Vietnam woodworkers pecking away at domestic market

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Woodworking firms are strengthening their presence in the domestic market, loosening the dominant position held by foreign products.

Industry insiders say that prices of local products have become more competitive because foreign companies are now paying higher salaries in addition to import taxes.

Huynh Van Hanh, vice chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City, said locally-made wooden furniture now accounts for 40 percent of total products sold in the domestic market, up from only 20 percent two years ago.

Nguyen Van Thuong, the owner of a wood furniture shop in Hanoi's De La Thanh Street, said most of the products in his shop, including wardrobes, beds, chairs and tables, are domestic products made with natural wood.

"For furniture made of natural wood, imported products are less competitive," he said, adding that natural wood products from Singapore, Malaysia and China are usually more expensive because of higher transportation costs and taxes.

The General Secretary of the Vietnam Timber and Forest Product Association, Nguyen Ton Quyen, said around 80 percent of wooden furniture sold in shops on Hanoi's De La Thanh, Minh Khai, and Lo Duc streets are locally-made products.

He said prices of local products are much cheaper than imported ones also because of Vietnam's lower labor costs. "China has recently raised salaries for their workers. The monthly salary of a worker in a Vietnamese firm is at around US$90, just one third that of a Chinese counterpart."

Besides, Vietnamese woodwork producers mostly use local wood resources for production, so their production costs are also lower, Quyen said.

Tran Duc Thuan, director of the woodworking firm Hung Long, said wooden furniture imported from China, Taiwan and Singapore are mainly made from particle boards, which are not suitable to Vietnam's climate of high humidity and high temperatures. "So, consumers, after using imported products for some time, have now shifted to local ones," he said.

Thuan said his firm is gearing up to better exploit the domestic market. Up to 80 percent of its products are exported and the rest sold at home, he said.

"The demand for furniture has increased because it is the wedding season now in Vietnam," Thuan said. "Our sales have increased by 20 percent over the past two months compared to the previous months."

Difficulties ahead

Quyen said the potential of the domestic market is very large as demand in urban areas alone accounts for approximately $1 billion in sales, each year.

"In cities like Hanoi, Ho Chi Minh, Da Nang and Hai Phong, luxury hotels spend VND40 million ($1,900) on wood products for one room every year; and a wealthy Vietnamese family may spend VND12 million," he said.

However, many local producers are still not very interested in tapping the domestic market because current policies facilitate export activities. Now, woodworking firms are exempt from export tariffs, Quyen said.

Other factors favoring export include the size of export orders, typically much bigger than domestic ones, and the fact that firms do not have to worry about local distribution, a typical weakness, when exporting, he explained.

Thuan of Hung Long company said most woodworking firms sign outsourcing contracts with foreign partners. It is a good measure for their business at a time like now when finding capital is difficult.

"The time taken to recoup capital invested in woodworking is long, often from three to nine months. Given high interest rates and difficult access to bank loans, many firms think that export is better."

Vietnam shipped abroad woodwork products worth $3.2 billion in 10 months through October, up 16.2 percent over the same period last year, according to the General Statistics Office.

Quyen said the government should introduce preferential policies to encourage woodwork producers to further tap the domestic market. More than 3,000 of the total of 4,000 or so woodworking firms nationwide are small and medium-sized firms, which are still poor in terms of capital and technology, he said.

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