aren’t trained – or educated to show initiative.
This doesn’t make for a healthy industry but over the years it has grown – and certainly the private sector has as China has had to divest of the loss making State Owned Companies. But these SOC’s offered work and welfare from cradle to grave. The private companies do not and this is causing another problem. Though China has grown more wealthy there is a growing gap between rich and poor which is visible and therefore an increasing cause of friction between haves and have not’s. ‘Mass disturbances’ though rarely reported are on the increase and these may often be related to local corruption, none payment of salaries or environmental issues – also corruption regarding land purchases and use. China, the CCP, knows all too well that the workers need to be kept happy and now policies are enacted to make the private companies provide more in terms of private healthcare, insurance and pensions and other labour protection measures (or pay off authorities to avoid some of these measures). So these are costs going on to the price of the product – in an industry where labour costs are rising due to the one child policy meaning there are less young people coming into the work force and those coming into the work force choosing cleaner, safer jobs than the ceramic industry. All this in a business that collectively hasn’t looked at efficiency and cost saving but followed a path of trying to use cheaper materials and equipment and to make more pieces to cover loss rates so that order volumes could be met.
With Anti dumping duty – just as the Chinese tableware industry is very slowly realizing that it is with a few, very few exceptions a primitive and backward industry that has advantaged from cheap labour and lax regulation, the EU (and a few other small countries such as Mexico and Brazil) enact duty which will impose duty rates from 13.1% to 23.4% for cooperating Chinese companies (around 400 companies) and 36.1% for non-cooperating companies. New exporters will be subject to a duty rate of 17.9%.
The immediate reaction to this was a lot of buyers asking ‘Where should we buy from now?’ The problem being that China – in part because of its dubious advantages has dominated the production of cheap volume ware especially porcelain and stoneware. The anti dumping duty hitting the market at the same time as austerity has meant people have less money to spend and either looking for a bargain or saving to buy something special. These are customers too who value electronics, technology, entertainment over other less sexy consumer durables.
The supply chain for tableware has changed over the last 25 years and it is changing again – as it always will.
We must remember too that as people in Europe were made redundant starting back in the late 1980’s but continuing even now, we have seen a rise in the number of companies trading ceramics. There are people who have relocated to Asia – especially to China to both trade products back to Europe and also to set up decal houses and decoration units – places that can consolidate ceramics with other items to satisfy the gift and premiums market which has grown. Just look at any B2B or B2C web site and these are not just companies but sole traders – so the pie that is available is being nibbled at by far more suppliers than ever before and all demand price advantage.
The ADD that was bought in by the EU we can say on average as resulted in 25% duty – effectively raising the Chinese prices to an uncompetitive level. Yet buyers are still using China as it has the largest volumes of ware available due to the overcapacity issues and willingness at least at the moment to try to reduce prices. But very simply that can’t and won’t continue. China is facing higher wage costs in part due to government intervention and the Chinese government is now bringing in, and enforcing environmental laws, health and safety as well as insurance and health care for employees – born by the employer not the State. In effect trying to make private companies offer what State Owned companies once did. Chinese staff too can get a lot more protection than before with regard termination of contract – even if the endemic corruption is a factor across all of these new laws and regulations.
Nevertheless buyers have been looking at other countries with Vietnam, Bangladesh, Indonesia, Malaysia and Thailand being of most interest. But these countries too have three main issues; lower volumes, higher labour costs and with regard Thailand and Bangladesh social / political issues which are scaring off some buyers. The other thing to remember is that in the face of Chinese low cost competition these countries improved their quality whilst closing the cheaper low quality underperforming factories, thus removing capacity.
The result is that there is pressure on the Chinese to reduce costs and that will have to mean a move to automation, if they can select the optimum and appropriate equipment for the job.
But this all raises the question that why can’t the Chinese cut out the traders in the middle who must take 20, 30% of mark up? The answer really is one of reliability and reputation and again there are several factors to consider.
