Industry in Denial
The Coming Wave of Competition from China
by Michael Collins
If anyone still doubts that Chinese companies will eventually have a meaningful market share along the full spectrum of components and products in the door and window industry, a trip to GlassBuild 2006 could have corrected that unfounded belief. I attended the show to research a question that must be asked and answered correctly: How much market share in the door and window industry will Chinese companies eventually capture? In the future, hindsight will let us answer that question with certainty. Our best guess right now, though, is that Chinese companies will capture greater market share in more product areas than most of their American competitors seem to suspect.
In talking with U.S. manufacturers, their responses regarding Chinese competition contain varying amounts of fear, mistrust and—most dangerous of all—misconceptions regarding the coming wave of competition. Unfortunately, their fears are probably well-founded. Chinese companies benefit from government support in the form of “loans” that will not be repaid, raw materials subsidies, tax holidays and other programs. The low cost of labor in China has become a cliché. Just as important, Chinese universities graduate 300,000 engineers each year. This army of skilled individuals is deployed by manufacturers who prize their abilities at design, quality control and—let’s be frank—reverse engineering the products of competitors. Finally, Chinese companies benefit from a currency policy that contributes significantly to the price competitiveness of their products on the world market.
These advantages are important, but there is another that may help Chinese companies more than any other in the long run.
Many U.S. door and window companies seem to be in denial that the wave of competition from Chinese companies is growing in strength. These companies are leaving themselves open to be blindsided over the next several years.
The majority of the hardware industry has already moved overseas. The consensus is that Chinese companies will increase their already substantial share in extruded profiles. Beyond that, we begin to encounter misconceptions about the current market. Some companies are in denial regarding the extent to which complete doors and windows can be imported from China. A recent report by Global Sources projects that in 2006, Chinese companies will export roughly $1 billion in doors and windows.
Many of these will be shipped to Africa, the Middle East, Europe and other parts of Asia. Roughly one-third of these products, though, will be sent to the United States. Several Chinese door and window companies displayed products at GlassBuild that appeared to be of very high quality. They enthusiastically described their prices as being 30-50 percent less than competing American products.
Many U.S. window manufacturers believe it is not economical to bring windows from China because of glass breakage, freight costs, long lead times and other reasons. The problem with that belief is that there were companies at GlassBuild that are already profitably exporting windows to the United States. These companies are aggressive and will keep pushing to grow their exports.
Staving Off the Competition
Having hopefully established the fact that a wave of competition from China is coming, the next logical step is to ask what companies can do to assure their prosperity in the years ahead. We will examine this question in greater detail in the months ahead.
In conclusion, we must ask: What will happen to door and window companies that make no plans over the next few years to address the coming wave of Chinese competition? Probably nothing. However, several years from now, there will be no doubt that Chinese companies have captured market share. The years after that will be a very different story for companies that fail to start making appropriate plans today.
Michael Collins is affiliated with Jordan, Knauff & Company, an investment banking firm that specializes in the door and window industry. He may be reached at
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