China produced 7.5 billion square meters of ceramic tiles, which is around 60 percent of the world total. Ceramic tile makers from Foshan accounted for more than 60 percent of the Chinese production, which on rough terms translates to nearly enough tiles to cover the grounds in three London-type cities.

"The EU anti-dumping tariff has hit low-end ceramic tile makers really hard and is certain to reshape the entire industry in Foshan. Companies are now realizing that going high-end is the only way out," says Lan Weibing, director of the Foshan bureau at the China Ceramic Industrial Association.

EU accounted for nearly 10 percent of Foshan's $2.29 billion ceramic tile exports last year, and hence is a strategic market that cannot be ignored totally.

"Dumping is often associated with cheap and low-end products. It is not a name that we are proud of. Most of the high-end buyers source their ceramic tiles from Europe, which is famous for top quality products and long tradition."

"Getting rid of the cheap tag associated with the Foshan ceramic tiles is impossible unless companies make a mark in the high-end European market," Lan says.

To make matters worse for Foshan companies, the EU action has triggered anti-dumping investigations from other countries like South Korea, India, Thailand, Argentina, Peru and Brazil, thereby queering the pitch for exports further.

With export orders fast dwindling, companies have been operating on reduced capacities, compared with full-peak capacities some years ago. There was also substantially a lesser number of European buyers at the 18th China International Ceramic and Bathroom Fair in October this year.

Pu Dingxin, chairman of Louis Valentino Investment and Development Co, one of the first ceramic tile exporters from Foshan, says his company would look to sell higher-end products in Europe at higher price and higher profit margin.

Pu, an international trade major graduate, still remembers the good old days of ceramic tile export in the early 2000s when foreign buyers were happy enough to find some leftovers in China.

"Back then China's ceramic tile output could barely meet domestic market demand, let alone international one," he says.

But the situation changed dramatically when China's annual ceramic tile production surged from merely 1 billion sq m in 2000 to 7.5 billion sq m in 2010, thereby pushing more China-made products to overseas markets.

Europe was one of the major markets for people like Pu, and accounted for nearly 30 percent to 40 percent of the revenue between 2007 and 2010. Without revealing any revenue numbers, Pu says his company has a production capacity of 20 million sq m.

But this year, European share of the revenue has fallen to nearly 10 percent due to the stiff tariffs. Pu says the annual growth in revenue will fall to 10 percent this year from 30 percent in the previous years.

"We used to sell middle-end products in Europe, which are priced at $6.75 per sq m. Now we want to sell high-end products that are priced between $10 to $20 per sq m. The profit margins are higher, but needed as we have to spend more on branding and promotion," he says.

By all means the changeover from low-end to high-end is not an easy one. Higher prices mean more added value and this calls for more research and development (R&D) spending.

For Pu's company, which marched into overseas markets as a ceramic tile original equipment manufacturer for a French businessman surnamed Louis and an Italian businessman surnamed Valentino, research and development (R&D) is certainly a challenge.

Pu says he has been talking to some European companies about possible merger and acquisition opportunities to grow his company's R&D and sales network.

"Through mergers and acquisitions, we will be able to gain advanced technologies for making ceramic tiles and also strong sales networks in Europe," he says.

Despite the challenges, investing more in innovation and on overseas market does bring positive outcomes. ASGF Ceramics Co, another major ceramic tile maker from Foshan, has seen its revenue rise 30 percent this year mainly from high-end product sales in global markets.

The company established a joint venture with business partners in South Korea and France at the end of last year in response to the anti-dumping investigation warning in June 2010.

"We sold 22 percent stake to a French company, strong in ceramic design, for around 40 million yuan ($6.31 million, 4.7 million euros), while a South Korean retailer with a strong sales network brought 20 percent," says Chen Yanbin, president of ASGF Ceramic.

Since the founding of the company in 2003, Chen has always made innovation and design his top priority. According to him, the company invests 20 percent of its revenue on design and research and development every year, which is higher than software giant Microsoft's about 15 percent R&D spending every year.

"China's ceramic tile industry has many advantages like low labor costs and high production capacity. The only thing lacking is design and innovation, which is an area we must fast catch up with," Chen says.

His company employs more than 100 people in design and R&D, with 20 of them based in France.

It is not just Chen alone that is making the changes. Most of the ceramic tile makers in Foshan are now realizing their weaknesses and trying to catch up with international competition by investing more on design and innovation.