Domestic Ceramics: Just a Small Piece in the VND5,000 Billion Market

For years, regarding the traditional pottery occupation, Vietnamese has always been proud of the Oc Eo culture (from 1^st Century to 7^th Century). Archeologist Ph.D Nguyen Thi Hau added that the art of baking ceramics reached a high level at such time. There have been many archaeological sites excavated, such as in Dong Nai or Can Gio (HCMC), which indicated that the art of creating earthenware was born in Vietnam 3000 years ago. Thus, it might be concluded that ceramics is one of the oldest professions formed in Vietnam. However, so far we haven’t inherited and fully promoted this national tradition, as evidenced by the mere 30 percent market share holding of domestic home ceramics.

 

According to statistics updated by a ceramic expert to November 16^th 2012, there are total 286 home ceramics manufacturing units across the country, earning VND1,677 billion/year and occupying 30 percent market share. It should be noted that the figure is for all types of ceramics, regardless their ranks of popularity or luxury. There are many different manufacturing sectors such as: (1) industrial manufacturers (including large enterprises who account for a large market share in the domestic sector such as Minh Long 1, Hai Duong Ceramic and Chuan Kuo Viet Nam). Each of these manufacturers has 1 large-scale manufacturing plant with average production of 1-2 million products/month (the estimated statistics may not be updated – Reporter). For example, as for Chuan Kuo JSC (abbreviation of CK, with a plant in Vietnam and Taiwan-based headquarters), if the selling price is VND 9,000 per product, plus the estimated volume of 2 million products per month, then the monthly average turnover will be about VND 18 billion. The company’s total sales in one year can reach VND 216 billion, depending on varied conditions (production tools, domestically consumed volume and export) and occupies 3.9 percent of the whole country’s market share. Minh Long 1 Company, given its average production of approximately 1 million products/ month and average selling price of VND 15,000/product, can earn monthly and annual sales of VND 15 billion and VND 180 billion, respectively. Thus, Minh Long 1’s market share in terms of home ceramics generally is 3.2 percent (Minh Long 1 is mainly involved in production of middle and high rank home ceramics, its market share in this segment is different and will be analysed in the paragraph below – Reporter). Similarly, Hai Duong Ceramic- a famed brand in the North being known for over 50 years – also has average output of about 1 million products/month and selling price of VND 7,000/piece. Thus, it gains VND 7 billion/month and VND 84 billion/year, to hold a 1.5 percent market share.

 

Economist Pham Chi Lan said one of the reasons for the failure of Vietnam ceramics in its home market is that the development of domestic manufacturing units is mainly on the basis of manual work, and with out-of-date production practices. In many places, such as Bat Trang (Gia Lam, Hanoi), there are many households making products with old procedures: baking with coal kiln and manually manufacturing. This could be applied in the context of an underdeveloped economy, poor provision of products and high demand, which cause consumers to care only about consumption but pay little attention to quality.

 

As mentioned above, despite the large number of home ceramics manufacturing units in the country (286), being mainly located in regions with long traditions of ceramics manufacturing such as Binh Duong, Bat Trang, Hai Duong etc and advantages in the home market (expert in consumer preference and market demand), they only share 30 percent in a high potential market that has total turnover up to VND 5,600 billion per year. So who has the remaining 70 percent market share? Where did the turnover of VND 4,000 billion from the home ceramics sector “drain”?

 

Perhaps the answer is obvious. The Chinese ceramics of all types are being massively slipped into Vietnam in all channels, both formally and in small volume, stirring in nation-wide markets and shopping centres. The strength of Chinese products was described by Mr Nguyen Do Ha, Director General of Hai Duong Ceramic to be so massive. The key advantage of Chinese products is they are mostly in form of tax dodge via “retail” at border gates. The trick used by Chinese manufacturing units to penetrate the Vietnamese market is smuggle products which then will be labeled as if produced domestically right in Vietnam. For example, despite the label “Bat Trang”, the products come from China. Or they both have manufacturing units in Vietnam and import products labelled “Made in Vietnam”. Given the large number of manufacturing units, Chinese products have plentiful designs, although each unit only manufactures 1-5 types.

 

The former President of Vietnam Craft Village Association (VICRAFT), Mr Vu Quoc Tuan, was worried about the future of Vietnam home ceramic. He pointed out two main causes of weaknesses of domestic ceramic. The first one is the weakness of each enterprise, plus lack of solidarity with others, which makes it impossible to compete against Chinese products. Secondly, the Government hasn’t created preferential conditions for development of enterprises with investment, improvement in production technologies. Mr Tuan said domestic ceramics units are aware of the challenge, but have not been able to form a unified strategy to address it.

 

Not as pessimistic as Mr Vu Quoc Tuan, some Vietnamese enterprises have worked out solutions for their own as well as for the domestic ceramic sector. As said by Mr Ly Ngoc Minh, the solution for Minh Long 1 itself is to invest in expansion of production in the middle segment to gain more market share next year. At present, as for the middle and high rank home ceramics segment, Minh Long 1 holds 80 percent of the national market. Despite economic depression, total revenue of the company in 2011 was still up to VND 450 billion and that is targeted by Mr Minh to increase by 30 percent in 2012.

 

To save the domestic ceramics, Mr Nguyen Do Ha proposed to classify and screen enterprises in each group to create linkages, and segment groups without much conflict of interests. For instance, the groups would be divided into segments by high-middle-low rank products, or by regions. Thence, the power of linkages among domestic manufacturing groups will be created to optimize input and circulation costs, thereby strength and investment core of each member will be exploited to reduce price and expand coverage. The appearance of linkage (if any) will help Vietnamese products to be able to compete in term of design (linkage of many manufacturers will diversify new designs), reduce price and expand distribution networks.

 

 “In addition, a fair business environment should be created among Vietnamese enterprises and with Chinese products. The issue of value added tax, corporate income tax should be particularly noted, since large domestic businesses have to fully pay taxes while smuggled products suffer no tax, which has led to difference of 20-30 percent in prices. The governmental market management and taxation agencies should join hands to prevent smuggling products,” recommended Mr Ha. Only at that time, the fire inherited from precedent generations could blaze in Vietnamese ceramics units.