Schooling the Chinese
The story of globalization via furniture manufacturing in China and America
“In a class with other runaway debuts like Laura Hillenbrand’s Seabiscuit and Katherine Boo’s Behind the Beautiful Forevers: These nonfiction narratives are more stirring and dramatic than most novels. And Ms. Macy writes so vigorously that she hooks you instantly. You won’t be putting this book down.” —Janet Maslin, The New York Times
In “Factory Man,” journalist Beth Macy pulls back the curtain on globalization, zeroing in on one Virginia furniture-making family and the two very different choices its members made to offshoring. Macy traces the industry’s impact in Virginia, from its Reconstruction-era roots to the widespread factory closings that occurred in the wake of NAFTA and China’s admittance into the WTO. Chapter Twelve, excerpted here, details the beginning of the decline of furniture-making in America, including from the perspective of Taiwanese furniture-maker Larry Moh, the first “cowboy capitalist” to take the American furniture makers to the mat.
It took a Chinese native living in Taiwan and educated at the University of Pennsylvania’s Wharton School to figure out how to capitalize on the new importing landscape. As a young man, Larry Moh had fled Communist China under Mao with his family, later marrying into a wealthy Taiwanese family and gaining two well-educated brothers-in-law: Ronald Zung, who had an MBA from Harvard, and his brother, Laurence Zung, who held a PhD in chemistry.
There was a hotel boom in Hong Kong in the mid-1970s, part of an industrialization wave that was bringing hordes of American businessmen to East Asia. China’s growth was still modest, an exception in Asia at the time, with just 17 percent of its population living in cities (compared to half its population today). The so-called Asian tigers—Japan, South Korea, Taiwan, Singapore, the Philippines, and Hong Kong—were already roaring, providing China with strong examples of economic possibility from every side.
But under the iron fist of Chairman Mao, China remained poor, agrarian, and isolated, partly by choice and partly as the result of an American embargo against China that had been in place until 1972. China was at the beginning of what Marx called the “primitive accumulation of capital,” during which the bulk of a population moved from working land to working under smokestacks in cities and towns. China’s evolution from farm-based to factory-based economy was half a century behind the American South’s, although China would undergo the transition in a much shorter time under Teng Hsiao-p’ing’s market-economy quest.
Larry Moh understood that Asia was ripe for industrialization, and with his new furniture company, Hong Kong Teakworks, he and his brothers-in-law borrowed $80,000 and positioned themselves to take full advantage. Brother-in-law Ronald was sent to North Carolina State University to learn the ins and outs of furniture manufacturing, and brother-in-law Laurence was dispatched to find furniture-grade lumber the company could use in Asia—other than the prized but expensive native teak—so it wouldn’t have to import hardwood from the United States.
Rubberwood was plentiful in nearby Malaysia, where it was grown in groves and tapped for latex, like American maples are for syrup. Rubberwood sap went into the making of tires, condoms, and rubber gloves, and when the sap became too thick to extract—typically when the trees reached their midtwenties—the trees were usually felled. With its high sulfur content, rubberwood attracted bugs, and the two countries where it was most prevalent—Malaysia and Indonesia—were humid, causing mold and insect problems. The trees decayed so quickly once felled that rubberwood turned to Jell-O in as little as ten days. Once a rubberwood tree no longer produced latex, it was deemed unharvestable, and burned.
Until Laurence Zung came along and figured out how to turn garbage into gold. “You had to be one step ahead of the bug,” he said.
When he applied the correct concentration of a chemical called pentachloride to the raw rubberwood, he found he could repel the insects without staining the wood. Hong Kong Teakworks could then use that rubberwood in furniture-making, with results akin to hardwoods grown in the American South.
The lumber would be free, regulations in Hong Kong were minimal, and labor costs were next to nothing. In 1975, an Asian production worker made seventy-six cents an hour against an American factory worker’s $6.36.
So Larry Moh and his brothers-in-law built a factory on two floors of a Hong Kong high-rise and set out to expand the Asian furniture offerings far past the usual wicker and rattan. With urban space at a premium, the high-rise didn’t allow for the typical loading-dock setup, so they installed ramps inside the building, allowing delivery trucks to get to and from the higher-level floors.
They started out with hotel furniture, using a wider design to fit the heftier shapes of American business travelers. “You had all this trade building up, with big Americans going over there who didn’t like the smaller, Asian-styled furniture,” Virginia furniture analyst Jerry Epperson said.
