There has been a continental shift in the world of tiles. Bryan Vadas has experienced it first hand.
For the Australian (and global) tile industry China represents at one time a great solution, and an entirely new set of problems. The solution is evident: it creates an inexpensive source of tiles, which means that the creative design industries in Australia (and elsewhere) can find their commercial expression in a much more viable environment than local manufacturing could ever provide.
As for the problems that come along with these new-found riches of supply, there has been an ample demonstration of them, starting in 2016.
It pays to never, ever forget that China is very far from being a capitalist economy, where its fate would be largely determined by free and relatively frictionless internal and external markets. China remains a command-control economy, heavily centralised, with some developed capitalist characteristics.
In 2016, the local governments in the north of China greeted the Chinese New Year with a new policy to clean up the environment. As such, many factories were told they would not be allowed to reopen after the holiday, effectively knocking out hundreds of thousands of metres of daily production.
Whilst the effect was devastating to many, the worst was yet to come when the authorities repeated the exercise after Chinese New Year 2017. The effect of the two tranches of closures saw over 200 factories each with an average of 10,000sqm of daily production having closed. If one does the maths, that’s around 750 million square metres of annual production that has ceased over the last year. That figure is on par with the total annual production of Italy and Spain combined.
For the European-based tile industry, the best way to grasp the effects of these closures is to imagine if all the production in Spain and Italy was switched off virtually overnight, with no warning.
In those circumstances, what would be the impact? How would the remaining manufacturers react? How would those remaining manufacturers cope with the increased demand on their resources? What would be the impact on price, quality, and lead times? And how would customers cope in the interim as supply was interrupted until some form of equilibrium was re-established?
Those of us heavily invested in supply from China are currently dealing with that situation. Some have felt the pain of this over the last few months, whilst others are yet to feel it. Like a train derailment, those in the front carriages have felt the impact, while those in the carriages further back are blissfully unaware of the impact to come. Believe me, it is coming.
The first problem to be faced is, with Chinese supply lines cut, how do manufacturers find other factories to make the product that meet the demands of the existing sales channel.
This involves moving digital files (assuming they have access to them or that they own them), then shifting the physical master samples, and then matching the colours in factories who use different glazes, technologies and processes to that of the factories which have closed.
Some replications are easy and take little time. Some others, however, can take days, weeks and even months, adding further pressure to the supply chain. Then there are textures to be matched and tested. There are polishes to be tried and replicated. Realise that all of this takes place in an environment where hundreds of factories are scrambling with the same tasks in an effort to quickly protect “their patch”, the market they have carefully developed over the years.
In the resulting melee, those trading companies and buyers with small volumes get pushed to the back of the queue. There have been recent stories where the carparks of the remaining factories are filled with cars carrying people requiring product, and these people are armed with briefcases full of cash, gold and diamonds (I mean literally) to “influence” the managers of the remaining factories to give preference in the production schedule.
Many in the Australian market have felt the fallout. Supply has been a serious issue. Many suppliers are months away from getting supply back on track. Others, offering volume and upfront payment, are close to having alternatives in place, and should be back on track very soon. For them, the worst of it is almost over.
One source of concern is those who believe that, by using factories in the south of China, they have escaped the consequences of the factory shutdowns in the north. Yet, as the demand from the north heads south throughout China, the demand on the Foshan factories will start to increase. They could be hit just as hard.
In part that is because volumes here in Australia are relatively small by world standards. Even if a supplier deals directly with factories and enjoys a good, longstanding relationship, commercial pressures will come into play as factories field an increasing number of approaches from companies seeking large volumes — for which they are prepared to pay a premium. This will see Foshan factories shifting their supply priorities. Their pricing will inevitably increase as they realise they can sell their production time to the highest bidder.
As part of a group supplying over a dozen countries around the world, I have been proactive in trying to find out the extent of the problem first hand, and to discover how we can address these issues. Link International has been assisting in establishing a supply chain that offers sustainable availability of high quality, well-priced product. This has been the most painful period in my 32 years in the tile industry.
Fortunately, I am part of a company that supplies customers around the world, Link International (www.linkinternationalkl.com). We have a volume that is enticing for factories. We have the resources to be able to buy up weeks of production at a time, and to satisfy the requirements of the factories who realise they are now both king and drummer boy, setting the beat to which we will all now march.
Yet even with all that in our favour, it has been tough. However, with the support of the best customers in the world, we now have a solution that will see us shortly emerging from this nightmare. This solution will see us avoid the issues that many will continue to endure for months to come, and which many are on the verge of starting to experience.
When the initial closures started to occur after Chinese New Year 2016, it became crystal clear that we had become too heavily invested in China. Not just as a company, but as an industry. Many warned us over the years that, as an industry, we were weighing in too heavily into the manufacturing sector of one country, but for commercial reasons we jumped in, headfirst, and moved all our eggs into one basket. What could ever go wrong – right?
