Will Vietnam’s wood industry benefit from FTAs?
It is no secret that market analysts believe many industries in Vietnam will benefit from the signing of trade deals such as the free trade agreement (FTA) between the EU and Vietnam and the ASEAN Economic Community (AEC).
The wood industry in Vietnam is no exception, according to Nguyen Quoc Khanh, chairman of Handicrafts and Wood Industry Association (HAWA) based out of Ho Chi Minh City.
“FTAs are also seen as a huge opportunity for companies to relocate some of their manufacturing facilities from relatively higher cost areas such as China to places such as Vietnam where labour costs, in particular, are cheaper,” said Mr Khanh.
“But let’s keep things in the proper perspective.”
Vietnam will most likely see strong gains as a sourcing destination for wood products as a result of FTAs, but large multinational companies are not going to put all of their eggs in one basket and source product only from Vietnam.
If a multinational company desires to sell product in India, they will source some of their product from India regardless of the cost in Vietnam. The same is true for other countries such as China, Indonesia, Cambodia and Singapore.
We have to be pragmatic about the expectations of Vietnamese business community and citizens resulting from FTAs and acknowledge that at some point the country will maximize its labour pool and the law of diminishing returns will set in.
One must also factor in ‘wage creep’ or the simple fact that future wages will surely rise in Vietnam and negate any current labour cost savings— and a host of other issues such as future logistics problems.
In other words, Vietnam has a limited amount of quality labour that is adequately trained (or trainable) that can produce product efficiently, he said, and there are many leading economic analysts that see Vietnam maximizing its labour forces as early as 2017.
Environmental concerns and increased costs of dealing with air and water pollution resulting from increased production must be examined carefully along with the cost of infrastructure for erecting sustainable power supplies.
Operating a manufacturing business in Vietnam is no panacea – by any stretch of the imagination – and we would only be trying to fool ourselves and others if we fantasize and make believe it were.
Most importantly, we as a nation, must stop making these wild claims that multinational companies prefer Vietnam over other locations such as China and recognize that most multinational companies around the globe want to be major players in the Chinese market.
Accordingly, they are going to source product in China because that is the nature of business. If a multinational company wants to be a seller in the Chinese market they must and will source product from the Chinese market irrespective of the cost.
If Vietnam companies in the wood industry want to be a major player in another significant market such as the EU, US or Russian market then they too, must learn the lessons and source some of their product from these markets.
It’s all a bit circular, if a company pays more for a product they source, then they charge more for the product they sell. It all comes out in the wash because it’s all relative to a specific market.
The long and the short of it all is— expect the large multinational companies to make intelligent sourcing decisions and expect Vietnam, China, India and the rest of ASEAN to see economic benefits over the next few years from FTAs.
Recognize that Vietnam has a fair shot at benefiting from FTAs, but that will only happen if and when they adequately prepare themselves to take advantage of the opportunities the deals present.
Companies operating in the wood processing industry within Vietnam’s borders, said Mr Khanh, are expected to export US$7.6 billion worth of product this year, up 10.2% compared to last year.