In discussion with a business associate recently he made a comment ‘The Chinese really embraced Gordon Gecko, greed is good – at all costs’ and to an extent this appears true; they were eager and greedy to grab the margin they saw the traders and marketing companies taking. Especially as they travelled to Europe and saw the prices for Chinese wear that was on sale in European shops. So the Chinese did try to open offices, employ agents and deal directly. Some European companies were happy to try this to increase their margins. But it hasn’t been wholly successful. The largesse and braggadocio that works in China as it is tempered by close business relationships, ‘face’ and the ‘favour bank’ doesn’t work over large distances or between different cultures. Big promises are taken at face value and when the Chinese could not deliver on quality, date, consistency etc relationships quickly soured. This isn’t just about language communication it is about cultural and expectation communication and management.
But it is unfair to blame the Chinese for all the faults–often the result of naivety and not understanding the complexity of the supply chain. The buyers themselves are aggressive at chasing down prices from supplier to supplier and often want to abdicate responsibility in favour of the supplier taking on all the risks. Then of course when there is a problem for whatever reason that there will be a claim – that cost has to be factored into the price of the product and if it isn’t a claim can be the end of business completely.We have to remember that the supply chain has become a complex and durable ‘industry’ in its own right with companies offering all sorts of quality inspection, assurance and compliance, these companies are now trying to justify their existence and grow their business – more regulations are to their advantage. They can offer more services to more customers and charge more. All costs that often the suppliers of the ware themselves find themselves
covering.
Fashion too has changed – fashion in terms of the way the retail industry is catering to customers with less disposable income. There are young people who only need one or two mugs and plates – or want a ‘branded’ item related more to youth culture and there are ways to pack single or smaller items to make it appear cheaper – buy a couple of pieces of ware packaged as a ‘gift set’ which are more effectively more expensive but far more convenient and cheaper than buying a complete 20 piece set.
So what is next – can we simplify what will happen in the future even if we cannot make a full and accurate prediction?
I think we will see factory closures in China – a shakedown leading to numbers of layoffs but as China’s one child policy is still having effect then this might be no bad thing – it is already difficult to find workers who want to work in dirty ceramics when they can work in a cleaner industry with better conditions. There should be a smaller number of companies and investment in automation and I hope in management training and efficiency. Maybe one day even a company that can produce a set of audited accounts!
Buyers will look at countries in S.E. Asia and East Asia but this will be for the higher specification products as China still has ‘the volume’. I can’t see this changing significantly and some Chinese companies are making for domestic demand – the food and beverage industry and as an example elaborate and expensive ‘white spirit’ bottles and gifts. Finally I think that Asian tableware and giftware manufacturers will look more at domestic and regional supply and taking control of the supply chains themselves, taking ownership and promoting their products on their strengths to the customers directly, the big trading blocs will continue to be important but the balance should shift more to the East with its emerging, developing and increasingly sophisticated middle classes. Those traditional two blocs…? Well maybe they will have to restart manufacturing.
tableware and fully implemented them – though there had been much ‘anger’ from the retail industry. The belief was, quite rightly in many respects, that China was effectively umping ware, below cost in the European Union to the detriment of European Union manufacturers. The maneuvering over the Anti Dumping Duty had been going on for some months and what the impact of this duty would be on the Chinese tableware industry was of great interest and worthy of an Asian Ceramics article. But since then it is apparent that there is a bigger story that needs to be told not just about duty rates. To understand what will happen to the Asian tableware market we need to understand what the situation was and what factors are changing the tableware industry situation not just in China, but in Asia and the world.
Where will tableware be in the future, what will the trends be and who will be the winners and the losers. It is hard to look at the state of the tableware industry now and not use the term ‘under stress’ or ‘challenged’ with regard to austerity measures in Europe or smaller orders from the USA – traditionally the major two export blocs for Asian and specifically Chinese ceramic tableware. However we can look back to the 1980’s and see that tableware has been in a constant state of change, that areas of production have shifted quite dramatically and that customers requirements have become ever more demanding whether we are talking price, packaging, lead times, designs or product specifications as diverse as food contact legislation or physical strength or chemical (detergent) durability. Given that ‘the industry’ has grown and prospered though the individual companies involved may have changed, some exiting forever and new companies making a name for themselves.
