Last updated: Thursday, May 16, 2013
VAT Cut to Save Wood IndustryPosted: Monday, June 11, 2012
“Woodwork consumption in the EU is forecast to fall in 2012 because of economic recession. Meanwhile, to achieve the plan set for 2012, woodwork exports must increase 11 - 12 percent from 2011. This is a high target to hit,” said Vo Truong Thanh, President of Binh Duong Furniture Association (Bifa) at a conference entitled “With furniture and handicraft industries: Taking advantage of opportunity to make breakthroughs” held by the Ho Chi Minh City Branch of the Vietnam Chamber of Commerce and Industry (VCCI - HCM) in coordination with Dun & Bradstreet Company (D& B), a supplier of in-depth trade and financial information and ratings agency for international companies.
Currently, Vietnam has become the fourth largest wooden furniture exporter in Southeast Asia. Since 2001, export turnover of Vietnam's wood industry has constantly achieved high growth rates. The value rose from US$335 million in 2001 to nearly US$4 billion in 2011. Vietnam’s wooden furniture market share globally, though less than 3 percent, is rising. According to the General Department of Customs, in the year to May 15, 2012, Vietnam earned US$1.5 billion from woodwork export, up 22 percent year on year. To date, Vietnamese wooden furniture has been exported to 120 countries worldwide.
Mr Thanh said US spending on wooden furniture from Vietnam has kept rising over the past decade. In 2011, Vietnam was the second largest supplier of wooden products in the United States, just behind China. However, China is still facing antidumping duties on wooden furniture, wooden flooring, plywood and wooden beds in the United States. Moreover, the Chinese yuan has been put under rising pressure in recent years and increased labour costs blunted the sharpness and competitiveness of Chinese items. For that reason, the US market still has a lot of room for Vietnamese businesses.
In 2012, global furniture consumption is forecast to rise 3.3 percent because of increased demand in emerging economies. However, woodwork consumption in the EU (the largest importer of Vietnam’s wooden furniture) is forecast to fall in 2012 because of economic recession. Meanwhile, to achieve the plan set for 2012, woodwork exports must increase 11 - 12 percent from 2011. This is a high objective to hit, especially when foreign buyers post-pay by 30 - 90 days.
This drains cash flow for exporters and poses more risks in payment and delivery. The biggest importers in the world like the EU, the US, and Japan are erecting technical barriers to trade. Therefore, furniture exporters in Vietnam have to keep up to date with new changes and address risks.
However, hardships arising from shrinking world demand are a small problem for Vietnamese firms – the throbbing headache is caused by domestic economic volatility. According to a survey by Bifa, up to 40 percent of wood processors had substantially scaled down, closed or halted production. This is one of the reasons behind the present poor supply that may allow for local sellers to earn higher prices from contracts with foreign buyers. Some companies even had to sell imported materials to stay afloat rather than use them for production. Mr Huynh Van Minh, President of Ho Chi Minh City Business Association, said sky-high interest rates inhibited businesses from investment for operational expansion. Therefore, in addition to lowering interest rates and deploying a bailout package worth VND29 trillion (US$1.4 billion), the Government should consider VAT reduction. This move will encourage businesses to borrow for production and business development and increase sales as well.
Mr William M. Gadd, a representative from International Furniture and Interior Association, said international buyers are keen on Vietnamese woodwork and furniture because they are tired of low-quality Chinese items. Apart from Vietnam’s advantages of cheap labour supplies and low production costs, foreign customers are seeking environmentally-friendly products made from legal and sustainable input material sources meeting international standards. And Vietnam, a leading furniture exporter in Southeast Asia, can fully meet the above criteria.