Making American-size hotel furniture was a natural beginning for Moh and his brothers-in-law, and hotel owners embraced it because they could charge more for the larger rooms that housed the furniture.
But a question soon dawned on Larry Moh: Why couldn’t he build furniture in Asia and sell it in American stores, just like the carmakers in Japan were doing?
Within a few years, Moh’s company, now called Universal Furniture, had factories in Hong Kong, Singapore, and Taiwan. And he learned something it would take the American businessmen years to figure out: Culture mattered. While Laurence handled the science and Ronald focused on business, Moh was a master at navigating the welter of values and ethnicities within his factory walls. In multicultural Singapore, skin color played an important role in the hierarchy, just as it had once in Bassett. The darkest people, those of Indian descent, were tasked with the finishing- and rub-room work. The native Malaysians handled the rough end, where the lumber was culled and cut to size, while the Chinese did the intricate veneer work and carving.
Moh knew that the people doing the tailing—handing off items from one department to the next—were especially key. The person tailing from the rough end to the carving had to be able to speak Mandarin so he could talk to the Chinese carvers, and the person handing off to the Indian finishers had to be comfortable communicating with them.
“They all had to eat separately because the food requirements were very different, and you couldn’t mix any of the three,” Epperson said. “Larry understood all that. He also knew how to shift production where it needed to be because of changing labor or tax rates or a political issue. He was knowledgeable about every aspect of it.”
The Italians and Koreans had long exported furniture from their countries to their immigrant cousins in the United States, but Moh was the first to export furniture from Asia to Middle America. “From a visual point of view, it was identical to what we were buying here,” Epperson said. It was basically Bassett Furniture—less, of course, 20 to 30 percent the cost.
So it went that Larry Moh became the first Asian to clobber the Southern furniture makers exactly the way they’d punched the guys in Grand Rapids a century before—with free hardwood and dirt-cheap labor. And the most surprising thing of all? Moh was so proper and polite, practically Southern in the way he went about conducting his business, that the Americans taught him exactly how to do it.
The worry Basset Furniture CEO Bob Spilman had been harboring ever since his first trip to China soon proved valid: It wasn’t long before Broyhill and other companies selling imports had Bassett’s prices beaten, which meant that Spilman had to import too, just to stay competitive. Imports “will be with us forever,” Spilman predicted.
Dining-room furniture became the next category, after occasional tables, to fall to imports, and by 1986, the domino effect had led to some bankruptcies. Seventeen American furniture factories closed that year.
“All the expertise we’d developed over the years and all the wonderful finishes and veneer work and carvings—we had to teach the Asians how to do it so they could provide us with more product,” explained Michael K. Dugan, a former Henredon Furniture executive and a retired business professor.
“The problem is, once that process starts, there’s no stopping it.”
Joe Meadors can tell the story of globalization just by looking at the furniture in his room. Pointing to an ornate Bassett cocktail table, the company’s retired vice president of marketing recalled when Larry Moh started selling ones just like it—for less than what it cost Bassett to buy the lumber.
Moh’s dining-room table, china hutch, and four chairs? “Man, he’d come in with that suite, and it was so ornate and so cheap, you couldn’t touch it,” Meadors said. Moh’s factories produced the parts and panels, fitted them into boxes, then shipped them, unassembled, to one of the five Universal assembly plants Moh had built across the United States. A comparable Bassett dining-room suite would wholesale for $999 (and retail for double that), but Moh’s version was substantially more decorative, and it wholesaled for two hundred dollars less. “The overall quality wasn’t quite as good at first, especially some of the finishes. But they could do much more than we could with ornate tops and fancy veneers,” Meadors said.
The American consumer ate it up, especially the price.
One of Universal’s especially popular dining-room suites featured beautifully ornate French-style legs, which required considerable hand labor to produce. Meadors recalls the Jewish retailers who were big Bassett customers in New York, New Jersey, and Miami referring to Moh’s furniture as pure punim—Yiddish for “beautiful face.”
To compete against Universal and the growing throng of smaller importers, a Bassett plant manager in Dublin, Georgia, designed a bedroom suite the company could wholesale for $399, called a Shotgun Special.
