Editor’s pickBinh Duong in the beginning
Leader of the pack
Word around the industry is that Mr Seven Lee ventures to places where no one dares, but when he steps out, everyone else quickly follows. In this case, Vietnam in 1992.
“And then they all come and build bigger, better factories and now I’m the smallest player here,” he jests.
Mr Lee is, of course, being modest. A well-known and highly-respected figure in Vietnam’s Taiwanese manufacturing community, he started trading wood in Vietnam as early as 1989, later setting up a sawmill and subsequently, Associate Yang—a factory for semi-finished wood products—in 1994.
Mr Seven Lee, founder and general manager of Associate Yang Vietnam Ent Co Ltd.
He also wears many hats— as president of the Asia Taiwanese Chambers of Commerce, chairman of the Taiwan Furniture Manufacturers’ Association and honorary president of the Vietnam Taiwanese Chambers of Commerce.
“The government wanted foreign investors like us to produce value-added goods for two reasons: to increase export value and provide more jobs locally,” Mr Lee recalls.
In those days, Vietnam’s investment terms were unfavourable for foreigners, making it hard for businesses to flourish. On top of cultural and language gaps, foreigners were also vulnerable to changes in local politics, impeding growth prospects. On the other hand, firms that planted their manufacturing operations in China (as was the norm then) grew a lot quicker.
Mr Lee persevered. The company only began to see evident results in 2000 as workers’ skills improved and production stabilised.
Two years later Associate Yang expanded and by 2004, was producing large quantities of infant and children’s furniture for export to North America on an OEM model.
Although there are plans to further expand capacity and export volume, Mr Lee says there are none to expand product variety. Specialising in children’s bedroom furniture is and will still be its key strength.
When asked about couples having fewer children these days, Mr Lee waves off predictions of poor sales in future: “Our furniture is positioned for the mid to high end market where consumers don’t mind spending more on their one precious child.”
Instead, Associate Yang has other concerns—Chinese companies streaming in to exploit the country’s labour resources. As competition intensifies, the demand for labour will exceed supply, pushing up cost. Manufacturers must now consider better machines and more automation to reduce workers, Mr Lee says.
For example, the factory now only needs 700 workers instead of 900 because machinery have replaced human hands.
“Vietnam may be a lot more business-friendly now, but now as in the past, foreign businesses are still vulnerable to local politics,” Mr Lee adds. “But this is the reality of running a business away from home. There is no other country now that can emulate Vietnam’s success.”
Maybe Indonesia, Bangladesh or Myanmar? Unlikely, but who knows?
Delivering spotless surfaces
Tong Tsu Co Ltd supplies veneered panels to the furniture industry in Vietnam. The company purchases white oak, walnut and poplar logs from the US and Europe, and slices them into veneer for wood-based panels. These panels are then cut, overlaid and edge-banded according customers’ specifications. Sometimes owner Ms Sunny Chang, a Taiwanese, imports New Zealand pine logs for some special requests.
With only 200 workers, her business model is simple, and delivering huge orders can be stressful. But there are no ambitions to expand or diversify because maintaining a small set-up also happens to be one of her strengths.
Firstly, it is easier to train and manage fewer workers, Ms Chang points out. This frees up time for quality control. Handling veneer is, after all, a delicate task. In fact, beginning this year, she will raise standards, spending more time to polish up a board’s appearance to perfection so that they are good enough for the high-end furniture market in Japan, US and Europe.
Looking at the number of orders now, white oak and walnut surfaces have grown in popularity, suggesting that furniture design trends are veering towards smooth, light-coloured hardwoods.
Grooming new leaders
Ms Chang inherited Tong Tsu from her father and has lived in Vietnam for 13 years. It is rare for a factory to be run by a lady boss, but she says, “If I don’t take over, we will lose everything that came through my father’s hard work.”
The elder Chang was one of the first few Taiwanese pioneers to set up a wood processing factory in Binh Duong. While most of his peers went to China to take advantage of the abundance of cheap labour, he came to Vietnam for its social stability. This was in 1999.
Ms Sunny Chang, Tong Tsu Co Ltd
The first five years in a foreign land were tough. People led simple lives and had no skills or experience in woodworking. There were also vast cultural and language gaps that could not be bridged overnight. Although these differences still exist today, Tong Tsu can now be proud of its pool of skilled, competent workers, earned through years of training.
“The Vietnamese tend to stick to one employer for a long time, so if there is one person in 100 that shows potential, groom her,” Ms Chang offers. It is perhaps for this reason that the business will one day be entrusted to some long-time employees, such as her Vietnamese assistant, who has been her right hand since day one.
“This land belongs to them, we will have to return it to them one day,” she reasons.
