An unsustainable recovery
By Hong Van in HCMC
After suffering difficulties last year, local woodworking enterprises are beginning to recover as many factories win contracts from both domestic and foreign customers. However, the companies still face challenges, due to the economy and the industry’s inherent problems.
The global economic downturn affected the woodworking industry severely. Prior to the slump, the industry was a leading export sector, with annual growth rates of 30% to 50% over the last 10 years. The growth contracted by 17% between January and July last year, however. 
Many wood processing factories reduced production due to a lack of orders. In addition, they could not afford to pay foreign currency to import materials. Some offered their employees non-paid vacation for several months.
Wood export began to recover towards the end of last year, with export revenue growing 3% in the fourth quarter. The recovery helped keep last year’s export revenue at US$2.5 billion, or a reduction of 9.9%.
According to the Ministry of Industry and Trade, woodwork exports increased already this year to date, surging 60% year on year to US$617 million. Given the strong growth, local enterprises expect to reach this year’s US$3 billion target.
Nguyen Chien Thang, chairman of the Handicraft and Wood Industry Association of HCMC (HAWA), said export prices had not increased this year. HAWA’s members export the majority of Vietnam’s furniture. He added though that local firms’ export orders were satisfactory.
“The current condition is much better than last year when enterprises scaled down production and reduced working time for workers,” Thang said.
Tran Quoc Manh, general director of Saigon Trade and Production Development Corporation (Sadaco), said foreign customers were reluctant to pay higher prices.
“It is hard to convince international customers to pay higher prices. They blamed it on unsustainable recovery of the global economy, saying that no one will pay money for expensive furniture items,” he said.
Meanwhile, other South East Asian exporters like Thailand, Indonesia and Malaysia had recovered slower than Vietnam.
“Vietnam has skilled workers and can import wood materials at demand, so we can provide a wide variety of products for international importers,” Manh said.
He added that Vietnam’s competitors could not produce diversified products like Vietnamese companies.
Difficulties still ahead Nguyen Van Hanh, director of Minh Phuong Furniture Co. Ltd. in Binh Duong Province, said some enterprises have reduced their prices to obtain orders from foreign importers. Some accept low profit rates or break even to maintain customers and keep jobs for workers, he said.
Now, the industry is worried that input material prices will increase soon in and outside the country, Hanh added.
According to HAWA, imported pine wood prices have increased 20% in the past four months, as have transport charges. Packaging fees have increased 20% to 30%, along with workers’ wages and social insurance. In addition, environment protection fees will become effective in the country soon too.
Recent power price increases have concerned HAWA’s members as well. Although, they will not be as affected as steel and cement firms, electricity still accounts for 5% to 6% of furniture prices. The hike has also increased the price of input materials. As a result, electricity costs will account for 7% of finished wood products, Hanh said.
Increased electricity costs will affect producers as they enter the high season between October and May 2011, Manh from Sadaco said.
As production costs increase, Vietnamese products will become less competitive than alternatives from countries like China. They can afford to sell wood products for less as they receive support from the government and import smaller material volumes.
The Saigon Times Daily