Buck Gale was a Bassett native with deep manufacturing roots whom Spilman had transferred in 1983 to run two struggling plants in Georgia. He was such a good engineer that when John Bassett left Bassett Furniture to run Vaughn-Bassett Furniture in Galax following the storied family feud, he tried his best to lure Buck to come work for him. A second-generation furniture maker—his father had been a manager for both Stanley Furniture and Bassett—Buck had an engineering degree from the College of William and Mary, and his line workers were totally devoted to him. He was also one of the few managers who defied Spilman on a regular basis, giving unapproved bonuses to managers and premiering his cheap new suites at the High Point Market even when Spilman refused to let him put Bassett hangtags on them.
Spilman may not have cared for Buck’s renegade ways, but he was not about to let his brother-in-law abscond with his best plant manager. “He actually sent my wife and me to Williamsburg, to hide out in the woods for a week, to keep John from being able to get in touch with me,” Buck recalled. Spilman plied Buck with a raise, a bonus, and a retirement pension that was hard to say no to, and it was aimed directly at John Bassett: it came with a clause that stated Buck could never, ever work for a competitor, not even in retirement.
The genius of Buck’s so-called Shotgun Specials was the way he engineered them for efficiency: With minimal effort, the factories could change out the front of the headboard or chest to give the suites a flair of Mediterranean, contemporary, or Early American design. He lifted his methods from kitchen-cabinet manufacturers, reorganizing his factory layout around worker pods, or cells, and rearranging the work flow from the rough end to finishing. The old furniture axiom “You lose money at the saws” wasn’t true for Buck’s plant. He’d figured out how to maximize his yield by introducing finger joints—a joinery method in which short pieces are glued together to reduce the amount of culled lumber. “It was a damn no-brainer, but Spilman said no because his big idea was he wanted to start going higher end, from making Fords to Mercedes. But that’s a hard thing to do overnight,” Buck told me.
Buck also wanted to adopt a finishing system called KD—short for knockdown—which called for spray-painting the components, then shipping them to the consumer for assembly. KD furniture would go on to turn the Swedish-based IKEA into a powerhouse. But Spilman didn’t want to spend the money to upgrade his finishing rooms, even though Dublin was by then the company’s best-performing plant, with Buck’s lean manufacturing practices firmly in place.
“Everything I did, it was all about: What’s the least amount of materials? The least amount of labor? The least amount of overhead?” Buck said. “When we went to that kitchen-cabinet-type construction, I tell you, the process was so damn fast, we could’ve eaten ’em alive.
“But what we did in Dublin, it was like we hit a single and just stood there on first base,” he went on. The company stopped trying to keep the factories running five and a half days a week—something Bassett had always prided itself on doing. That had long been the company-town mentality, even when they were only breaking even to do it, even when Hooker, American and Stanley furniture companies were sending their workers home before the workweek was up. “Bassett used to be just hell-bent and determined to keep the plants running, even during hard times.” One of company founder J.D. Bassett’s favorite sayings, passed down through his heirs, had always been: “The money we make isn’t made in the office. It’s made in the factories.”
By the late 1980s, the office had taken on a more prominent role, as fax machines, travel agents to coordinate trips to Asia, and translators became key to the importing operation. “The only thing we ever talked about in our meetings anymore,” Buck said, “was margins.”
Spilman achieved his dream of hitting the Fortune 500 in 1987 and 1988, but it was anticlimactic. Bassett was still the largest single-name-brand furniture company in the United States, with sales in 1985 of $408 million and 8,400 employees working in fifty-seven plants in fifteen states. But with foreigners crowding into an already shrinking number of retailer showrooms, American manufacturers had 40 percent less display space than they’d had a decade before.
Mid- to higher-end furniture lines, including Kincaid, Stanley, and Lane Furniture, had cashed out or fallen prey to corporate raiders—Bonce Stanley’s descendants had sold out to the Mead Corporation in 1969, a move that resulted in a succession of five company presidents in the 1970s and four separate owners in the 1980s. It was a far cry from the 1950s, when three-quarters of the furniture industry had been controlled by a handful of families in Virginia and North Carolina.
Now, instead of investing their profits in new machinery, many of the megacorporations were paying off leveraged-buyout debts, said Dugan, who chronicled the corporate infighting in his 2009 book The Furniture Wars: How America Lost a Fifty Billion Dollar Industry. The outsiders were Northern-based, mostly, companies with made-up marketing names—Interco, Masco, and the like—rather than family names.
