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Exports of Christmas trees and lights from China have been rising steadily even as the industry struggles with sharp increases in material costs, intense competition and a labor shortage. Prices of most China-made Christmas trees and lights are expected to increase in the next 6 to12 months due to a number of factors that have been increasing makers' operating expenses. The most critical of these is the rising cost of raw materials, particularly plastic, iron and steel. Due to fluctuating crude oil prices, the cost of PVC in China has doubled over the past 12 months, reaching US$1,200 per ton at the end of 2005. The situation is aggravated further by a marginal short supply of plastic, despite most plastic processing companies running at full capacity. Although domestic steel and iron prices have decreased because of reduced consumption, the materials are still 30 percent more expensive than they were in 2004. Depending on their size and capability, Christmas tree and light makers are dealing with rising production costs in different ways. Large suppliers with sufficient capital and large capacity have been able to absorb increases in raw material costs to some extent. Some manufacturers have also expanded their overall capacity in an effort to achieve economies of scale. On the other hand, small and midsize companies with limited financial resources can absorb only a portion of higher expenses. Since competition in the industry is stiff, these makers find it difficult to increase export prices. Most of them have had to cut profit margins to secure orders. Some makers, both large and small, are also re-examining their manufacturing procedures to find new ways of enhancing efficiency and reducing expenditure. A number of suppliers interviewed for this report have automated production processes. Many are also upgrading their management systems to allocate resources effectively. Aside from rising raw material costs, higher labor expenses have been posing a problem for Christmas trees and lights suppliers, particularly those located in the industrialized provinces of Guangdong and Zhejiang. Since most of these makers hire temporary workers during peak season, they find it difficult to re-hire skilled workers and have had to raise salaries, and improve living and working conditions of employees. In fact, some manufacturers have increased the amount of work they subcontract to reduce overall labor costs, especially during peak season. Competition is yet another concern in the industry. Since the production of most types of Christmas trees and lights does not require sophisticated equipment, a number of small and midsize companies have been attracted to join the business as international demand for these products rises. In addition, an increasing number of suppliers from Taiwan, Hong Kong and South Korea have shifted their manufacturing facilities to the mainland to take advantage of lower production expenses. This has added to the already intense rivalry in the industry. To deal with the competition, many midsize and large companies, particularly Taiwan and Hong Kong invested ones, are now moving up the value chain. Some of them are enhancing their R&D capability to position themselves as design-oriented makers, rather than concentrating on high-volume low-price products. Off-season activities
Demand for Christmas trees and lights is seasonal and this determines the workflow of companies in China. During non peak periods, most suppliers manufacture decorative products for other festivities such as Halloween and Easter. Some companies, on the other hand, have separate business units to produce entirely unrelated items. For example, Jiao Guang, a company specializing in Christmas lights, manufactures outdoor furniture during off-peak season. In addition, most suppliers also develop new Christmas tree and light designs, explore new markets and negotiate orders with buyers during off-season.
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 All information contained in China Sourcing Reports is the result of exclusive, ground-level and definitive research conducted by Global Sources' analysts. Companies featured in these reports may or may not be clients of Global Sources.
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