Go back to the 1980’s and most Europeans would name companies with brand names making tableware in their home countries. German, English & French companies with proud histories and traditions, famous names that the general public would have heard of even if they were not familiar with the intricacies of the ceramic industry. Visit the USA and customers there would mention Lenox or Homer Laughlin but they might also mention brand name shops rather than manufacturers themselves and there is the first clue as to what has happened to the industry and why it has changed forever; maybe.
In the late Eighties I sat at the local Uni listening to a ceramic lecturer – he presented to us two blue mugs of similar appearance. One made in Stoke on Trent and the other from China. ‘What’, he asked us ‘is the difference?’ Frankly we were not especially impressed – the mugs looked nearly identical and we couldn’t think of anything to say. Turning over the mugs he revealed the foot of each mug, ‘Look – this Chinese one is once fired; you can tell by the way the foot has been wiped.’ ‘So what?’ – ‘It’s going to be cheaper than a twice fired mug and the labour cost is lower.’ The impact didn’t really hit us.
A little later at my then place of employment I attended a meeting where one of the Directors was presenting our companies products to a Chinese delegation, picking up a similar Chinese mug he said ‘This mug is made in China – but it uses colours from England – surely an international business!’ and we promptly escorted the Chinese on a full tour of the factory, showing them how we made our wonderful products.
This was not unusual and at the same time we must remember that as Asia was developing more people were taking an interest in sourcing products from Asia either to sell themselves or through the supermarkets which were starting to dominate shopping by building big stores, out of town, on cheaper land that sold under one roof nearly anything you would want to buy. Compare and contrast a UK town high street (as an example) today with its few chain stores and charity shops interspersed with bargain stores and coffee shops with a high street of thirty years ago – a massive change in buying habits has occurred. The mega malls and supermarkets today are scientifically planned, using psychologist’s skills Tablewhere? January - April 2016 81 to get us to part with our cash as fast and efficiently as possible. They know how to slow us down when we enter, they know they need to put our necessities in the middle of the store so we have to walk past most aisles and goods , they know to put offers at the ends of aisles where we will see them, they know that putting wines and spirits at the end of the store before check out means we’ll feel like ‘rewarding’ ourselves and they can use loss leader practices to sell below cost some items to encourage us to buy more of other high margin items. This degree in sophistication in the selling of products is more than mirrored in the sourcing of products and that is where we need to look at next.
But first let us touch on some of the things happening through the Nineties that were having their impact on tableware. The fall of the Soviet empire opened up new markets and brought new suppliers but mostly it also acted as a catalyst that heralded a general change from the prejudices and policies of the Cold War world to a more open and developing New World and in Asia that meant a shift from dictatorial regimes to greater democracy and development – an emergence of a huge middle class with aspirations for prosperity and the most obvious symptom of this is property and consumerism. This middle class was better educated and also brand aware from a very early stage, and early age.
The development of course relied on increased industrial development, now ceramics can more or less be made anywhere there is clay, fuel and labour and the human race has been successful making ceramic wares (starting off with figurines) since about 24,000BC and it fair to say that it is relatively easy today to make a useable piece of tableware – but it is frustratingly difficult and demanding to not only make a high quality product of exacting technical performance and to do so efficiently and affordably. During the Nineties we see both an increasing domestic demand in Asia for the middle class primarily but working classes too move away from enamelware to ceramics and glass. Supporting this are two things – increase in investment in ceramic tableware factories throughout South East Asia and the Diaspora of ceramic technicians and consultants that move to and throughout the region. Not only technicians and engineers from Germany, Italy, Spain and the UK but Japanese and South Koreans and Taiwanese; who have the advantage often of cultural & language familiarity. We must not forget technicians from the Philippines, usually very well trained by international companies and more than happy to work overseas for long periods for their families benefit back home. Today after a ceramic exhibition in say Thailand it is normal to be sitting in a bar discussing ceramic opportunities in Myanmar with expats from all over Europe and Asia, ceramics and its shared language are truly international.