From their faraway corporate perches, these executives aimed to teach the slow-drawling Southerners new ways of merchandising and marketing, reaping giant profits for all. They bought out family owners of profitable businesses in an industry they knew nothing about, promising to leave the local management alone except when they felt their financial expertise was required. The honeymoon ended when the profits had been milked to meet a corporation’s earnings targets, and usually after management had demeaned the local guys and sapped initiative on the factory floor. When the conglomerates sold or spun off their acquisitions, citing “poor performance” or “failure to meet profit goals,” the businesses parted ways for good.
“They didn’t have sawdust in their veins, they had sawdust in their brains,” Dugan told me. “You had all these outsiders taking over so much of the industry and basically bankrupting it.”
According to Dugan, the villains were the outsiders, who didn’t understand that making wood furniture wasn’t something they could profit from overnight, and the victims—of their own self-inflicted wounds—were the Southern insiders, who were too change-resistant to modernize. “The bigger public companies had the hardest time trying to compete with Asia because they move slowly, with management that’s far removed from the battlefield,” Dugan said.
Most of them were so busy fighting each other, he argued, they paid scant attention to the mild-mannered importers invading their turf.
Following the corporate acquisitions of Stanley, Lane, and American, Bassett was rumored to be the target of a takeover. But Spilman said he believed the raiders were mainly pursuing medium- to high-end furniture makers, not moderately priced Bassett. One saving grace was Bassett’s $65 million in cash reserves, which was there thanks partly to all those decades of hyperfrugal management by the second-generation CEOS, W.M., Doug, and Ed Bassett. “Spilman made sure the company had a balance sheet like Fort Knox, and he did a great job protecting the brand,” said Paul Fulton, who was a board member at the time.
While the family had its share of internal battles, it maintained a sizable cadre of stockholders and corporate executives in its third generation who still cared more about furniture-making than cashing out. (Granted, they were already pretty rich.)
Two hours south of Bassett, in furniture-rich Hudson, North Carolina, Steve Kincaid, the third-generation operator of Kincaid Furniture, not only had to adapt to his extended family voting to sell out in 1979 but also had to fend off two hostile corporate takeovers in the 1980s—first from LADD Furniture, then from Nortech Systems, a conglomerate that also owned Stanley Furniture at the time. Surrounded by a bevy of Goldman Sachs investment bankers representing the company in New York in 1988, Kincaid, who was still running several factories for the company, had a simple question: How much was all this takeover-quashing going to cost?
At least two million, came the reply, and worse: Goldman Sachs needed him to pay a retainer of $465,000 by the next day.
“I said, ‘I need to go call my dad!’ ” Kincaid, then in his forties, recalled, shaking his head.
At the same time, he was dealing with a divorce, a dying brother (who was also a business partner), and the Larry Mohs of the industry, by then termed, in the Southern furniture makers’ minds, the Asian invasion. With its twelve factories and four-thousand-plus workers, Kincaid was eventually purchased in 1989 by the recliner giant La-Z-Boy, and again Steve Kincaid stayed on. This time he became senior vice president in charge of case goods and upholstery operations, making him a rare veteran of all three battles in the furniture wars—the family, the corporate conglomerates, and globalization.
The moment an import first made the hair on Kincaid’s neck stand up? One of the company’s bestselling items had long been its $220 Queen Anne dining-room chair; on a good day, the company churned out twelve hundred of them. When Kincaid noticed sales shrinking by the month, he took a closer look at Larry Moh and his importing ilk and discovered why: They were selling the same Queen Anne that Kincaid sold, only the Asian competitors sold it—even more embellished—for $50. Then $39.
“Our business started going south because we were not a value, so I went over there, and I toured their factories and I knew: We had to start importing chairs. There’s just no way we could keep doing it here and compete,” he said, even though his American plant was highly modernized, from its automated rough end to its state-of-the-art finishing operations.
For Bassett, for Stanley, and for Kincaid, the American-made chairs were the first items to fall victim to globalization. Time would soon tell what items would be flattened next under the weight of the Asian invaders—and which factories would fall.
