FURNITURE INDUSTRY The Vietnamese furniture industry has become one of the major growth industries, setting a new record in 2005 with expected earnings of USD 1.6 Billion Introduction In the last decade, the Vietnamese furniture industry has expanded on a global scale. Today, Vietnam is among the four largest exporters of processed timber in Southeast Asia. The total export volume of the industry reached over 500 USD million in 2003 and almost 1 billion USD in 2004. Overall, Vietnam is an excellent production centre for furniture. With its macro-economical stability, low labour costs, quality craftsmanship and highly adaptable work force, Vietnam has become a very attractive sourcing destination. Vietnam furniture is being exported to more than 120 countries. The major importing countries are the US (USD 311 million in 2004), EU (USD 300 million), and Japan (USD 170 million). The total export volume of the industry reached USD 1 billion in 2004, and it is expected to increase approximately 50% this year. Vietnam has around 2.000 furniture manufacturers of which 15% are export focused. According to official statistics, there are over 1.300 wood processing and manufacturing factories with a total round wood capacity of 2 million cubic metres per year. Around 60 companies with foreign capital currently operate in Vietnam, either as joint ventures or as wholly foreign owned companies. These companies typically come from other countries in the region, e.g. Singapore and Taiwan. The production of wooden products in Vietnam is characterised by a majority of small-scale producers. Clusters of main exporters are located in Ho Chi Minh City and Hanoi. Ho Chi Minh is the current centre for furniture manufacturing with key exports to the US market. A combination of Vietnamese owned and foreign-managed companies can be found here. Ho Chi Minh also has some large-scale factories, which employ thousands of workers in modern production lines, and it is home to about 70% of Vietnam 600 largest furniture producers. Hanoi is the manufacturing centre for home accents and solid wood traditional Vietnamese furniture with exports primarily to Asia. Log and timber are the most important materials for Vietnam’s furniture industry, which is predominantly wood-based. The industry produces four main types of products. i.e. exterior furniture, interior furniture, fine arts products made from natural wood and rattan and bamboo products.
Access to raw materials In terms of raw materials, most wood must be imported. Due to overexploitation in the past years, Vietnam’s wood resources have become scarce. The situation has worsened with increasing illegal logging combined with land clearing for housing and agriculture. This situation has forced the government to implement strict regulations on wood lumbering. In 2000, the Vietnamese government issued a policy to limit the exploitation of natural forest, which has reduced the exploitation to only 150,000 cubic metres in 2004. According to the “New 5 million hectare forest-planting” programme, Vietnam will have 2 million hectares of protective forest and 3 million hectares of production forest in 2010. It will be difficult for the Vietnamese forestry sector to reach this goal, so it is expected that Vietnam must import around 75% of its timber in the coming years. Presently, Vietnam imports timber from New Zealand, Australia, South America, Sweden, US and Canada. There is no import duty on wood, except for 10% VAT, which is not paid if the final product is re-exported. However, shipping costs may add additional 60% extra to the costs of the actual wood. It should be noted that although Vietnam is no longer a supplier of high quality wood such as teak, it has a forest coverage of around 35% including different types of dark wood as well as large plantations of e.g. rubber wood, acacia, rose wood, ballau etc.
Market trends Recently, many foreign furniture companies have moved parts of their production facilities to Vietnam. According to industrial experts, this trend is a part of a general “China + 1 Strategy” within the industry. This strategy implies that companies increasingly want a production alternative to China in order to assure flexibility and stability in production. Locating production in Vietnam enables companies to benefit from the following features: The existing well-established furniture manufacturing infrastructures provide good supply-chain support essential for industrial growth. The nine ports and harbours on the Gulf of Tonkin and the South China Sea provide manufacturers ready and easy access to international shipping lines. This not only facilitates wood products exports, but also imports of such materials as lumber, veneers, machinery and equipment needed to support a furniture and woodworking cluster. Moreover, the US-Vietnam Bilateral Trade Agreement, which took effect in 2001, ensures Vietnamese companies export-access to the US market on reasonable terms. This contrasts China, which currently is a target for US anti-dumping taxes of up to 200%. (The import tax from Vietnam is 3% to USA and maximum 4% to EU. Most furniture has no import tax in EU). Vietnam has one of the lowest industrial wage structures in the world. The cheap, skilful and abundant labour force is a clear strength for the wood processing industry in Vietnam, and has attracted several manufacturers to relocate their factory operations from countries like Malaysia, Philippines and China. The average monthly salary of a foreman is around USD 300-500, while a blue-collar worker typically earns USD 50-80. The Vietnamese worker is characterised by an education level, which is significantly higher than other countries with similar GPD. Due to the lack of capital to invest in technology, manual labour accounts for as much as 75% of the production. (Source: Denmark Embassy of Hanoi 2006) |