By giving employees a sense of ownership, Tong Tsu will continue to be run by people with a shared history and burden for business excellence.
The need for a niche
While many Taiwanese moved to China for its panel resources, the founders of Jin Yi Fong arrived in Vietnam in 1993 to exploit the country’s abundant rubber wood resources.
Today, much of the company’s operations lie in the hands of Mr Yang Cheng Chi who, though makes most of the decisions, humbly calls himself a “manager of things”.
Mr Yang Cheng Chi, Manager of Jin Yi Fong
At 45 years old, Mr Yang is considered young for his role. He says not many middle managers want to step into factory work. “Plus, if you leave it to the Vietnamese, they may not be very good managers. In fact, it is rather hard to find good, experienced ones these days.”
He is one of the first few in his generation to move out to Vietnam to take over the running of a family business.
If setting up a factory back in the day was tough, Mr Yang thinks times are harder now. Foreign firms like his now find themselves competing with Vietnamese OEM manufacturers, who have a cultural and language advantage. For them, navigating the business environment is a piece of cake.
Furthermore, Chinese companies are streaming in fast and furious to tap on Vietnam’s skilled labour force, geographic proximity to land and sea routes, as well as business-friendly policies.
As a result, companies that fail to identify a market niche or competitive advantage will eventually close down. Mr Yang says this is already happening now: some of his predecessors in the industry seem to have little drive to expand in the past five years.
But Jin Yi Fong has been doing well all this while, thanks to its strength as a specialised manufacturer of double-decker bed frames. The factory buys Chilean, Finnish and Swedish pine, as well as some American poplar to make beds for export to the US, Canada, parts of Europe and even South America.
Finished products are knocked down and flat packed, which means that one container can be filled with as many boxes as possible.
“Bed designs may vary but overall, production is the same. So you only need to invest in a few specialised machinery for the job,” Mr Yang says. “Also, customers in the west like the idea of assembling furniture because it is family bonding time.”
It sounds simple and straightforward enough, but there are means to doing it well. For example, an entire set is made up of dozens of dowels, pegs, planks, poles and parts. All of it must be custom-made to fit. One screwless and the whole set is rejected.
That Jin Yi Fong can maintain its market position as a leading bed maker for years must mean that it is doing something right. In fact, the company, which employs only 600 workers, is moving out of its current premises into a bigger factory to accommodate larger orders.
On the future of Vietnam’s manufacturing scene, Mr Yang remarks that competition will only increase. The industry will end up in price wars for raw material and orders, especially for common dining and living furniture.
Yet businesses will be undeterred because there is nowhere else in the region like Vietnam for furniture production. The Philippines has few wood resources and suffers from brain drain; Indonesia is tough to do business; China’s standards for industrial emissions are getting stricter, which few can keep up.
Mr Yang concludes, “Maybe I’m a bit pessimistic, but things are really just going to get harder for us in the next few years.”
Anderson Machinery trading is the Southeast Asian representative for Taiwan Anderson Industrial Corp. For 45 years, Anderson has supplied woodworking factories around the world with CNC machines and in 1990, started an office in Singapore to serve as an additional service point for customers in the region.
As the furniture business in Southeast Asia flourished, another office was set up in 2003, this time in Binh Duong.
As the sole distributor of Anderson Industrial Corp, Mr Chiang says that the furniture manufacturing scene today is vibrant and bustling with activity. In fact, the number of foreign companies operating in the province has gone up multiple-fold.
Mr Chiang Wen Chuan (left), Southeast Asia agent for Anderson Machinery; Bob Hsu, Fancywood VN.
“Some of our Taiwanese customers have been working here since the 1990s and they have a great grasp of the market," he says. "Most Vietnamese companies may be small-to-medium-sized but they are also becoming significant competitors. Later on, we will see Chinese companies moving in.”
He throws in some food for thought: That one can definitely get a sense of the market’s trends from machinery sales. Simply put, as more factories relocate or expand capacity, they will need more equipment to produce more.
Secondly, the furniture business is very labour intensive. If the salary for one worker jumps in the next few years, the demand for automatic machines such as CNC routers will naturally go up.
Furthermore, as furniture production becomes more customised and complex, automation will be a top priority, if it isn’t already now.
“Our German counterparts are certainly on top of their game in this respect. On our end, we have also invested much in research and development to move on along with the times.”
Taiwanese woodworking machinery companies have been very successful in Vietnam because many of these brands have serviced their customers since they started business decades ago in Taiwan. Mr Chiang who is Taiwanese and works solely out of his Singapore office still maintains customer relationships that date back to even before they moved to Malaysia, China and Vietnam. He also travels very frequently to Binh Duong.
“We definitely see great potential in Southeast Asia,” he says.