VIETNAM FURNITURE INDUSTRY

The Vietnam furniture industry is characterised by an accelerated influx of foreign investment

and the rapid expansion of existing companies. The rapid development and fast market
expansion enjoyed is projected to continue into the foreseeable future. In addition to traditional
market in the Asia Pacific, Vietnam furniture has attracted great interest from new markets such
as USA and Europe. The attraction is very much attributeed to the low cost of products coming
out of the country as well as the huge improvement in quality.

According to statistics provided by the Service of Trade of Ho Chi Minh City, the export volume
of Vietnam furniture industry reached over USD 500 million in 2003 and almost USD 1 billion in
2004.

I. Current situation of Vietnam furniture industry

1. Materials
Log and timber are the most important materials for Vietnam`s furniture industry, which is
predominantly wood-based. Vietnam has at present 9.45 million ha of natural forest with a
reserve of 720.9 million m3. The Government has taken a decision to utilize 300,000 m3 of
timber/ year to satisfy both domestic needs ( construction and furniture - 250,000 m3) and for
manufacturing of wooden handicraft for export (50,000 m3). The total area of planted forest is
1,5 ha ( not including those for pulp and mining industry) with exploitation capacity of 600,000
m3/year mainly for domestic consumption (ply wood).

Due to the limited source of wood material supply in the country, as well as the growing
demand, most of wood materials for export furniture are being imported. The total import
comprsing logs, timber, industrial wood in the 2002 was USD 246 million and nearly USD 250
million in 2003. In addition to traditional sources of supply of wood materials such as Laos,
Cambodia, malaysia, indonesia and Myanmar, Vietnam has started to import from countries
such as New Zealand, Australia, South Africa, Solomon Islands, Sweden, USA and Canada.

2. Furniture industry
Vietnam is said to be home to more than 2000 furniture manufacturers, with around 15%
export-focused. The numbers are increasing. Even Chinese manufacturers are reported to be
crossing the border to set up processing facilities in Vietnam . According to official satistics.
There are over 1200 wood processing and manufacturing factories with capacity of around 2
million m3 logs a year in Vietnam at the present moment. Of this figure, 374 are state-owned
factory sharing 31% processing capacity. The remainders are privately-owned and

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foreign-owned (FDI) factory.

The main manufactuters for export are concentrated in two geographical clusters: Ho Chi Minh
and Central Plato region. These are factories typically with 1000 or more workers and exports
around a hundred 40 foot containers each month. There are more than 50 FDI factories with a
total registered capital of about USD 105 million. The many advantages the country possesses,
such as political stability, low cost labour, convenient geographical location etc, . have helped
the country attract investments from furniture manufacturers in the neighbouring co untries. To
name a few, Vietnam is a popular manufacturing location for Taiwanese, Malaysian, Indonesian
and Chinese companies.

3. Export market
Vietnam furniture is being exported to over 120 countries. The major importing countries are:
Japan USD 129 million (2002), EU: USD 97 million, Taiwan : USD 54 million, USA : USD 44.7
million ( according to US customs, the figure is USD 82 million). The estimated amount for 2003
shows significant growth in the EU with 163,3 million and USA with USD 93.4 million ( a 100%
growth).

4. Strength and challenges of Vietnam furniture

Although large scale industrialization of furniture manufacturing is a fairly recent development,

the furniture making has long trdition in Vietnam . Skilled labour is abundant. Due to its lower
costs, overheads for labour in factories are much lesser. Many foreign companies have been
lured to VietNam by such attributes. These advantages are often translated into lower price to
customers, greatly enhancing compatitiveness of Vietnam furniture. In addition, with skilled
labour, Vietnam factories can fulfill orders for more sophisticated designs without incuring too
much increase in cost. The cost and labor advantages, along with the country`s political social
stability. As well as its convenient geographical location strongly enhances Vietnam`s position
as a mayjor furniture manufacturing center.

However, there are also many challenges the Vietnam furniture faces. Its material supply
shortage is a point to note. In addition, which the focus on lower costs, the country has
progressed much as an OEM producer. Many of its factories manufacture according to

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customer-provided designs and specifications. Advancement through the years has been
achieved largely on production technologies, efficiencies and techniques. With no emphasis on
Vietnam designs, the industry has little design expertise. This is an issue of cost VS benefits.
While Vietnam Furniture business grow, to divert vital resources from enlarging production to
instead develop the companies` design capacities may not be an easy decision.

Even though design design is vital to enhance a company`s longterm competitiveness, if not
sustainability, it is often a secondary goal. This is further negated by unstable global market, an
ever-shortening product life cycle, as well as the difficulty to understand customer`s tastes in the
different markets and rapid changes in tastes. Another " side effect " of being an OEM prodcer
is that companies are not motivated to develop its marketing and promotion capabilities.

Another issue of concern is tha despite the excellent potential for growth, many businesses are
relatively small in size, which often means they have lesser financial might. The lack of capital
for investment greatly limits companies` capacity to grow as well as their rate of growth.

II. The future of Vietnam furniture

Needless to say, the Vietnam furniture industry is growing quickly at the present moment.
Howerver, its share of global furniture market remain modest, contributing only 7.3% of Japan`s
total furniture import, 0.3% of total import in USA and 0.2% of the EU imports. The potential for
growth as such is tremendous.

In view if this, the Vietnam Government has put in place necessary measure to enhance the
industry as follows:

Implement credit policy through development support fund, particularly long and medium trem
credit.

Apply export premium for businesses with outstanding achievement in export volume or in new
market expansion.

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Include furniture in the country`s key national promotion programs

Implement policy for encouragement of investment, both domestic and FDI into furniture and
forestation industry.

Implement marketing and trade promotion policy, which aim at key potential markets such as
USA, EU and Japan.

Consolidate furniture manufacturers and exporters associations./.

Source: www.hawavn.com

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