The increase in production capacity and the international input meant that export markets, and especially the big two blocs of USA and the EU could be exploited; Asian factories wanted to earn US dollars and Euros. International exhibitions for housewares in Chicago, Frankfurt and Hong Kong attracted and encouraged international buyers that were under pressure to improve margins by reducing the cost of products on sale and find new exciting designs and shapes. However communication with factories directly was difficult not just on issues of language but the communication of specifications, payment, packaging and logistics. We start to see specialist traders, Taiwanese and Hong Kong especially who swiftly developed ceramic knowledge and design understanding and coupled it to an aggressive trading / merchant mentality and shrewd business minds. Slowly but surely the business of tableware like so many consumer based industries was seeing a shift in power from specialist manufacturers who marketed their own products to a more complex but ruthlessly efficient supply chain coordinating the disparate functions and materials needed to buy and sell ceramic ware across the globe.
Other things had massive and destructive impacts on the traditional manufacturers in the now post industrial societies. Legislation effecting health and safety the environment and labour increased (quite rightly) – but this increased the costs that the now ‘retail only’ malls and super markets were reluctant to pay. They increased their sourcing departments and looked further for cheaper. The traditional manufacturers too had their eye off the ball and were missing the shift in demographic that would buy their products. Rather than focusing on selling more in Asia and the new world they looked to maintain sales in the USA & EU where consumers were changing the way they bought and what they bought.
Secondly a piece of legislation in the USA known as Prop 65, a safe drinking water supporting, labeling requirement bill that scared the industry as it meant labeling products if they contained materials known to The State of California to cause cancer or reproductive harm. The industry panicked. You can’t possibly label a food contact item with such a warning and lead and cadmium were on the list (though ironically these warnings can be seen everywhere now – even at the entrances to hotels). Very aggressive lawyers in California chased after shops, brands and suppliers extracting out of court settlements and the industry decided to move lead and cadmium free. Whether we are safer now or not is unknown as no assessment of physiological impact of the ‘new’ decorative materials or glazes has been done to the best of my knowledge. Interestingly the FDA (Foodand Drug Administration) limits in the USA and the EU limits for Pb & Cd remain similar to what they were thirty years ago; which tells you a lot I think. There are increased restrictions on ‘heavy metals’ related to children’s toys or from certain countries which impact ceramic tableware and often this legislation is reactionary, poorly researched and very costly to comply with. The net result for many traditional manufacturers is that their business was being put under stress on price, on costs and on legislation; money was spent moving ‘unleaded’, money was not spent on designs and marketing. It became too difficult and costly to be a manufacturer.
This didn’t harm the international buyers much if at all. The thing was – the substrates in the Nineties and early Noughties that were most popular were stoneware that was underglaze hand painted or ‘solid coloured’ and porcelain that was undecorated and thus unleaded or could be decorated with unleaded decals. There were mistakes as the new traders often didn’t understand the substrates they were trading – but these mistakes could be absorbed into the vast volumes and profits that existed.
But as yet I’ve hardly mentioned China so it is important now to explain why the Chinese became the predominate suppliers for tableware.
Prior to China opening up to the world its manufacturing was state controlled and everybody had a job, an iron rice bowl that was unbreakable. You would be told which State company to work for and though not well paid these jobs, pensions and welfare were for life. The state Companies were very big. They made for domestic demands and the government granted quotas for export to certain people and companies for all sorts of merchandise – these people often being based in Hong Kong but with Mainland Chinese connections. It was such hard work actually using these quotas that the quotas would be traded to other companies thus some people got very rich for doing relatively little – but this meant the trading companies and merchants in Hong Kong had a lot of volume available – they also had increasing international buyers so they had increasing markets…and as few people wanted to go to China – they could hide the suppliers from the customers and chop themselves a healthy margin. Not that it was all easy.
What happened next in Asia pushed more business the Chinese way. In the late Nineties there was the Asian economic crisis starting in ’97. The result of the crash put businesses that had borrowed dollars under pressure and many collapsed. This put doubts into the existing supply chain and this was exacerbated with social unrest in Indonesia which up until then had been the biggest volume supplier of tableware. Buyers do not go where they may be killed. Panicked about having shelves with no stock on there was one country ready to take advantage. China was hardly a small supplier to the world but after the late Nineties and with it increasingly becoming open, improving infrastructure and building hotels and airports…it seemed suddenly that China was the world’s factory. Entering the WTO in 2001 put the icing on the cake – or let’s say decoration on the tableware.
