Continuously growing export and expanding market given benefits from a handful of new generation free trade agreements have created an obvious attraction of Vietnam’s wood processing sector to both domestic and foreign firms.
NEARLY 70 FDI FIRMS INVESTING IN WOOD EACH YEAR
Concerning the wood processing sector’s growth opportunities in the recent time, a handful of new generation free trade agreements Vietnam has entered into helping substantially boost wood exports.
In particular, apart from the US market, Vietnam’s wooden furniture exports to other markets such as Canada, Korea and Japan have increased significantly. The first months of the year has seen an increase in wood exports by 15% on average. Nguyen Ton Quyen, Vice President of the Vietnam Timber and Forest Product Association (VIFORES) stated that during the first three months of 2019, wood exports reach USD 750 million per month, up by USD 100 million per month on average as compared to prior years.
Note worthily, in 2018, forest and wood product exports reached USD 9.38 billion, helping wood sector replace fishery sector as the agriculture industry’s biggest export goods. The wood sector’s trade surplus amounted over USD 7 billion, ranking in first place among Vietnam’s export industries.
“I find that the major boosts for wood exports are derived from free trade agreements such as Vietnam-Korea Free Trade Agreement (VKFTA), EU-Vietnam Free Trade Agreement (EVFTA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which helps open up access to export markets across the world and enjoy more import and
export tax benefits.
Particularly, from 2016 till now, the FDI flow to Vietnam’s processing wood sector has grown rapidly with an increase in the number of FDI firms from 600 in 2016 to 800 at present, an average of 70 FDI firms each year. Apart from FDI firms from Taiwan, China and Hong Kong, other countries from Europe, Korea, Japan are injecting capital into Vietnam. Some firms from CPTPP countries such as Canada and Chile are seeking for opportunities to invest into, which indicates an obvious attraction of the wood sector to foreign investors.
WOOD PROCESSING SECTOR – AMPLE ROOM FOR GROWTH PROVIDED THAT FIRMS KNOW HOW TO EXPLOIT
Regarding the wood processing sector outlook, Quyen stated that the sector has reached 70% of total orders for the whole year 2019 while some firms with great trust from their partners have even seen a sudden increase in orders, but not accepted due to insufficient processing capabilities. Thus, opportunities for wood processing remain ample given the adequate productivity and technology in line with export partners’ requirements. It is highly likely to achieve the targeted total export of USD 11 billion in 2019.
Dien Quang Hiep, Chairman of Binh Duong Furniture Association and General Director of Mifaco Co., Ltd said that amidst the positive market outlook, CPTPP serves as the catalyst that boosts the sector’s growth. Thus, not only 2019 but also upcoming years will see the ever-increasing number of orders to Vietnamese firms. Vietnam is exporting to CPTPP members of 11 countries, so export will further increase upon tax reduction to 0%.
Despite open-wide opportunities, firms still face need-to-address challenges of
requirements for large capital to upgrade machines and enhance production capabilities to fulfil bulk orders. The Government needs to offer incentives to wood processing, especially planning a wood-based industrial zone that enable firms to create synergies and strengthen partnership.
Given that challenge, many firms have taken initiative to transform themselves to improve competitiveness. Huynh Quang Thanh, General Director of Hiep Long Fine Furniture Co., Ltd told that the company set to increase profits by 15% in 2019 and was upgrading its production equipment towards robotic trend to meet current market demands. “With the expanding market and great potentials, productivity improvement is necessary”.
said Thanh.
Similar to Thanh, Do Thi Kim Loan, General Director of Sao Nam Trading and Manufacturing Co., Ltd stated that with targeted export of USD 20 million in 2019, the company has
invested in modern machine and equipment to enhance productivity, lower costs and fulfil orders from foreign markets.
In fact, in addition to Sao Nam, which focuses in investing in technology, many domestic wood processing and manufacturing firms set to implement this trend. Take AA Corporation for example. The company has already imported a wood processing machine of over USD 1 million to meet high-industry orders from importers.
According to experts’ assessment, Vietnam’s wood processing sector has yet to become comparable with leading exporters from Germany, Italy and Poland given their high-end products and almost robotic production line. However, given the expansion of factory scale, import of modern machine and equipment, and investment in management, Vietnam’s wood processing sector will offer many competitive high-end products comparable with those in countries with advanced science.
