Foreign Investors Help Grow Vietnam’s Wood Industry

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HANOI – Foreign investors should take note of Vietnam’s wood industry – since 2006 exports have expanded from US$1.92 billion to US$5.7 billion in 2013. Contributing to this growth were the country’s stable economy, appropriate credit growth, curbed inflation and large consumer and labor markets.

Vietnam’s economic and political stability stands in contrast to its regional neighbors, making the nation increasingly attractive for foreign investors. The soon to be completed Trans-Pacific Partnership (TPP), in which Vietnam stands to benefit substantially, is a further attraction for investors. Once finalized, the trade agreement would lower trade barriers and allow Vietnamese wood exports to make huge gains in the American market, as well as opening up the Pacific region at large for business.

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Nguyen Ton Quyen, General Secretary of the Vietnam Timber and Forest Association (VTFA), has pointed to the wood industry’s success, despite a slowdown throughout the agricultural sector at large. He went on to credit strong international partnerships as key to this rapid growth. In particular, demand from America has begun growing again after several years of decline, leading to a 16 percent increase in exports – totaling US$1.7 billion for 2013.

Mr. Quyen remains confident for 2014 – the VTFA is aiming for exports to top US$6.2 billion by the end of the year. The targeted number is “completely feasible” according to Quyen, with businesses having already signed export contracts worth US$3 billion so far.

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Currently, Vietnam’s wood industry ranks sixth in the world by export volume and is the second largest in Asia and the largest in the ASEAN economic bloc. However, Huynh Van Hanh, Vice-Chairman of the Handicraft and Wood Industry (Hawa), is confident that it can further improve this position. “Vietnam is a country with advantages in production and higher opportunities to expand its industry,” Hanh stated during a recent interview. “If there are incentives in policy making for the wood industry, Vietnam’s furniture industry could raise its annual export market share from 1.5 percent to 5 percent, equivalent to US$15 billion within 5-7 years,” he concluded. Hanh believes such a rapid gain in market share is possible thanks to the rapid strides in productivity and continued transfer of export orders from China to Vietnam.

These sentiments are shared by Nguyen Quoc Khanh, Chairman of Hawa, which is already taking steps to improve the situation. Hawa has been quick to use the increased business to invest in productivity gains, added value and to develop further access to international markets. The organisation also stated that it will begin organizing workshops for its individual members, aimed at giving them the tools to seek out new partnerships, pursue development opportunities and expand independently.

These efforts have been aided by a noticeable shift from Chinese to Vietnamese firms for wood exports over the course of 2013, largely due to the growing cost of Chinese labor.

However, there are a number of issues Vietnamese businesses must still overcome. There must be a continuation of investment into worker productivity and the country’s production chain must be expanded, otherwise profits will lag behind total export volume. Furthermore, while many remain enthusiastic over the potential benefits of the TPP, the government must implement new regulations quickly and efficiently so as not to disrupt domestic businesses.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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