That’s not to say it was plain sailing – things needed to develop and adapt to really cement China as the major supplier.
As the factories in China were rather primitive, ceartainly the ex State Owned factories that were now being privatized, they needed to change improve and develop, something that only a few have been able to do – mostly they sought only to become bigger in the belief that bigger capacity would mean more profit and success. A seed planted that is coming to fruition now as we will see later. But there were individuals that set up small private companies with some regions such as Chouzhou doing so very aggressively but it must be said they tended to use the same simple technologies and did not focus on efficiency or innovations.
Contributing to this the Chinese remained insular, even trips overseas to exhibitions or trade events were seen predominately as sightseeing and shopping trips and a chance to impress the folks back home that they were upwardly mobile. The buyers, traders and merchants for a very good while benefited from this willful ignorance and arrogance. Because of this attitude the trading companies could control the prices; the buyers could pass specifications and demands via the traders limiting their time at complicated dirty ceramic factories and maximize their time buying other products, soft lines and hard lines for their stores. Spring shows in Canton (Guangzhou) meant buyers of all sizes and types could come armed with a shopping list and play the factories against each other on price. If one Chinese factory was successful – others swiftly copied, further making it a race to the bottom on price and discouraging investment in things we associate with ‘quality’.
But to the support this, the supply chain had to offer the services the factories couldn’t. With increasing customer interest in ‘Fair Trade’ with the exposure of sweat shops through the Kathy Lee Gifford debacle and through TV exposures of children working in factories and increased pollution there was a dramatic increase in standards compliance and ethics compliance and third party auditing. Basically the supply chain put in place the testing and monitoring as an external service – not part of the factory or the supplying companies own desire or attitude. This is the second seed that has grown under China’s manufacturing and caused cracks to appear.
Thirdly China’s growth has been incredibly fast and very dramatic – it is nearly unrecognizable to the place we would visit twenty years ago – this has bought great consumerism and demand but the get rich quick mentality and the lack of international standard business practices has caused the third and most malignant problem. The Chinese have been occupied far too much with the visible trappings of wealth and not with the firm foundations of business. Not just at a personal level of buying BMW’s and Luis Vuitton man bags but by not addressing poor practices and corruption. Looking at corruption we can take two examples. First when the EU began its ADD investigation there were 400 Chinese company respondents offering to cooperate, the commission selected five of the very big Chinese companies as examples of how Chinese business operated. These companies could choose to cooperate and could ask to be treated as Market Economy companies. However when asked to provide audited accounts to international accounting standards – they could not. They can’t because in China it is typical to have two accounts (at least) one for the government and the ‘real’ book. Neither book will be correctly audited. The companies also showed evidence that they benefited from previous ‘State economy’ models or that they were influenced by the State rather than the market. They were also found to be deficient or avoiding when it came to providing the Commission with the information needed for the investigation. That is of the 5 randomly selected (but very large) tableware companies none were acting as Market Economy companies – they were dumping. This is hardly a surprise – when I was researching this article it would have been nice to include data for Chinese tableware exports and domestic sales. No reliable data exists and it couldn’t exist because the two book system of accountancy would fail if it did. You can find data comparing tonnage of clay export but this data is years old and effectively useless. Look at China’s trade figures – we are told exports are still increasing – 12.7% in 2013 but the monthly data looks strange. China’s biggest export blocs are still USA & EU (~43%) – even in times of austerity – so why is it that the biggest invoice / export months are November & December? Apparently because of sales to Japan (7% export market) and S.Korea – absolute nonsense; to get to market in EU & USA the big months should be August and September. Reuter’s points out this 12.7% should be nearer 7.1% if you take out ‘hot money’ - a practice of over invoicing at year end then moving the money back into the country. This corruption mentality pervades Chinese business down to the level where everybody that can take a cut or an advantage does. It may be a case of paying off people at the port to move your container – or accept a certain lower value for tax reasons, to paying a local mayor to favour your planning of a new factory, to having to employ certain staff because of local ‘Party’ influence and so on. Worryingly for customers payments have to be made to the ‘Quality Assurance’ companies and Third Party auditors who supposedly guarantee ‘Fair Trade’ and ethics compliance. It is, in short, a mess – it has got rich quickly but regulation and enforcement have fallen well short of wealth creation. Without correct figures – how do you plan your business or a country plan its economy?
