Domestic Market: Positive Solutions to Wood Industry

In the past few years, the Vietnamese wood processing industry has developed in all aspects of capacity, production value and export market. The Vietnamese woodworks have been exported to 163 countries and territories in the world, including demanding destinations such as the United States, the EU and Japan. The American Hardwood Export Council (AHEC) rated Vietnam on the top of ASEAN countries in terms of reliability, categories and exported output.

 

However, at present, the global economic crisis has caused numerous difficulties for the timber industry. In the first eight months of 2009, Vietnam earned only US$1.55 billion, down 15 % from the same period of 2008. Market shares of Vietnamese exporters in foreign nations continuously dropped, especially in the EU and the US. The biggest difficulty facing woodwork exporters is the market shrinkage. Major markets have raised strict trade barriers and sophisticated protectionist behaviours such as the Lacey Act in the US and the Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT) in the EU market. Besides, in 2009, the Vietnamese wood industry also has to encounter new challenges when ASEAN countries are joining hands to strengthen the competitiveness.

 

Meeting with outside difficulties, many exporters decided to shift their targets to the domestic market which has been forgotten by Vietnamese firms and has been long dominated by Chinese and Taiwanese rivals. According to Mr. Nguyen Chien Thang, Chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA), the woodwork market in Vietnam is very promising because living standards are getting higher, leading to higher demand for wooden furniture. According to a market survey, Vietnamese enterprises only hold 20 % of domestic woodwork market share while the remaining 80 %, with a value amounting to hundred millions of US dollar, is kept by entities from Malaysia, China, Taiwan, Hong Kong and Thailand. In fact, the demand for woodwork and high-grade furniture has been on the sharp rise. Woodworks needed to furnish high-end apartments in Ho Chi Minh City and Ha Noi cost hundred millions of US dollar. The sum will be much large on the national scale. According to Mr. Thang, domestic sales of all industries are roughly equal to export revenues. Thus, Vietnamese enterprises will find many development opportunities in the home market if they have good policies. With their international competitiveness, home advantage and low transport costs, “Made-in-Vietnam” woodwork can completely push back foreign rivals.

Another advantage is the recovery of the real estate market, led by resumed constructions of many housing and office projects. This is a good opportunity for industrial and construction wood sectors to develop. However, to grasp such an opportunity, enterprises must have comprehensive development strategies. So far, many wood processing companies have had to scale down their production or shifted their targets to Asian and domestic markets. The expansion of domestic market is seen a good solution for the wood processing industry during and after the economic crisis. Of course, to do that, concerned enterprises have to join hands to build effective supply chains and distribution networks for the domestic market and focus on developing stable material sources for domestic production, encouraging forestation and rational logging.

 

Shifting to the home market impossibly help the handicraft and wood processing industries to stay out of global economic crisis threats but this is a way-out for Vietnamese enterprises to survive in the difficult context. Nonetheless, it is not easy to make success. According to experts, if a company has successfully penetrated the domestic market, its sales will soar and customers will find its products. Thus, patience is a prerequisite condition for any enterprises to conquer the domestic market because they will meet with numerous difficulties at start.

 

My Tai Company’s experience in holding on to the domestic market in parallel with expanding export markets over more than three years has become a common lesson for any enterprises desiring to return the home market. The knowledge of domestic market is not on hand. My My Tai Woods accepted losses at the initial stage and took export profits to pare the losses in the home market. Mr. Le Duy Linh, General Director of My Tai Company, said: “The penetration into the domestic market needs patience and time. It cannot make profit in one or two years as export. Returning the home market in the right time and selecting right market segments, My Tai has gradually occupied the domestic market.

 

Apart from the initiative and patience, Vietnamese enterprises also need to bring their advantages into full play: product quality, capability and experience in conquering most demanding markets in the world. After many years doing business with foreign importers, Mifaco Company started to conquer the domestic market by its international experience. Mr. Dien Quang Hiep, Chairman and General Director of Mifaco Company, said: “Previously, when we started to export our products, we attached much importance to marketing. Thus, we usually attended international exhibitions to advertise our company’s image and survey market demands and customer tastes. Dealing with the home market, Mifaco also focused on branding activities and frequently participated in industry exhibitions like VietBuild 2009 to explore market demand to establish suitable approaching strategies based on our capacity.”

 

Truong Thanh Furniture Corporation (TTF) expanded its sales networks and distribution systems to strengthen its foothold in the domestic market. Particularly, TTF has opened the second furniture showroom in Ho Chi Minh City to expand its domestic presence. The corporation plans to open 10 furniture shops and supermarkets in major markets.

 

Most woodwork exporters acknowledged that the domestic market is a way-out to sustain production amid export slump. According to these enterprises, the best way is to gather forces of related enterprises to create a stronger force in competing with foreign rivals.

 

Understanding the necessity in associating common strength, HAWA decided to concentrate its forces on bringing Vietnamese woodwork companies to conquer Vietnamese customers. The association is building plans for enterprises to occupy domestic markets and persuade Vietnamese consumers to use Vietnamese products. Specifically, HAWA member companies will gather their advantageous products to supply all kinds of products for customers before introducing retail agents throughout the country. The association will unite many business groups of the same industry and each group will set up a distribution joint stock company which will be responsible for seeking domestic customers and orders and allocating them to units in the group.

 

Besides, to increase business opportunities between producers and distributors, boost domestic sales and seek markets for enterprises, in November 2009, HAWA will host a domestic trade promotion fair. Additionally, to unite its member companies, HAWA is preparing a series of domestic promotion programmes to expand member connection and establish furniture distribution companies. Especially, following the success of the Vietbuild 2009, HAWA will organise a woodwork and interior trade fair, called Vifa Home, in July 2010. This is expected to be a playground for domestic furniture companies to popularise their images and increase their competitiveness.