Stung by reduced demand from big U.S. retailers like Wal-Mart and Target, Lin Wen-Sheng's Taiwanese-owned plastic and metal furniture business is down 50 percent from a year ago and his factory in mainland China has cut its workforce to 1,300 from 2,400.
Lin's company, Dongguan ShiChang Metals Factory Ltd., is not alone. China's export sector has been hit hard — overall exports dropped 18 percent in January compared with the same month in 2008. Taiwanese exports plunged 41 percent and Japan's exports saw a one-month record drop of 45 percent.
During a Feb. 25 interview at his blow molding factory, Lin said that one of his biggest U.S. customers, a distributor selling to major retailers, has several full warehouses of furniture it can't sell, with no sign of orders picking up soon.
“Most [distributors] still have a lot of inventory,” said Lin, a Taiwan native who is chairman of Dongguan-based ShiChang. “We hope it will become better in the third quarter, but it will not come back to the same level as last year or the year before.”
At the moment, he's hoping business will stabilize at 30 percent below where it had been, and the company, which claims to be Asia's largest blow molder of plastic furniture, can rebuild from there. In addition to Wal-Mart and Target, ShiChang's products are sold in Costco, Staples and other large U.S. retailers.
China's government has talked a lot lately about plans to upgrade its industrial base. Lin's factory, in the center of South China's hard-hit Pearl River Delta manufacturing zone, outlined several difficulties those efforts face and offered a look at some strategies firms are employing to cope.
The region has been heavily dependent on U.S. consumer markets, and there are worrying signs of less U.S. investment. A March 3 study by the American Chamber of Commerce in South China, for example, predicts that U.S. investment there will decline 40 percent this year.
The situation has factory bosses like Lin scrambling to figure out what's next.
For ShiChang and its 34 blow molding lines, that means pushing away from its previous dependence on North America and into new markets. The firm decided last year to set up a subsidiary in Europe to try to sell its own branded products, and to work with a partner in Thailand to build distribution channels there.
As well, Lin said the company hopes to use more industrial design. Last year, ShiChang started working with an industrial designer in Chicago who helped the firm make a blow molded high density polyethylene storage locker for college dormitories in the U.S. ShiChang also is looking at making metal components for the garage door market, and the firm is talking to mainland Chinese officials to get permission for its export factories to sell into the domestic Chinese market.
Lin presented a calm image as he discussed his business plans and brewed 20-year-old Taiwanese wulong tea for several visitors, personally keeping their cups filled.
It's not all gloom, he said: There are some positive signs.
People are still choosing plastic tables over wood tables, a long-term trend that bodes well, Lin said.
In late 2007, ShiChang invested in 10 new blow molding machines and one extrusion line, because at the time it could not keep up with demand.
While that may not have exactly been good timing, Lin said he does not regret the decision because he still thinks it makes sense: “I think this is a short-term problem,” he said.
ShiChang projects sales in 2009 will be about US$80 million, down from US$130 million in 2008, but Lin does see plastics as a bigger part of his company's business. Now, blow molded plastic products make up about 40 percent of ShiChang's sales, he said.
The company will also benefit, he believes, from some careful attention it paid to legal challenges in the U.S.
ShiChang and its parent, Taiwan's Maxchief Investments Ltd., were sued in 2004 by Clearfield, Utah-based plastic outdoor products maker Lifetime Products Inc., which accused Shichang of violating Lifetime patents.
The companies in 2004 settled their patent dispute and agreed to cross-license each other's products, which Lin said has provided a good addition to ShiChang's product line.
Lin also said his company vigorously contested an anti-dumping investigation of plastic and metal folding chairs and tables by the U.S. government and in January convinced U.S. officials to reduce the company's duties to zero.
Some competitors in China face duties of as much as 70 percent on their tables and chairs, giving his firm an advantage, he said.
Lin said that there could be more antidumping and legal challenges around the world as competition tightens, and ShiChange clearly faces challenges. But sitting in his conference room, sipping tea and fielding calls on his mobile phone, Lin maintained that the firm will come back.
“We never think this is the end,” he said.