Wood industry: Sustainable development

Vietnam’s wood processing industry has maintained a high growth rate over the years, said Nguyen Quoc Khanh, chairman of the Handicraft and Wood Industry Association of HCMC (HAWA). From US$220 million in 2000, after 17 years, its turnover has reached US$8 billion, ranking among the seven sectors generating the greatest export value in the country. Particularly, in the first half of 2018, the export of wood and wood products earned US$4.13 billion, up 12.4% over the same period last year, according to the Ministry of Industry and Trade.

Vietnamese firms in this industry are gradually gaining share from foreign-invested enterprises (FIEs), HAWA Vice Chairman Huynh Van Hanh said. In the early years of development, FIEs always accounted for more than 70% of the country’s total wood export sales. However, in the past three years, domestic enterprises have fared better and occupied 53% of total export turnover.

When the domestic economy began to integrate, Vietnam’s wood industry has undergone drastic transformations with changes in technology, machinery, skills and management process, making them able to catch up with the development pace of the world, said Nguyen Chien Thang, chairman of Scansia Pacific Co. “Vietnam’s  wood industry is now not inferior to that of other countries,” he stressed. Many choosy markets such as the U.S., Europe, Japan, and South Korea have increased the import of this commodity group from Vietnam.

No longer accounting for only processing, Vietnamese wood have signed direct contracts with the world’s leading furniture companies. Wood products made in Vietnam are now present in not only family apartments but also sizable projects such as the Park Hyatt St. Kitts and Nevis (the Caribbean), or the six-star hotel Rosewood Phnom Penh (Cambodia), Thang said. Some other luxury hotels and resorts are also looking for Vietnamese companies that design and carry out their projects. “The international market is increasingly receptive to high-end furniture made by Vietnamese enterprises because not only they are eye-catching and have superior quality, but also they are sophisticated and reasonably priced,” Thang said.

According to HAWA, the wood industry has created a long and self-contained production chain, from plantation, exploitation, processing, trade, construction to interior decoration. Wood processing, in particular, plays the central role, bringing about spillover effects to many other industries such as transport, textiles, leather, metal, packaging, fasteners, mechanical engineering, marketing and tourism, among others.

Creating a legal material source

Nowadays, many people still see the furniture in their house as a property, for use in their entire lifetime, so they often opt for expensive materials like camwood, rosewood, ironwood or techicai sitan. Some have argued that the wood processing industry stimulates deforestation, and that the greater the export value of this sector is, the more serious deforestation and negative impacts on the natural environment will be.

However, Khanh believes this is not the case with the local wood processing industry. For decades, before the Government decided to close the forests in late 2014, raw materials had been sourced from plantations or come from overseas. Specifically, the wood industry benefits from the 327-CT program dating back to 1992, whose goal is afforestation, with particularly acacia, the main input for those businesses processing wood for export. Along with that, rubber trees whose latex has been taken are also used in this program. These are legal sources.

Meanwhile, wood products for export are mostly consumed in developed countries, where there are strict regulations concerning the legitimate origin of imports, Hanh noted. Consumers in these nations are highly aware of the use of furniture of a clear origin to protect the environment. Therefore, there is no way businesses in the field are illegally exploiting natural forest timber.

By the end of 2017, more than 730 enterprises had obtained the Chain of Custody (CoC) certification from the Forest Stewardship Council (FSC), making Vietnam the number one in Southeast Asia in this aspect. Among them, 49 had also been granted the Forest Management (FM) certification by FSC, with a total area of 226,500 hectares. According to Hawa, the demand for raw materials of the wood processing industry has stimulated afforestation to have a legitimate source of timber for its operations. Thanks to the afforestation program, the forest cover enlarged from 39.7% in 2011 to 41.45% in 2017. This corresponds to the increase in the rate of use of timber grown in the country, by volume, from 36% in 2005 to 52% in 2017, which is expected to reach 55% in 2020. Raw wood imports therefore declined from 64% to 48% and 45%, respectively.

The material source at home has enabled enterprises in the industry to enjoy an overwhelming advantage with inputs cheaper than imports. This advantage is being maximized by the industry players, via their partnership with wood growers. This model is being adopted in many localities nationwide to ensure there will be sufficient legal raw materials for the industry from now until the next 20 years.

Branding and improvement of added value

Domestic timber is mainly from acacia and rubber trees. Therefore, analysts suggest the local wood industry should build a brand of wood products made of acacia and rubber sourced from plantations to create competitiveness and a stable source of raw materials for growers.

In addition, they believe it is necessary to build a national brand for Vietnamese wood products to gain access to the international market. Having a brand, the value of Vietnamese wood products will further increase. Vietnam is entirely capable of building a brand for her wood industry since there are materials sourced from plantations, and nearly 500,000 workers at processing facilities, plus the annual double-digit growth of the industry, Khanh said. In addition, one of the valuable internal resources is the highly appreciated skills of Vietnamese workers, he added.

Although the wood industry has been constantly growing, goods manufactured in the form of OEM (according to customers’ orders) still account for as much as 80%, according to industry insiders. It is to say that the economic performance remains low. The domestic wood processing industry needs to step up production in the form of ODM (in which customers only sketch the idea, and manufacturers take care of the rest). Enterprises should promote the trade of products with a unique design, and develop their own distribution systems and brands, to improve the value.

The important issue is that the efforts of enterprises is to raise the value of products, instead of only trying to obtain an export turnover higher than the US$-8 billion mark set last year. “The goal of US$20 billion in exports by 2025 is quite easy, because our potentials and opportunities remain great,” Thang said.

 

Source:
Wood industry: Sustainable development

About the author  ⁄ AmCham Vietnam

AmCham is an independent association of companies with the objective of promoting trade and investment between Vietnam and the U.S. With two chapters, one in Ho Chi Minh City and one in Hanoi, our membership of 700 companies and 1,500 representatives is unified by a commitment to promote trade and investment between Vietnam and the United States.

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