Chinese furniture producers expand global manufacturing footprint to Mexico

Number of new companies coming into the market will create high levels of competition for workers, raw materials and business

When I covered the industry as a reporter, the big furniture fairs provided the year with a drumbeat predictability. February typically meant a trip to Tupelo that was either preceded or followed by a visit to Guadalajara, Jalisco and the semiannual Expo Mueble Internacional.

This year’s edition of Expo Mueble begins this week at Expo Guadalara, finishing on Saturday. Spread out across three exhibition halls and a collective 750,000 square feet, the fair will gather more than 550 exhibitors and an estimated 22,000 attendees, most of them buyers. 

I wish I were going, and not just for the incredible food and world-renowned hospitality of the show’s organizers, Afamjal (Jalisco Furniture Manufacturers Association). I wish I could go because the Mexican furniture industry is in such flux at the moment. I could justify spending at least a few weeks after the fair touring the big production centers in Chihuahua, Durango, Nuevo León and, of course, Jalisco, home to nearly 3,000 furniture makers.  

My study trip would probably remind me that Mexican producers still can’t reliably get enough pine, that the supply chain and labor force necessary for meaningful growth still are tantalizingly deficient both in number and in quality, and that latent distrust among Mexican factories used to seeing U.S. concerns flock south only when something has gone terribly wrong somewhere else in the world still is deep-seated (and warranted).

China on the move

What would likely prove surprising, however, are the number and variety of Chinese business concerns setting up permanent presences in Mexico. Exhibit A would be Hofusan Industrial Park, a manufacturing and business “city” established by a consortium of Mexican and Chinese concerns in Nuevo León north of Monterrey about 120 miles from Laredo, Texas. 

Jointly developed by the Holley Group, Futong Group and Mexico’s Santos family, Hofusan comprises production facilities and warehousing, temporary apartments for Chinese managers visiting to check on production, more than 12,000 homes for workers, and even a post office. According to the Hofusan website, the industrial park is “the first Chinese industrial park in North America” and an “investment platform for global clients to explore the North American market.”

Jiang Xin, who oversaw the development of Hofusan for the Holley Group, a Hangzhou, China-based company, told The New York Times earlier this month that before Donald Trump slapped tariffs on a long list of Chinese-made goods, including most categories of furniture, few executives in Chinese manufacturing had any notion of going to Mexico. 

“The only things they knew were bad things, dangerous things,” Jiang told the newspaper. 

One of the Chinese power brokers who knew virtually nothing about Mexico before Trump’s tariffs is Man Wah’s Bill Chan, who today oversees the furniture manufacturer’s Mexican operations, including a $300 million factory in Hofusan. This presence enables the Chinese company’s goods from Mexico to enter the U.S. market duty-free because of the United States-Mexico-Canada Agreement and for those goods to come in on trucks rather than in containers. 

Explaining the rather sudden investment in a country so utterly foreign to Man Wah, Chan told the Times, “Our main market is the United States. We don’t want to lose that market.”

Trump’s anti-China trade policies redrew the global supply chain map almost overnight, spurring logistics officers to immediately begin looking at nearshoring and at shifting production to Vietnam. Thus, rapidly expanding Chinese presence in Mexico presents a bit of a contradiction: At the same time that U.S.-Chinese relations appear to be in a deep freeze and, with every errant spy balloon that gets shot down, getting yet more frigid all the time, the focus of Chinese manufacturers on the U.S. market only seems to be intensifying. 

Jiang said the tariffs instigated by Trump definitely helped ventures such as Hofusan: “Chinese companies wanted more options,” he said. “And we are one of their options.”

Incredibly, by the time Man Wah set up production in Hofusan, nearly 30 other Chinese manufacturers had already signed on to join the industrial complex in metro Monterrey. Hofusan had just one parcel remaining to offer to Man Wah, which also expanded operations in Vietnam in response to the tariffs and to Covid-caused supply chain kinks.

“If you want to do good business with America, you must have something close to the market,” Simon Huang, Mexico manager for Chinese furniture company Kuka Home, told Bloomberg.

Chan told The New York Times that Man Wah plans to produce almost 1 million pieces in Mexico per year, a productivity that will require approximately 6,000 workers. This will be challenge because unemployment in Nuevo León is but 3.6%. Competition for skilled laborers already is intense. It was intense when I visited factories there a quarter-century ago, when it was common for employees to report for work in the morning, use their lunch breaks to see if they could make a better hourly wage across the street, then start work across that street after lunch that same day.

It’s difficult to see how this growth can be sustained, especially without significant investment by the government of Mexico in improving the roadways and basic infrastructure. Fortunately for Man Wah and Chinese concerns like it, there might be a few champions in office who can deliver.

Hi-ho, Silver!

For example, the governor of Nuevo León, Samuel Garcia Sepulveda, is ensuring that at least two highways and and an overpass needed by manufacturers to get their trucks moving north are going to be built. Construction is underway. 

“We have a line of companies that want to come to Nuevo León,” Garcia told reporters at a press conference last month. “Last year we boasted that in Nuevo León we were opening one transnational company per week; this year there will be two.”

The real estate boom has driven up rents for industrial space by 28% this year compared to a year ago, according to a Colliers report. In the Monterrey metro area alone, there are 61 industrial properties under construction, adding up to more than 14 million square feet, according to the report, and these totals include Hofusan, which continues to add phases. 

In the past quarter alone, 25 industrial buildings went up in Nuevo León, with another 47 properties totaling 11 million square feet also in the pipeline.

Sunon Furniture, an office furniture specialist, is one of Man Wah’s neighbors in Hofusan. Sunon is building an $80 million furniture factory aimed at taking advantage of the speed and lower costs of delivery of goods into the U.S. market vis-à-vis China.

Competition for Mexico’s domestic factories

The growing Chinese presence is obviously about proximity to the U.S. market, but it’s also bringing new competition to domestic Mexican producers. This presence will only exacerbate supply chain issues and the pressures on hiring and keeping a skilled workforce. 

Jesús Gamboa García, who recently stepped down as commercial director of Jalisco producer Liz Muebles, recently told the Mexican publication CE Noticias Financieras that both the number and size of Chinese companies coming “to settle” has surprised and unsettled him. 

A supplier to large Mexican department store chains such as Liverpool, Palacio de Hierro and Sears, Liz Muebles now finds itself competing against Chinese companies cranking out three to four times more product a week. 

Gamboa said Liz Muebles produces between 2,000 and 2,500 pieces a week.

Though Gamboa didn’t use the term “cutthroat,” his descriptions of how Chinese concerns pressure suppliers to lower their prices certainly merits that adjective. 

Because of these pressures, which have been compounded by Covid-19 and government restrictions on tree harvesting, Liz Muebles has had to resort to importing pine from Chile, Gamboa said. 

There will again be plenty of pine on display in Guadalajara this week. 

Last year, worldwide Mexican furniture exports were an estimated $6 billion. With Chinese money pouring in, that number will only go up.