Mr Nguyen Quoc Khanh, chairman of the Handicraft and Wood Association of Ho Chi Minh City.
Vietnam’s furniture manufacturing sector has arrived at a Golden Age. The industry can be so much more, says Mr Nguyen Quoc Khanh, chairman of the Handicraft and Wood Association of Ho Chi Minh City.
“I’m an architect, born and raised in Vietnam. In 1991 I founded AA Corporation, designing and executing contract manufacturing jobs for local and international hospitality projects. It was one of the first few furniture companies to bud in Vietnam. Today, I am still the chairman of this business, but I also wear another hat—as chairman of HAWA.
Let’s talk about HAWA’s vision for the next five years first: In future if you need well-designed quality furniture, Vietnam will come to mind, the way you’d think about Japan when it comes to consumer electronics. We will be one of the best countries in the world for furniture sourcing.
In fact, we are getting there now, with an abundance of affordable labour for this labour-intensive work. One factory can hire anywhere between 400 and 2000 pairs of hands, totaling some 450,000 workers on the industry’s payroll. Most of these hands are calloused with experience and therefore highly valued for their skill in making handicrafts.
Unlike our neighbours in Malaysia and Thailand, Vietnam has no short of raw materials; we can even afford to export wood chips! The country has 3.5 million hectares of plantation forests, which yields about 16 million m3 of timber annually. Rubber wood and perennial fruit trees add another 4.5 million m3 of timber. We also have other fast-growing species, which can be harvested for MDF boards. Combined, these wood resources meet half of our wood needs locally. The remaining half is imported, a value amounting to US$2.1 billion in 2015.
We also have a well-connected supporting industry and a very well-developed timber supply chain. Most of our products end up in Southeast Asia, Japan, Europe and USA.
All these reasons make us very attractive for business owners to set up shop in Vietnam. (China, which was once the go-to destination for furniture manufacturing, has now lost its appeal ever since the government started discouraging secondary industries.)
Last year, Vietnam’s wood products exports reached US$6.9 billion, a 10.7% increase compared to the year before. This upward trend is expected to continue this year with total export value rising 10.2% to hit US$7.6 billion.
But some thorny issues are creeping up on us. As a local player myself, I can relate to some of them.
The ASEAN Economic Community and the Trans Pacific Partnership can be seen as a double-edged sword. While it gives us access to new markets, they also open the door to foreign investors that have the benefit of size to produce in bulk at reasonable prices. Nevertheless, our domestic industry is capable of fighting tough competition. For one, we have an edge over foreigners as we know our own local business culture and language. Secondly, smaller companies are nimble enough to quickly change strategies in the face of change. In fact I believe that these small-and-medium-sized companies will be one of our core strengths in future. Many customers prefer to work with them because they are able to deliver more personalised service and realise complex designs for higher-end furniture.
The reality is this: If we sign these trade deals, we must be prepared for such competition.
As an export-oriented economy, the state of world affairs will always have an effect on sales. We have since tried to encourage our members to focus beyond traditional markets and reach out to new ones such as Russia, South Africa and North Asia. We do this through our VIFA fair in March, which attracts many international buyers every year, as well as the VIFA Home in November mainly for Vietnamese buyers. HAWA also organises trade missions for its members to gain exposure. Diversification has helped us overcome crises such as the 1998 Asian financial crisis and the Lehman Brothers’ collapse in 2008.
In future Myanmar, which has favourable conditions to establish a wood-processing industry, will catch up with us. Our industry must be ready for this day. We need to be more creative and move towards the ODM principle. We need to start considering hotel and real estate developers as potential clients instead of depending purely on retail.
We can be so much more if we can determine what our core competencies are.
Assuming a bigger role
Machines and automation play a very big part in sharpening our competitive edge, but one needs to consider an investment carefully before making a commitment. There are no subsidies from the government for technology upgrades. The best solution is to strike a balance between the “humans vs machines” ratio.
Currently HAWA is working together with some of its members to boost marketing and distribution capabilities, as well as training managers in various disciplines such as design, material and technical know-how. We want to create a closely knitted association and develop more communication channels with the government. We are contesting for a bigger say in policies on tax, trade and environmental issues to make our industry more efficient and competitive.
Furthermore, as a member of the ASEAN Furniture Industries Council, we also want to assume a more aggressive role in the region to synergise strengths for a better trade environment. For example, can we agree on common standards such as environmental regulations, formaldehyde emissions and quality control? I suppose one of the ways I can continue to contribute to this business—which I love—is my network of friends.
The furniture business demands a lot of passion and hard work. Perhaps this passion is innate—I have always enjoyed drawing and mechanical engineering from a very young age. So choosing this career was a perfect decision. For the moment, my children have not indicated any interest to join me. It is my wish to convince them to do so.
This article first appeared in PFA Jul/Aug under the title, Vietnam’s Architect