Wood Processing Industry: High Growth not always Means Strong

The statistics released from the Vietnam Association of Timber and Forest Products showed that the export revenues of the wood processing and trading industry reached some US$2 billion in 2006. However, the domestic supply source of timber is able to satisfy only 20 per cent of the demand; hence, this industry has to spend some US$1 billion on import of material timbers, machinery and accessories in the year.

 

At present, Vietnam has more than 300 companies specialising in processing wooden products for export but most of them have small and medium business sizes. Only a few companies can handle export contracts costing dozens of million US dollar. Thus, in spite of the high growth rate of 20 per cent a year, this industry has exposed an unsustainable development. Most wood processing companies lack capital and have to borrow up to 80 per cent of their business capital. This is a high hindrance in doing business with foreign partners. Wooden items made in Vietnam have a presence in more than 120 markets but contribute only about 1 per cent to the global revenues of the wood industry. Most enterprises have to seek business partners on their own and they are ready to offer low prices to win the contracts. The poor coherence in business among wood companies prevents themselves from handling big orders. A lot of companies have to receive orders via foreign intermediaries. Furthermore, the transportation of small patches of goods is more cost-burdened than bigger ones. Those difficulties make Vietnamese companies’ lack of market development policies, trademark development and customer confidence build-up. The competitiveness of Vietnamese companies has also proven lower than those in regional countries like Thailand, Malaysia and China.

 

The shortage of capital and the weakness of association lead to a hardship in renewing processing technologies. While Taiwan can use up to 80 per cent of wood materials, it was only up to a maximum of 60 per cent in Vietnam. Therefore, despite enjoying an annual growth rate of up to 20 per cent, the added value of the Vietnamese export processing industry is only around 0.25 while the rate in other countries is 0.6-0.7.

 

Another difficulty of the Vietnamese wood companies is the failure in material self-subsistence. The reliability on the world timber market also affects the signature of export deals. The poor connectivity among Vietnamese companies also give a disadvantage to them in searching for materials because they use more efforts and more money, even unnecessarily, to find and buy materials. Small enterprises normally face more risks in transaction as they lack knowledge of the international practices as well as stance on price negotiations. To restrain such impacts, the Vietnam Association of Timber and Forest Products (Vifores) is considering the setup of three timber transaction centres in northern, central and southern regions in the coming future. However, this is only regarded as a short-termed solution. In the long term, it is crucial to have a stable domestic source of supply. For the time being, Vietnam has some 1.4 million hectares of forestland holding a reserve of 30.6 million cubic metres of timber but most of these areas are grown for the paper industry, fibre industry and chopped wood processing. In addition, the programme to plant timbers on bare hills has not drawn due attention; hence, the huge wood reserves do not mean sufficient timber for export processing. To take the initiative in material source supply, the State needs to introduce mechanisms to encourage wood export processing enterprises to invest in developing material areas, aiming to provide 70 per cent of timbers for the domestic processing facilities by 2020 when the demand is estimated at 20 million cubic metres a year. This also means that the Vietnamese wood processing and trading industry will have bigger market share of the US$250-billion revenues of the global wood industry.
Huong Ly