Wood businesses losing on home turf
VietNamNet Bridge – Vietnam is the sixth largest wood and wooden product exporter in the world and the second largest in Asia, yet the domestic wood processing sector is injured by low-priced, skillfully crafted imports.
Weaknesses in management, coordination and trade promotion campaigns, as well as in developing an effective distribution system have created numerous inefficiencies and lack of competitiveness in the domestic market.
Nguyen Ton Quyen, General Secretary of the Vietnam Timber and Forest Products Association (Vietfores), says the country now has over 1,000 craft villages and thousands of households specializing in processing wood products, mostly in Hanoi, Bac Ninh, Ha Nam, Nam Dinh, Nghe An and Quang Nam.
Rapid urbanization has fueled a huge demand for wood products at hotels, restaurants, offices and new urban areas. Over the past five years, domestic consumption has accounted for 40% of the country’s total wood production, amounting to US$2.25 billion in value.
However, the wood processing sector faces many obstacles, principally related to the fact that there are too few large businesses and it is saddled with an excessive number of small-scale businesses, Quyen says.
These smaller businesses are characteristically most often equipped with obsolete machinery and equipment that are highly inefficient that add a lot of cost to the final product, making it difficult to compete with lower priced imports.
Many of these smaller businesses are relegated small outsourcing contracts for the larger businesses, or in other words, relatively low value and low profitability production.
Vietfores vice president Ngo Sy Hoai says consumers now prefer products made of artificial boards with eye-catching, modern designs and at reasonable prices. These products are imported into Vietnam and are favourites with local people, especially those in urban areas.
Domestic processors want to cash in on this segment of the market, but they find it difficult to compete with foreign rivals that offer the items at a lower price.
A number of businesses want to get the lion’s share to capitalize on this opportunity; however, they fail due to spontaneous production and lack of a complete distribution network. If they sign export contracts, they are not financially powerful enough to expand production to meet orders.
This is why the domestic wood market has yet to attract local processors, says Hoai.
One of the greatest challenges for local businesses is that businesses have yet to develop their brand name and market products with good design to cater to consumer tastes. In addition, marketing activities and e-commerce application in wood craft villages remains poor, further compounding the problem.
To anticipate the development trend, some craft villages have cooperated to create specialty niches in the market producing parts of wood products, a model that has proved effective in improving the product quality and meeting big orders for export.
A case in point, Bac Ninh province’s Dong Ky wood carving village has teamed up with craft villages namely Huong Mac, Phu Khe, and Tam Son to establish a production chain.
Trinh Quoc Dat, Vice President of Vietnam Association of Craft Villages, says that craft villages and businesses should work closely together to share market information and select a wood craft village or a business capable of meeting big orders and seeking suitable markets.
He suggests that the State encourage linkages between craft villages and processors by offering them credits and reducing taxes. Trade agencies should play an important role in seeking outlets for their products.
The Ministry of Agriculture and Rural Development has drawn up a domestic wood market development strategy, aiming to fetch US$4 billion in revenue by 2020.
Accordingly, craft villages and wood businesses are required to develop materials supplies, diversify patterns, boost trade promotion, and build a complete distribution network.