The preoccupation with the visible trappings of wealth and the inherited attitude from the State Owned days of ‘Big is Best’ means that Chinese factories whilst they may have shown innovation and talent in creating special shapes or decoration effects in huge numbers have not invested in the less visible aspects such as efficiency, cost savings and management. There has been a reluctance to bring in foreign equipment and knowledge especially if a Chinese copy or established practice can be made to make do. Large factories also tend to be composed of independent empires in competition with each other or at least avoiding responsibility; the glaze department say at odds over product development or improvement with the body plant & purchasing being a separate entity entirely.
Chinese management is poor – mostly the ‘Big Boss’ is in charge and has total control – lower managers acquiesce to all his whims (otherwise they’ll lose their positions) and staff and workers will not show any initiative for that reason and the fact they aren’t trained – or educated to show initiative.
This doesn’t make for a healthy industry but over the years it has grown – and certainly the private sector has as China has had to divest of the loss making State Owned Companies. But these SOC’s offered work and welfare from cradle to grave. The private companies do not and this is causing another problem. Though China has grown more wealthy there is a growing gap between rich and poor which is visible and therefore an increasing cause of friction between haves and have not’s. ‘Mass disturbances’ though rarely reported are on the increase and these may often be related to local corruption, none payment of salaries or environmental issues – also corruption regarding land purchases and use. China, the CCP, knows all too well that the workers need to be kept happy and now policies are enacted to make the private companies provide more in terms of private healthcare, insurance and pensions and other labour protection measures (or pay off authorities to avoid some of these measures). So these are costs going on to the price of the product – in an industry where labour costs are rising due to the one child policy meaning there are less young people coming into the work force and those coming into the work force choosing cleaner, safer jobs than the ceramic industry. All this in a business that collectively hasn’t looked at efficiency and cost saving but followed a path of trying to use cheaper materials and equipment and to make more pieces to cover loss rates so that order volumes could be met.
With Anti dumping duty – just as the Chinese tableware industry is very slowly realizing that it is with a few, very few exceptions a primitive and backward industry that has advantaged from cheap labour and lax regulation, the EU (and a few other small countries such as Mexico and Brazil) enact duty which will impose duty rates from 13.1% to 23.4% for cooperating Chinese companies (around 400 companies) and 36.1% for non-cooperating companies. New exporters will be subject to a duty rate of 17.9%.
The immediate reaction to this was a lot of buyers asking ‘Where should we buy from now?’ The problem being that China – in part because of its dubious advantages has dominated the production of cheap volume ware especially porcelain and stoneware. The anti dumping duty hitting the market at the same time as austerity has meant people have less money to spend and either looking for a bargain or saving to buy something special. These are customers too who value electronics, technology, entertainment over other less sexy consumer durables.
The supply chain for tableware has changed over the last 25 years and it is changing again – as it always will.
We must remember too that as people in Europe were made redundant starting back in the late 1980’s but continuing even now, we have seen a rise in the number of companies trading ceramics. There are people who have relocated to Asia – especially to China to both trade products back to Europe and also to set up decal houses and decoration units – places that can consolidate ceramics with other items to satisfy the gift and premiums market which has grown. Just look at any B2B or B2C web site and these are not just companies but sole traders – so the pie that is available is being nibbled at by far more suppliers than ever before and all demand price advantage.
