Vietnam Rubber Development: Opportunities and Challenges

5:23:20 PM | 8/25/2014

According to the Vietnam Rubber Association, in 2013 there were 955,700 hectares of rubber, reaching 949,100 tonnes of output, yielding 1,740 kilogrammes per hectare and exporting total of US$2.49 billion. This result has helped Vietnam raise its ranking from fifth to third place in the world for production of natural rubber (just behind Thailand and Indonesia), and keep its leading position in productivity and fourth position in terms of export. Along with the opportunities from the signs of economic recovery and preferences of the FTA and TPP, the Vietnam’s rubber industry is still facing many challenges.
Many opportunities
According to the Vietnam Rubber Association, the demand for natural rubber in the world is still going upward in correspondence with the global economic development in many areas, especially in manufacturing, automotive, transportation, construction, healthcare and consumer goods. The demand for natural rubber fell sharply during the economic crisis, but the world is recovering and has prospects for sustainable growth due to the trend of using environmentally friendly materials of the world. This is a great opportunity for Vietnam to increase production of natural rubber, increasing exports, and creating jobs for rural areas and related industries.
Besides, the rubber industry has many advantages when the Vietnam Government recognises the multi-target plants, which not only contribute to the economic development of the country but also improve social and economic conditions of rural areas and protect the environment.
In terms of investment attraction, international integration has created opportunities for the rubber industry to attract investment capital and advanced technology from foreign countries through joint stock companies, joint venture or 100 percent foreign capital companies. Some products of the processing industry of Vietnam such as such as tires, gloves, technical rubber and soles have had trade surplus since 2010. In addition, the reduction of import tariffs also helps domestic manufacturers save costs for equipment and materials which cannot be produced in the country or have not been produced sufficiently.
International integration also facilitates Vietnamese enterprises to expand and diversify export markets, access market information, apply international standards as well as advanced technology in production and management, and help Vietnam improve its position and voice in the world rubber community. Currently, Vietnam has become a member of the International Rubber Association (IRA), the Asian Rubber Business Council (ARBC), the Association of Natural Rubber Producing Countries (ANRPC) and regularly, participating in important conferences and seminars of the International Rubber Study Group (IRSG), the China Rubber Industry Association. Thereby, the rubber industry and the Vietnamese rubber producers in particular have obtained a lot of reliable and transparent information and gained more opportunities to communicate with more potential customers.
Besides the fundamental advantages, the rubber and latex businesses are facing many challenges during the integration process.
In the context of oversupply which may continue in the next few years, the price of natural rubber hardly gain more, which leads higher competition between the producers and exporters of natural rubber in cost, efficiency investment and business results, especially in product quality and commercial prestige. Other materials that compete with natural rubber are still growing rapidly, such as synthetic rubber, synthetic oil and rubber from the other trees.
Not only does the rubber industry meet the challenges from the external market, but also it finds difficulties from the internal resources of the industry. In recent years, the number of small rubber producing households and private companies have increased significantly, contributing to the country's rubber production, but the quality is not stable. Some shipments that failed to meet national standards and international standards have affected the reputation of the entire Vietnam rubber industry. This leads to the loss of export value because of lower prices compared to the international market.
On the other hand, according to the Vietnam Rubber Association, the structure and categories of the natural rubber of Vietnam still rely heavily on the Chinese markets and only meet the partial needs of different markets; therefore, it remains difficult for Vietnamese rubber producers to penetrate large markets such as the USA and Japan. Besides, the restrictions on high-quality human resources is another obstacle in the development of processing industry of rubber products in Vietnam, causing slow process to enhance value added to the sector. Most rubber companies are not interested in or capable of building a brand domestically and internationally. This is an obstacle for rubber companies of Vietnam compared to others in the region.
In addition, the management mechanism and business environment have not been consistent, causing difficulties for businesses in the industry to develop. Tax policy and value-added tax have not set the layout for the competitiveness of the enterprises in rubber industry. The management system at national level is not tight enough and only applicable in large companies. There is still a lack of trade barriers and technology to prevent inferior goods imports from other countries, causing damage to consumers and unfair competition in the country.
To mitigate this situation, according to the Vietnam Rubber Association, requires the necessary and sufficient conditions for Vietnam's rubber businesses to penetrate potential markets. One of the basic elements is that the rubber industry and businesses need to improve their competitiveness in the direction of sustainable development. In addition, it is necessary to promote research and development of the market to capture new trends of consumption and identify the capacity of competitors to develop business strategies accordingly.
Regarding the government policy, the Association said that the policy export tax should be adjusted to businesses to help them compete the price on the world market. The value added tax on semi-processed rubber latex should be applied as other pre-processing agricultural products to promote exports while the oversupply happens.
Besides, the government and the agency should also connect to the businesses, associations, organizations and other relevant units to strengthen trade promotion in order to boost domestic consumption, industrial development processing and reduce the crude exports. At the same time, the government needs to support enterprise to build up brand and create the technical and trade barriers to protect consumers and set up fair competition.
Ha Vu