At the Taj Mahal—the line workers’ nickname for Bassett’s corporate headquarters—the bigwigs were told to keep quiet. Spilman plotted his move like it was the invasion of Normandy. He even named the covert scheme Operation Blackhawk, a battle that would take place on the worn oak floors where Bassett Furniture had manufactured its first headboards and chests of drawers. Old Town, the original Bassett Furniture Industries factory, was closing. And true to form, Spilman wanted to make sure no one who actually worked there knew about it until he was ready to tell them.
Furniture sales had been flat throughout the industry, with 1989 sales down 1.5 percent from the previous year. The era of conspicuous consumption was coming to a close. One retail analyst said he’d found that most consumers preferred “to spend their money creating interesting lives for themselves and their children, on things like entertainment and vacations.” Closing Old Town represented a change in Bassett’s strategies, Spilman explained to his board, adding that the company was upgrading its designs to compete in a higher-priced market.
Spilman told stockholders, “Bassett has stuck to its knitting… while most furniture manufacturers have entered the consolidation frenzy and bought up other players via borrowed money.” What he didn’t mention was that he was investing in bonds for the company that paid 20 percent interest instead of investing in his own plants via upgraded machinery. What he didn’t say was that Bassett hadn’t gotten to where it was through buying bonds and using old equipment but by investing in its own industry.
In Henry County lingo, Bassett Furniture forgot who brung ’em to the dance.
“By that point, Bob was more interested in being on the boards of places like Bank of America than actually running a furniture company,” said Tom Word, a Richmond attorney who represented the Spilmans and other furniture executives related to the family. “He wasn’t going into the factories very often. He preferred to summon people to his office.”
When Old Town closed, many of its four hundred workers were shifted to the six remaining plants in the area, as was much of the machinery. Members of the public were invited to stop by and take a commemorative brick from the premier storied plant. Later, laborers who’d once worked in the factories were hired to chunk off mortar from the building’s bricks, which were sold to a British company. Which eventually shipped them to New Orleans, where they were used in the construction of townhouses.
Not one person quoted in a Roanoke Times story mentioned the real culprit behind the closing of Old Town: all the chairs and occasional tables arriving in containers at the Norfolk port, some of them trucked in willy-nilly, with chair arms in one shipment and chair legs in the next. No one quoted the middle-aged line workers who’d been going home for supper and wondering aloud, “What were all them little people doing at work today?” and “Why are they taking snapshots of everything we do?” None of the executives came right out and stated the obvious: that the sooner the “little people” learned how to craft Bassett Furniture in Asia, the sooner the local jobs would be offshored and the locals’ positions deemed redundant.
Bassett was importing 8 to 10 percent of its inventory, but visits from Virginia to Taiwan and Hong Kong were picking up. Sales had declined for three years in a row, and tempers were flaring. Bassett plant manager Reuben Scott recalled Spilman showing one of his Asian visitors how he did his pricing: he looked at a new line, priced out the parts in his head, and, within a few seconds, calculated exactly how much the company should charge for the suite and what the margin would be. He’d often humiliate his plant managers in the process, Scott said. “He’d take my [pricing] sheets, tear ’em in half, and throw ’em on the floor and go, ‘You’re crazy!’ ”
While Spilman stormed around showing everyone who was boss in Bassett, Larry Moh plotted his next move. The center of Moh’s operation was still Taiwan, but wages were rapidly rising there, and Moh had had the chessboard savvy to quietly spread the work around East Asia, with plants now in ten countries. With annual sales of $500 million, Universal was now the industry’s fourth-largest company.
The Berlin Wall had just fallen, and the red tiger would soon leap into capitalism’s fray. Over in Galax, John Bassett had left one enemy camp and had no idea he was about to be thrust into another. He was on his own now, charged with turning around a struggling and much smaller enterprise—and navigating a new minefield of family dynamics.
Thanks to the roaring success of Larry Moh and others, John Bassett had a hunch that it would not be long before he’d find himself staring down the barrel of a Communist government–backed competitor, and he’d be doing it at very close range: from inside his own factory walls.
The $100 Dalian dresser—the one that would threaten to take the entire industry down—was still two decades away, but already JBIII sensed the ground shifting beneath him, beneath the entire industry. If his little factory in the foothills stood any chance at all of surviving, everything about it would have to change.
Excerpted from Factory Man: How One Furniture Maker Battled Offshoring, Stayed Local — and Helped Save an American Town by Beth Macy. In stores July 15, 2014.
“An illuminating, deeply patriotic David vs. Goliath book ” –Janet Maslin, The New York Times