The ADD that was bought in by the EU we can say on average as resulted in 25% duty – effectively raising the Chinese prices to an uncompetitive level. Yet buyers are still using China as it has the largest volumes of ware available due to the overcapacity issues and willingness at least at the moment to try to reduce prices. But very simply that can’t and won’t continue. China is facing higher wage costs in part due to government intervention and the Chinese government is now bringing in, and enforcing environmental laws, health and safety as well as insurance and health care for employees – born by the employer not the State. In effect trying to make private companies offer what State Owned companies once did. Chinese staff too can get a lot more protection than before with regard termination of contract – even if the endemic corruption is a factor across all of these new laws and regulations.
Nevertheless buyers have been looking at other countries with Vietnam, Bangladesh, Indonesia, Malaysia and Thailand being of most interest. But these countries too have three main issues; lower volumes, higher labour costs and with regard Thailand and Bangladesh social / political issues which are scaring off some buyers. The other thing to remember is that in the face of Chinese low cost competition these countries improved their quality whilst closing the cheaper low quality underperforming factories, thus removing capacity.
The result is that there is pressure on the Chinese to reduce costs and that will have to mean a move to automation, if they can select the optimum and appropriate equipment for the job.
But this all raises the question that why can’t the Chinese cut out the traders in the middle who must take 20, 30% of mark up? The answer really is one of reliability and reputation and again there are several factors to consider.
In discussion with a business associate recently he made a comment ‘The Chinese really embraced Gordon Gecko, greed is good – at all costs’ and to an extent this appears true; they were eager and greedy to grab the margin they saw the traders and marketing companies taking. Especially as they travelled to Europe and saw the prices for Chinese wear that was on sale in European shops. So the Chinese did try to open offices, employ agents and deal directly. Some European companies were happy to try this to increase their margins. But it hasn’t been wholly successful. The largesse and braggadocio that works in China as it is tempered by close business relationships, ‘face’ and the ‘favour bank’ doesn’t work over large distances or between different cultures. Big promises are taken at face value and when the Chinese could not deliver on quality, date, consistency etc relationships quickly soured. This isn’t just about language communication it is about cultural and expectation communication and management.
But it is unfair to blame the Chinese for all the faults–often the result of naivety and not understanding the complexity of the supply chain. The buyers themselves are aggressive at chasing down prices from supplier to supplier and often want to abdicate responsibility in favour of the supplier taking on all the risks. Then of course when there is a problem for whatever reason that there will be a claim – that cost has to be factored into the price of the product and if it isn’t a claim can be the end of business completely.We have to remember that the supply chain has become a complex and durable ‘industry’ in its own right with companies offering all sorts of quality inspection, assurance and compliance, these companies are now trying to justify their existence and grow their business – more regulations are to their advantage. They can offer more services to more customers and charge more. All costs that often the suppliers of the ware themselves find themselves
covering.
Fashion too has changed – fashion in terms of the way the retail industry is catering to customers with less disposable income. There are young people who only need one or two mugs and plates – or want a ‘branded’ item related more to youth culture and there are ways to pack single or smaller items to make it appear cheaper – buy a couple of pieces of ware packaged as a ‘gift set’ which are more effectively more expensive but far more convenient and cheaper than buying a complete 20 piece set.
So what is next – can we simplify what will happen in the future even if we cannot make a full and accurate prediction?
I think we will see factory closures in China – a shakedown leading to numbers of layoffs but as China’s one child policy is still having effect then this might be no bad thing – it is already difficult to find workers who want to work in dirty ceramics when they can work in a cleaner industry with better conditions. There should be a smaller number of companies and investment in automation and I hope in management training and efficiency. Maybe one day even a company that can produce a set of audited accounts!
Buyers will look at countries in S.E. Asia and East Asia but this will be for the higher specification products as China still has ‘the volume’. I can’t see this changing significantly and some Chinese companies are making for domestic demand – the food and beverage industry and as an example elaborate and expensive ‘white spirit’ bottles and gifts. Finally I think that Asian tableware and giftware manufacturers will look more at domestic and regional supply and taking control of the supply chains themselves, taking ownership and promoting their products on their strengths to the customers directly, the big trading blocs will continue to be important but the balance should shift more to the East with its emerging, developing and increasingly sophisticated middle classes. Those traditional two blocs…? Well maybe they will have to restart manufacturing.
