AEC could spell trouble for the furniture industry in Vietnam

15:47 | 05/06/2015 Industry

Furniture executives from around the globe are knocking at the door of Vietnam, a rapidly emerging supplier for high quality and some of the least expensive woodwork exports on the global market.

AEC could spell trouble for the furniture industry in Vietnam

With goods at prices competitive with those made in neighbouring China, Vietnam is being courted by US manufacturing and retail executives looking to purchase inexpensive desks, chairs, and household items made from pine, cajuput or rubber wood.

As a result, Vietnam currently ranks fourth in the world, second in Asia and first in Southeast Asia in exporting wood furniture and furnishings and is rapidly becoming a leading exporter to the US, according to official sources.

However, despite all the successes in the overseas markets – domestic businesses have only managed a 40% market share in the local market – which leading market analysts believe should be much higher.

Vo Van Quyen from the Ministry of Industry and Trade (MoIT) said imports account for 60% of the local market with the nation importing on average nearly US$2 billion annually— 40% for the real estate industry and 60% to meet domestic consumer demand.

Quyen, who is in charge of domestic trade affairs at the MoIT, said Vietnam has roughly 4,000 companies in the industry, primarily very small and medium sized businesses located in trade villages.

They will face increasing difficulties competing at home Quyen stressed, as Vietnam joins trade pacts and lowers import duties in line with its obligations under the ASEAN Economic Community (AEC) early next year.

Huynh Van Hanh, deputy head of the Handicraft and Wood Industry Association (HAWA) of HCM City in turn echoed Quyen’s concerns and said domestic companies are sure to face increasing difficulties when the lower tariffs under the AEC kick in.

Hanh said domestic companies need to take heed and should make plans to shore up market share in the domestic marketplace with increased brand recognition for customers or they’ll lose out from the AEC formation.

For its part, the Vietnam Wood and Wood Product Association said it is aware of no less than 26 countries that are planning, or have made moves, to expand into Vietnam’s furniture industry –  including China, Thailand, Japan, the Republic of Korea (RoK) and the UK.

According to the HAWA, the local market has been neglected as domestic companies have focused on pursuing big orders from foreign partners.

As a result they have failed to meet domestic customers’ tastes, establish distribution networks and develop brand names recognition.

There is near unanimity among the experts that limits in connectivity, trade promotion, and establishment of distribution networks have led to domestic companies and craft villages neglect of the domestic market.

This is the major cause that sales of imported goods have taken off and cornered the market in Vietnam.

It is time for companies in the industry to pay more attention to the domestic market, they advise adding that focusing on the domestic market helps businesses avoid overdependence on certain foreign markets.

In addition, it also helps businesses minimize risks in the integration process.

HAWA cautioned that though Vietnamese woodworks are exported to many countries in the world including demanding markets like the US, Japan and EU – it does not necessarily follow that they meet with the domestic demand.

Businesses must conduct market research, develop value chains for production and distribution along with good marketing and promotion policies to meet the domestic demand—or else AEC will spell trouble for the domestic market./.

Source VOV News