A description of the industry’s development

The wood furniture industry has become a big global business. By 2005, furniture was the largest low-tech sector, with a total global trade worth US$97.185 billion, accounting for 0.948%¹⁷ of total commodities in global trade, ranking 19^th among biggest trading sector, exceeding apparel (ranking 20^th ) and footwear (ranking 31^st ). Global furniture trading volume has been increasing faster than that of apparel and footwear product. From 1995 to 2005, the growth rate of global furniture trading is 7.52% while those of the apparel and footwear sectors are at 6.71% and 2.86% respectively (UNCTAD, 2007). High-income countries including the United States and Canada, the European Union, and Japan are the major wood furniture consuming markets. The growth of the global wood furniture trade is closely linked to the booming of the furniture industry in emerging economies like Vietnam.

In the recent ten years, Vietnam’s wood furniture industry has shown remarkable achievements with exceptional growth in scale and production, an increase in foreign investment and export turnover. Export turnover from wood products has reached an annual growth rate of 40 percent, multiplied almost tenfold since 2000

17 Calculated based on data supplied in UNCTAD Handbook of Statistic 2006-2007

and reached 2.4 USD billion in 2007, officially included in the country’s top five products¹⁸ since 2005 (Vietnamese German forestry Program, 2008).

Vietnam has become one of the world’s top furniture exporters, ranking the fourth largest wood furniture exporter¹⁹, holding 0.78% of the world’s furniture market share since 2005 (UNCTAD, 2007). Vietnam prevails over other foreign suppliers for a number of reasons, including inexpensive prices and high quality (Runckel

& Associates, 2006). The main markets of Vietnamese wood furniture are USA, Europe (UK, France, Germany, Netherlands, Denmark, Sweeden), East Asia (China, Japan, South Korea) though currently Vietnam exports to more than 120 countries. In 2007, Vietnam surpassed Indonesia and Thailand to be the second biggest ASEAN furniture exporter, only after Malaysia (Hong Van, 2008) and its furniture export turnover rate to USA, Japan, UK are USD 948 millions, USD 307 million, USD 196 million respectively (General Department of Vietnam Customs, 2008).

Outdoor furniture is the main export of the industry. In 2007 outdoor furniture manufacturing accounted for approx 90% of Vietnam’s total wood product exports (Vietnamese German forestry Program, 2008).

Table 1: Wooden Furniture Exports

(Sources: Vietnam’s General Department of Customs)

According to Vietnamese Ministry of Agriculture and Rural Development, in 2006, there are 1500 companies registered in the wood processing industry, 30%

of these are state owned or Joint Stock companies, 60% are private owned, while

18 after crude oil, footwear, garments, and seafood 19 after China, Malaysian.

0 500 1,000 1,500 2,000 2,500

1995 1996

1997 1998

1999 2000

2001 2002

2003 2004

2005 2006

2007

million USD

the remaining 10% are foreign invested companies. Foreign investment is mainly from Asia (Taiwan, Singapore, Malaysia and China) and Europe (Denmark, Norway, Sweden and France). Besides the number of registered companies, there are hundreds of thousands of small woodworking manufactures that are not registered across Vietnam.

Wood furniture producers mainly gather in three regions the Northern Red River delta provinces (densely in Dong Ky village- Bac Ninh province), the Central highland provinces (densely in Quy Nhon city), and the Southeast provinces (densely in Binh Duong, Ho Chi Minh, Dong Nai industrial parks). These three main production areas can be notably distinguished from each other in their institutional context, their firms’ production scale, the types of products, and their target markets. The institutional context for example in Dong Ky village is a traditional handicraft village with a small production area. Workshops are in living quarters. Dong Ky’s infrastructure although being improved by widening the main road is quite poor in comparison to those of the other two clusters.

Although the local authority has been open minded on upgrading infrastructure to meet demand for production sites, they still lack the necessary knowledge to manage the industrial park. Meanwhile, industrial parks in Quy Nhon and Binh Duong clusters are quite different from Dong Ky in the sense that they are newly built with good infrastructures, enabled by favorable supporting policies of local governments. Binh Duong cluster is being recognized as the area where local government is the most active in providing the most favorable condition for business, while the Quy Nhon cluster is recognized as the most favorable geographical location because of its closeness to the sea and Lao where almost all of the wood supplies come from. The differences in institutional contexts among the three clusters may lead to different business patterns among firms in the three clusters. Firms in Dong Ky are often on a small scale of around 10 workers and develop from family business. Their internationalization pattern can be seen as at a gradual stage. Such firms serve domestic consumption and may be involved in export business with Chinese and South Korean buyers who will visit the village and make orders. They rarely receive big orders. Their customers are often

consumers on a solid carved style. Local production networks are naturally created among firms based on kinship or friendship. When one firm obtains an order bigger than its capacity, the owner-manager of the firm often will sub-contract the order to his relatives or friends. The sub-contract is relational and not in written form. Meanwhile, firms in Quy Nhon and Binh Duong range from medium to large scale. Many of these firms were established to serve export markets. Their customers are often big global buyers who make large orders.

They supply Europe, USA markets with both indoor and outdoor furniture. Local network ties are not as closed as the ones in Dong Ky.

Regarding production scale, on the whole, enterprises are relatively small, with the exception some export oriented furniture factories. The companies which employ less than 50 employees are 63% while companies employing more than 500 workers account for only 7%²⁰ of the total enterprise.

Proportion of enterprises by number of employees

< 5 persons 5%

5-9 persons 17%

10-49 persons 41%

50-199 persons 21%

200-499 persons 9%

>500 persons 7%

Table 2: Employment Structure

(Source: General Statistic Office, 2005)

The industry produces four main types of products: exterior furniture, interior furniture, and fine arts products. Firms in the Central highland and Southeast provinces produce western-style furniture mainly for the EU, USA markets and a small minority in the domestic market while firms in the Northern provinces make

20 Calculated based on data supplied in Statistic Handbook of Vietnam 2007

home accents and traditional solid wood furniture for the domestic market as well as China, Japan, South Korea market.

The descriptive analysis of the Vietnam wood furniture industry development shows that firms in the industry are not homogenous in ownership structure, size, and export experience. Firms gather in three clusters which are affected by different institutional factors like infrastructure, local government policy and business atmosphere. These background factors should be taken into account when developing an empirical model in the hypothesis testing study.

3.3. Position of Vietnam wood furniture producers in GVC and their moves