As this manufacturing crisis developed, Link International started to use its network and experience to find an alternative manufacturing base. We also manufacture in Italy, but we needed to find a solution to provide well-priced, yet high quality product that we could get with some continuity, and have it done in a manner that meets the market requirements for product and logistics.
We had some contacts and experience with India, and we made a trial order.
In the past, I have had some experience with sourcing tiles in India. When I was the buyer for a major group years ago, I bought a container of wall tiles from there. India was still fairly new to global tile manufacturing, and their standards weren’t what would be considered in alignment with our expectations in Australia.
There was also the issue of having to wait months for production. Then, once the product was made, there was the problem of getting the product to the wharves and getting the material on the water.
We jumped the hurdles and the product arrived. We opened the container, took a box out, inspected the “quality”, closed the container, and sent it to the tip. That sums up the experience of importing from India back then.
Last year, we started to re-examine the potential of India. We had been told that Indian tile production had come a long way in the last few years. And we were pleasantly surprised when we went to India, and found that there had indeed been progress. Investments in technology, factories, infrastructure and training had seen the gap between China and India close, with India catching up, but still sitting a little way behind China in the “Great Tile Race”.
Quality was OK. Pricing wasn’t cheaper than China, and anything of quality was perhaps a little more expensive than the Chinese equivalent. Plus, they were only really interested in volume – big volume. There was no way that they were going to entertain the thought of mixed containers, and minimum order quantities (MOQs) were quite high.
Despite this, we took a punt, and placed an order — a big one. We had markets overseas where we knew we could clear the product should the quality not be what we were expecting. They made the product within the timeframe they had described to us. The product made it to the wharves without a hitch. It sailed. The freight rate was very similar to China, as was the sailing time. The containers arrived and the material was exactly what we were expecting. We ordered more. So, for each month over the last year, Link has shipped a healthy volume of containers — without one single complaint!
With the recent, second round of factory closures in China, it was timely to go to India and have a look at the current state of play to see if their product and supply chain was in alignment to the requirements here. (It was hot there, damn hot!)
The tiles come from a “dry” (alcohol free) state, so there is no refreshing ale to await you at the end of a long day visiting factories. The diet is mainly vegetarian, so the ache for a steak was gnawing away. Despite these material and cultural hardships, the reconnaissance mission went ahead.
Development in India
India has come a long way in the last twelve months, and the timing couldn’t have been better. The first thing that strikes you is the amount of construction that is going on. Over 180 new tile factories being built in the region. They obviously understand the significance of the closures in China, and are gearing up for increased demand.
The next thing that strikes you, is the ease of communication in a country where most people speak English. With their increasing capacity, and clear lines of communication in place, it becomes very evident that they are hungry to do business. Their quality is good, really good. Their pricing has come into line with China. Their designs are getting closer to what we would deem acceptable here. They are open to making our designs as well, although their MOQs remain quite high.
The interpretation of colour in India is great — their light greys are light grey and not blue. Their blacks are black and not dark green. They get it that blue, green, pink and yellow hues can kill a series. And their thinking has come much closer to ours in understanding our market nuances and requirements.
The product for Australia is now in production. We have replicated a couple of our most popular Chinese lines giving us two manufacturing bases. We have also bought designs that will be specifically made in China. We have shipped a considerable volume of containers from India in the past year, and after the recent reconnaissance visit, we are confident that this is a real opportunity to diversity the tile manufacturing base beyond China.
We now also have in place an option that offers us uninterrupted supply when China closes for Chinese New Year, meaning our customers no longer need to stock up over Christmas, just prior to Chinese New Year. This will have many positive impacts on the market here, not least of which will be cashflow.
India is not a place to go unless you are prepared to offer them volume, serious volume. And they don’t really have a concept of payment terms, so be prepared to pay up front. But if you have the resources and are able to take volume, and the heat, sanitation, food and other inconveniences don’t bother you, then the quality, logistics, pricing and designs may offer a real alternative. Obviously, these hurdles will lessen over time as they pick up volume in India and as we align our thinking, but for now the bar is still quite high, and the rewards are there.
As China becomes increasingly uncertain in terms of reliability of supply, we all need to look at how we take prudent steps to mitigate risk. As an industry, we have been lucky in backing one horse, but the horse is starting to show worrying signs.
Supply from China will continue to be sizeable, but it will change. A correction is coming — some say it is already here.
Collectively, we will shift back to some of the traditional manufacturing centres in Europe. Local manufacture may be seen as a safe haven by some. A few of the smaller and perhaps obscure tile manufacturing nations will see more action.
But the real message is this: India will emerge as the next tile superpower. Get ready — the lion is about to roar!
Story by Bryan Vadas, Tile Agencies Group (www.tileagenciesgroup.com.au)