This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 HANOI 001708 
 
SIPDIS 
 
STATE FOR EAP/BCLTV 
STATE ALSO PASS USTR BRYAN 
USDOC 4430/MAC/ASIA/OPB/VLC/HPPHO 
USDA FOR FAS 
 
E.O. 12958: N/A 
TAGS: ETRD EIND ECON VM
SUBJECT: Vietnam's Expanding Furniture Industry 
 
¶1. Summary:  Vietnam's furniture export industry has 
expanded rapidly in recent years due in part to benefits 
from lower tariffs under the U.S.-Vietnam Bilateral Trade 
Agreement and the imposition of anti-dumping duties on 
Chinese furniture exports.  Further expansion of the 
industry faces some constrains as raw materials and skilled 
managers are in short supply and input costs are rising. 
End Summary. 
 
Characteristics of the Industry 
------------------------------- 
 
¶2. Vietnam's wood products industry has about 1,500 
enterprises, of which about 450 are active in furniture 
exports.  There are 51 foreign invested enterprises in this 
sector with a total registered capital of over USD 180 
million. The remaining enterprises are primarily domestic 
private companies.  Foreign invested enterprises (mainly 
from Asia and Europe) and private enterprises produce about 
75 percent of the sector's total value and earn about 78 
percent of all furniture product export revenues. 
 
¶3. The furniture industry consists primarily small and 
medium-sized enterprises and, historically, the sector has 
been relatively labor intensive.  It employs about 170,000 
people, with an average wage of approximately USD 45 per 
month.  Recently there has been a trend toward establishing 
new, larger-scale private domestic and foreign invested 
enterprises.  These new factories, including Khai Vi in Ho 
Chi Minh City, Phu Cuong and Duyen Hai in Binh Dinh province 
and Viet Giai in Dong Nai province, employ over one thousand 
workers each and are equipped with more modern machinery. 
 
¶4.  According to GVN official statistics, during 2001-2004, 
the production capacity of the furniture industry grew by 40 
percent annually. Ho Chi Minh City and the surrounding 
provinces, as well as some central highland provinces like 
Dac Lac and Gia Lai, have quickly become production and 
export centers.  Production growth in Binh Duong, a province 
north of HCMC, was the industry's fastest in 2004. 
 
Soaring Exports, Rising Investment 
---------------------------------- 
 
¶5. Vietnam's furniture exports have increased dramatically 
in recent years - growing from USD 320 million in 2000 to 
USD 563 million in 2003.  In 2004, furniture exports jumped 
to USD 1,054 million, making the furniture industry 
Vietnam's sixth largest export earner.  Vietnam now exports 
furniture to 120 countries, although the United States, the 
EU and Japan are its primary markets.  (Note:  According to 
GVN official statistics, these three economies represented 
29.6 percent, 28.5 percent and 16.2 percent of Vietnam's 
total furniture exports in 2004.  End Note.)  Nevertheless, 
Vietnam's market share remains small: 0.86 percent in the 
United States, 0.2 percent in the EU and 7.3 percent in 
Japan. 
 
¶6. Vietnamese furniture exports to the United States have 
grown significantly in the last few years, due in large part 
to the impact of the U.S. - Vietnam Bilateral Trade 
Agreement and anti-dumping duties levied against Chinese 
furniture exports to the United States.  With the entry-into- 
force of the BTA in December 2001, Vietnam began benefiting 
from Normal Trade Relations (Most Favored Nation (MFN)) 
Status.  As a result, tariffs on Vietnamese furniture 
exports were reduced from 40-45 percent to zero percent. 
Since 2001, Vietnamese furniture exports to the United 
States have increased from USD 10.6 million to USD 311.9 
million in 2004.  Vietnam now ranks as one of the ten 
largest furniture exporters to the United States.  In 
addition, anti-dumping duties imposed on Chinese furniture 
exports in 2004 by the United States have enhanced 
opportunities for Vietnamese furniture makers to get a 
foothold in the U.S. market. 
 
¶7. Opportunities in the furniture sector are starting to 
attract foreign investment.  Although recent GVN investment 
statistics for this sector are not yet available, anecdotal 
evidence suggests Chinese and Taiwanese investment in the 
furniture sector is growing.  For example, Taiwan Kaiser 
relocated to Vietnam in 2004 with a formidable USD 40 
million in capital. According to press reports, Kaiser's 
wood processing plant is expected to generate around 4,000 
new jobs. 
 
