Vietnam: Navigating, Negotiating New Challenges

30-07-2018
Vietnam,Southeast Asia,Furniture,Wood,Woodworking,Industry,Market,Report

There can be no question that Vietnam is currently Southeast Asia’s hottest hub for wood products manufacturing.

Where China used to be the world’s powerhouse for manufacturing, Chinese businessmen are now swinging southwards. Some push factors for this include rising labour cost and the blanket ban on commercial harvesting. (China’s demand for wood has also led to intensive competition for natural resources in the Mekong region.)

Vietnam is blessed with both— wood resources as well as skilled and affordable labour averaging about US$145 per capita per month according to VinaCapital estimates.

Furthermore, eager to shift the economy from agriculture to services, from state to private investment, the Vietnamese government is encouraging foreign direct investment. It has supported new industrial parks in Binh Duong, Long An and Dong Nai provinces.

“If government policies continue to be favourably inclined towards the industry, its value could reach US$20 Bn in the next 10 years,” said Nguyen Manh Hung, director of the International Cooperation Department at VIETRADE.

Having realised the opportunities, foreign companies are now taking strides to increase investments in design and new equipment. The scene is dominated by Chinese and Taiwanese players, accounting for at least one-third of the 500 foreign furniture enterprises registered in Vietnam, according to Viforest.

Many of these companies are reaping extraordinary success in recent times, thanks to the Yen’s recovery, America’s housing market revival and Asia’s growing urbanisation.

Vietnam’s rising domestic consumption now also has retailers setting sights on an affluent middle class, which is expected to double to 33 million by 2020. GDP growth in 2016 was recorded at 6.21 per cent; in 2017, it is expected inch up to 6.5 per cent.

“The Vietnamese have and will continue to pay more for imported goods, suggesting that this consumer group has an eye for design and quality,” Andy Ho, managing director and chief investment officer of VinaCapital, said.

However, some challenges for 2017 remain: increasing competition between domestic and FDI enterprises, market saturation, the lack of technical training and know-how as well as raw material shortage.

Below are some solutions gleaned from the Vietnam Furniture and Wood Industry Seminar held in April.

Quality matters

Since the US is the biggest market for Vietnamese exports, manufacturers must understand the market ’s compliance laws and consequences of breach.

Furniture products are regulated by the Consumer Product Safety Commission (CPSC), the California Air Resources Board (CARB), Environment Protection Agency, and Centers for Disease Control & Prevention.

Doug Lockard, Global Sales & Marketing Director of UL Environment, advises manufacturers to strengthen protocols, subject products through risk-based testing and audits to “produce right and reduce recalls, which can cause millions.”

UL, a third-party auditor and advisor, detects 50 new chemicals every week. Most of them have no data on its impact on human health.

Manufacturers should also be aware of furniture consumption habits.

Choosing materials that are resistant to chemicals, heat, moisture or corrosion— and for the right purpose is absolutely vital, said Priscille Galceran from SGS Solutions.

For example, 82 per cent of consumers in the EU are willing to pay for durability while 78 per cent will spend on furniture that is easy to maintain.

Vietnam's top three export markets are the USA (35%; worth US$2 Bn), China (34%) and Japan (15%).

Sustainability counts

Good design is good business. One can definitely take a leaf out of world renowned furniture brand Herman Miller and Swedish furniture giant Ikea.

Herman Miller strives to produce products and services designed for good experiences, and for the health and well-being of stakeholders, said Alex Say, Sales director for Southeast Asia.

“It is important to be a good corporate neighbour by being a good steward of the environment. Furniture should be sustainably-produced, recyclable and low in energy consumption.”

Some of the company’s major considerations in sourcing include the materials’ impact on climate change, its carbon footprint, life-cycle assessment, renewability and chemical safety.

Ikea, which procures an annual 16 million m3 of round wood, is one of the largest commercial buyers of wood in the world.

Anna Milsson, Regional Wood Supply and Forestry manager of Ikea, shared that Ikea’s sustainability policy is reflected in its commitment to buying wood from sustainable sources. It avoids procuring from countries in conflict, vulnerable eco-systems or from questionable origins.

The company also builds products that can be recycled, repaired or reused at the end of its lifetime.

Technology upgrades and design trends

At this year’s VIFA Expo in March, furniture quality and design seem to have gone up, suggesting that furniture makers are exploring different types of materials, components and hardware to improve on product design.

Martin Schiessl, General director of Blum in Vietnam, also observed that the “handle-less” kitchen design, a trend in Europe, is moving into the bedroom and living room.

Now, coloured (especially earth tones) and concealed hinges are also popular, providing more options to work with design.

“Previously, there used to be a lot of resistance towards metal fittings, especially in classic and antique furniture where normal wooden closings are preferred,” he said.

Since Blum set up an office in Ho Chi Minh City in 2008, the perception of hardware has changed; manufacturers are now more open to using metal components in wooden furniture.

To cope with the different demands in customised furniture, manufacturing processes need to be automated.

Bjorn Hensler from Schuler Consulting shared solutions that can cut down pain points in production—how connected machines, barcodes and RFID systems reduce storage capacity and centralise data management.

"Customised furniture manufacturing is the trend now because businesses can earn a higher profit margin from them," he said.

Good infrastructure, machinery, stable broadband, adequate power supply and workers’ know-how will be necessary basics for Industry 4.0—or the Internet of Things—to really take off in Vietnam.