A high-quality finish is becoming a trademark of Vietnamese manufacturers.

North American woodworking companies are not alone in watching what is going on in China in the furniture and other wood products industries. Companies in every corner of the world are trying to figure out what the next step should be as their domestic and global market share gradually erodes, while China’s continues to grow. Due to the sheer size and determination of the emerging Chinese woodworking industry, no one can dispute that it will be a dominant player in the continuing rapid globalization of our industry.

On the other hand, there are other opportunistic woodworking clusters emerging in other parts of the world. None is more interesting to me today than one in Southeast Asia — Vietnam. This month and next, I want to present a brief picture of what is happening there in order to better inform you as you formulate your own strategies for the future.

Vietnam Profile
Vietnam (The Socialist Republic of Vietnam) is a Communist state with a population of about 81.6 million in a total land mass about the size of New Mexico. This densely populated country is poor, with unemployment at more than 20 percent, and more than 35 percent of the population below the poverty line according to U.S. government sources. The labor force stands at 38 million with 63 percent in agriculture and 37 percent in other sectors. Vietnam’s total exports for 2002 were about $16.5 billion and imports were $16.8 billion. Furniture exports to the United States totaled just over $63 million.

However, Vietnam is the fastest growing supplier of wood household furniture with an increase on track to exceed 250 percent this year based on the first six months. This would move it into the top ten sources of U.S. furniture imports this year.

Vietnam Wood Household Furniture Exports to the U.S.
(in millions)
1999	2000	2001	2002	2003*
$2.1	$7.1	$10.6	$63.1	$160.0
Source: US Dept of Commerce * Estimate

Vietnam’s furniture and woodworking industries have historically been relatively labor intensive and as a result have migrated to lower cost labor centers. With a minimum wage equal to approximately U.S. $35 per month (less than 18 cents per hour based on the typical work week), Vietnam ranks among the lowest industrial wage structures in the world with rates not seen in the United States since a few years before the Fair Labor Standards Act of 1938 when the minimum wage was set at 25 cents per hour.

The infrastructure in the country is quite adequate to support the supply chains necessary for industrial growth and Vietnam has ready access to international shipping lines with nine ports and harbors on the Gulf of Tonkin and the South China Sea. This not only facilitates wood products exports but also imports of such materials as lumber, MDF, veneers, machinery and equipment needed to support a healthy and growing furniture and woodworking cluster.

The U.S.-Vietnam Bilateral Trade Agreement, entered into near the end of 2001, is expected to significantly increase Vietnam’s exports to the United States. The United States is assisting Vietnam in implementing the legal and structural reforms called for in the agreement. The country has experienced a real GDP growth of 6 to 7 percent during the past two years. Other industries such as the ready-to-wear garment and shoe industries have recognized the potential here and have made significant investments. One example is a Nike factory near Ho Chi Minh City that employs more than 20,000 workers.

	Fancy face veneers are produced for high-style furniture.

With an existing global demand for lower cost furniture and other wood products, an abundant and inexpensive labor supply, an infrastructure in place, and easy access to global shipping and sourcing of materials and supplies – it would seem that the only thing lacking for a vibrant wood products industry in Vietnam is technical know-how and investment capital.

The Taiwanese Entrepreneur
Over a decade ago Taiwan had a thriving furniture industry exporting more than $1 billion dollars annually. As labor costs began to swell and a shortage of workers developed, Taiwanese manufacturers began looking offshore to Malaysia, Singapore, Thailand, the Philippines, and more recently Vietnam to find a suitable manufacturing environment. At this very moment there is tremendous momentum in Vietnam as Taiwanese entrepreneurs build or expand large factories in Vietnam, especially around Ho Chi Minh City, as they gear up to compete head-to-head with the Chinese in resolute determination to export to U.S. and European markets.

Some of the Taiwanese factory owners and managers have more than 30 years experience making furniture in Taiwan, and some of these have been in Vietnam for five years. During this time the factories have grown from small ones with a few hundred workers to large ones. Indeed, the Vietnamese factories today are not like the small shops that are found in many developing countries but typically have 800 to more than 2,000 workers each. It is obvious there is great confidence and optimism in the potential here and thus huge investments are being made to gain a solid footing in this emerging furniture manufacturing cluster.

These new factories are equipped with new machinery and incorporate the latest equipment in some areas — such as finishing. In other areas such as shaping, routing, boring, and cutting tenons, older methods (with new machinery) are used in place of CNC equipment or machine centers. This strategy is understandable since the manual labor to operate these older technology machines is not costly here. In Vietnam the payback would be minimal when calculating savings of $35 per month labor plus meager labor overhead costs. By contrast, in the United States $15 per hour wages and heavy direct overhead costs make automated equipment almost mandatory.

	Robot (wrapped in plastic) spraying a chair in Udine, Italy where competition from cheap labor has forced the adoption of automation.

In the top two photos on this page, you will see an interesting example that illustrates how different companies with diverse labor costs must use differing manufacturing methods to compete. In Vietnam, chairs are sprayed during the finishing process much the same as has been done here for the past 50 years — on a conveyor with a spray gun. By contrast, where labor costs are high in Italy, robotic sprayers are commonly used to negate this competitive disadvantage.

Building a Strong Vietnamese Cluster
The manufacturers in Vietnam are in the process of building a cluster that can foster growth through cooperation and strategic alliances. Already, some manufacturers act as sub- contractors for those with limited capacity or for specialty items. The manufacturers are slowly learning that each must find its core competency and concentrate on that.

At the same time some are trying to become more vertically integrated in such areas as veneer and veneered top production in order to have more control over costs and quality. In addition, they are serving as suppliers to smaller furniture manufacturers. A mixture of old and new equipment is found in many plants and is utilized with satisfactory results.

High-quality fancy face veneers are produced from a variety of species including red oak, and ash from the United States, as well as mahogany and other tropical species. Veneer logs are brought in and processed with the same care and quality results as anywhere in the world.

In many emerging furniture producing clusters around the world, finishing is inferior at best and prevents products from being accepted in the international marketplace. One of the assets that the Taiwanese bring with their many years experience in manufacturing furniture for export is the awareness of the demand for high-quality, high-styled finishes and the expertise to consistently produce the same. Thus, one of the trademarks of Vietnamese furniture is the excellent quality of finish accomplished with good equipment, knowledge, and the use of good finishing materials (in this case, from Malaysia). In addition, excellent quality control measures are being implemented to assure the appearance and durability meet or exceed customer expectations.

In addition, most major Vietnamese furniture companies have AutoCAD or other systems to speed product development to meet the demands of their customers. The ability to respond quickly to inquiries for quotations on new designs is correctly recognized as a prerequisite to successful exporting today.

Challenges
While manufacturers in Vietnam are doing many things right, they too have their challenges. Next month I will present some of these challenges including moisture control, cellular manufacturing, and employee training, and look to the future in an attempt to enlighten you and motivate you to look at your own operation for ways to better compete.