Scarce Materials and Rising Import Costs 
---------------------------------------- 
 
¶8. Vietnam has the capacity to process approximately two 
million cubic meters of logwood each year.  However, since 
2001, the GVN has allowed for the annual exploitation of 
only 300,000 cubic meters of natural timber annually.  As a 
result, the industry imports up to eighty percent of the 
materials used in to produce wooden furniture. During 2002- 
2003, the costs of imported materials represented 40 percent 
of the production costs for furniture.  Rapid export growth 
and the steady increase in the global price for timber 
(about 10-30 percent higher in recent years) are driving 
production costs up.  Vietnamese producers estimate that 
imported raw materials will constitute sixty percent of 
production costs this year. 
 
¶9. A number of neighboring countries have banned timber and 
log exports, leaving Russia, the United States and Africa as 
the most stable and cheap sources of raw materials for 
Vietnam's burgeoning furniture industry.  Tran Quoc Manh, 
Vice-Chairman of the Handicraft and Wood Industry 
Association (HAWA) of HCMC and Director of the furniture 
enterprise, Saigon-DakLak Company, anticipates that finding 
continuous, reliable sources of wood will be a challenge for 
the next ten to twenty years.  Manh noted that many 
producers are increasingly turning to U.S. wood, which he 
said is cheaper and of better quality than wood from Europe. 
Vietnam's import of wood from the United States has 
increased steadily, growing from USD 0.9 million in 2000 to 
USD 39 million in 2004 (representing about 7.2 percent). 
HAWA is hoping to address the price issue of raw material 
imports by purchasing wood for its members directly from 
suppliers.  Manh estimated that seventy to eighty percent of 
the wood imported into Vietnam for the furniture industry is 
purchased through wood trading companies rather than from 
the wood suppliers directly. 
 
Furniture Production Booming in the South 
------------------------------------------ 
 
¶10. In the south, the furniture industry is booming.  As 
with the textile industry, foreign investors and buyers in 
the wood-processing sector have realized what advantages 
Vietnam provides - low cost, highly skilled labor and 
consistent, top quality production.  Local producers in the 
HCMC area and the Central Highlands are taking expertise 
gained from exploiting Vietnam's forests and applying it to 
furniture manufacturing and export. 
 
¶11. Having focused on the Japanese and European markets in 
the past, furniture makers are now looking to boost their 
sales in the United States, especially to mid- and high-end 
retailers.  American furniture manufacturer Stickley opened 
a factory in Binh Duong province in March.  Taiwanese, 
Malaysian and local Vietnamese producers are selling to the 
likes of Bombay Furniture, Pottery Barn, Crate & Barrel and 
Martha Stewart. 
 
¶12. ConGen HCMC contacts list their two main challenges as 
finding qualified managers and the limited supply of raw 
materials.  As in other sectors, furniture makers lament the 
shortage of Vietnamese adequately trained to manage people 
and production lines.  As one foreign investor characterized 
it, Vietnamese universities spend too much time on ideology 
and not enough time on practical management skills. 
 
Solutions For Sustainable Development 
------------------------------------- 
 
¶13. In an interview with the Vietnam Economic Times early 
this year, the secretary of the Vietnam Timber and Forestry 
Product Association identified the following four points as 
priorities for the long-term development of Vietnam's wood 
products industry: 
 
- The establishment of new furniture factories should be 
geographically linked to raw material sources, such as 
forests and seaports. 
 
- The current National Forestation Plan, which focuses on 
short-term production capabilities for the paper industry 
should be amended to include wood processing. 
 
- The furniture industry needs to pay greater attention to 
developing Vietnamese trademarks. 
 
- The furniture industry needs to add about 100 thousand 
additional workers each year in order to maintain its 
development pace. The GVN should assist enterprises in 
training workers and purchasing modern equipment. 
 
¶14. The Association advised individual wood processing firms 
to cooperate with foreign importers in order to ameliorate 
their lack of modern equipment, expertise and market 
information. HAWA is planning to build a wood-processing 
center (this is a 250-hectare complex of wood processing 
factories, handicraft villages and residences in HCMC's Binh 
Chanh district set to be completed by the end of this year) 
and establish a cooperative of material importers in order 
to reduce the use of middlemen suppliers. The Prime Minister 
issued a directive in June 2004 assigning various agencies 
to draft policies for developing the wood products industry. 
 
¶15. Comment:  Furniture is clearly another sector in which 
Vietnam could become one of the world's major exporters, 
similar to its success in coffee, pepper and seafood.  The 
industry should be wary, however, of becoming a victim of 
its own success as happened with catfish and shrimp (anti- 
dumping cases) and coffee (plunging world prices).  Though 
Vietnam currently accounts for less than one percent of the 
U.S. market, it could soon exceed the two percent level at 
which anti-dumping cases may be filed.  End Comment. 
 
¶16. This cable was drafted jointly with Consulate General Ho 
Chi Minh City. 
 
BOARDMAN