Vietnam export industry prepares as demand seen to swell in 2015

A sense of optimism prevails among suppliers in Vietnam as the country is set to implement a number of economic arrangements with various trade blocs and countries.

This report provides an analysis of the performance of key export industries in Vietnam last year, and offers forecasts for this year. It is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia.

Anticipating brighter prospects stemming from Vietnam’s participation in a number of international economic agreements, export manufacturers in the country have started making preparations to meet the expected upsurge in demand. Suppliers involved in a number of product lines such as wooden and wicker furniture, bags, fashion accessories, toys, promotional gifts, and table and dinnerware are especially optimistic as these deals are projected to open up several new foreign markets and lower or even eliminate export duties.

Companies in these sectors are taking on initiatives to enhance efficiency. With the help of trade associations, enterprises are being trained in various programs aimed at enhancing management, production and marketing capabilities.

The Trans-Pacific Partnership or TPP is particularly seen to make a significant impact among enterprises. It currently consists of 12 countries throughout the Asia-Pacific region, many of which have highly developed economies. One of the TPP’s key goals, besides offering export incentives to members is the total elimination of tariffs over the next 10 years. Although no date has yet been set when the arrangement will be actually implemented, it is forecast that negotiations will be finalized within this year.

Apart from the TPP, Vietnam’s export sector is looking forward to the ASEAN integration, which is set to be implemented in 2015. Trade deals with the EU, Russia and Kazakhstan on the horizon. In addition, the country’s rapidly growing export capacity is expected to attract more foreign suppliers into establishing domestic manufacturing facilities.

Exports

Foreign revenue increased across the board in 2014 because of solid demand from the US and the EU. Within the latter, products were shipped primarily to Germany, France, the Netherlands and Spain. The Asia-Pacific region also accounted for a significant part of exports. Japan, South Korea, Taiwan and Australia were the leading markets in this location.

Growth was mainly driven by wooden furniture, which registered total sales of $3.5 billion. Toys were another major contributor to the industry’s development as $712 million worth was shipped abroad last year. Furniture made of rattan, bamboo, rush and carpet was the fastest-expanding segment last year as it earned 113 percent more compared with the previous year. Earnings were comparatively modest, however, as it recorded $121 million. Bags and wallets improved substantially as well, pulling in $300 million, which was a 91 percent increase over the prior year.

Design trends

Although the various product segments are diverse in terms of function and aesthetics, a common design theme appeared in 2014. Vietnam banked on the rising global trend of sustainability and environment-friendly models, and this was apparent in nearly all lines.

Furniture makers continued to emphasize models made of wood, rattan and bamboo obtained and processed using ecologically sensitive methods. This was in response to the demand of large markets such as the US and the EU, which are particular about the impact imported products have on the environment.

Suppliers of fashion bags also heavily utilized plant-based inputs that are biodegradable and sustainable. These include rattan, water hyacinth, seagrass and bamboo, which provide interesting textures and are flexible enough to be woven to create different patterns.

Table and dinnerware was another major segment that used eco-friendly inputs. Models made of plastic were increasingly replaced by plant-based fibers. This trend particularly applied to table accessories such as placemats and coasters. In addition, finishes are gradually shifting from paints to natural dyeing, which includes forging heating and smoking.

Repurposed components figured prominently in bags, jewelry and headwear. Fabric scraps are typically washed and cut into assorted shapes before they are sewn on handbags, purses and wallets for a patchwork or quilted look. They are also widely used on hats and necklaces as trimmings. These inputs are normally utilized to reduce wastage coming from garment factories.

Besides the general eco-friendly theme, multifunction models were another major product design trend last year.

Challenges

Despite the improvements seen in recent years, Vietnam’s export industry continues to be burdened by a number of persistent problems. The most crucial of these is underdeveloped manufacturing and design capabilities, particularly among segments that rely heavily on OEM orders. Since most suppliers are categorized as SMEs, they typically do not have the necessary resources to enhance production, invest in modern equipment and improve R&D. Inadequate facilities slow down productivity, preventing companies from competing effectively.

Heavy dependence on imported raw materials is another difficulty confronting the industry. Components sourced abroad typically include fabrics, which are used for bags, fashion accessories, toys and promotional gifts. Roughly three-quarters of textiles used are procured from China, India, the US and South Africa, which equates to 10 to 20 percent more to production expenses.

The limited supply of raw materials, particularly wood, is another factor hampering suppliers. Stringent environmental regulations concerning the harvest and utilization of lumber keep supply short. Furthermore, owners of forest plantations prefer to send unprocessed timber abroad because this yields higher profits than selling to local buyers.

2015 Outlook

As a whole, makers expect to keep prices unchanged this year to maintain competitiveness and attract new clients, particularly those from the Middle East and Asia-Pacific. Some, particularly makers of promotional gifts, intend to push up quotes because of rising production expenditure.

Increasing orders coming from the EU, Asia-Pacific and the Middle East are giving companies a positive outlook regarding export performance. Aggressive online and trade show marketing are playing important roles behind this development.

New models this year will primarily feature more decorative designs on top of the established trend from last year that focused on sustainable materials. Examples of these are fashion accessories featuring brightly colored embellishments, and wooden and plush toys in eye-catching color combinations.

Finding new clients is the biggest challenge that concerns suppliers this year. With numerous economic agreements in the horizon and with most companies having limited marketing capabilities, many suppliers consider their usual promotional strategies are not enough and, as such, need to be enhanced.

For more information about the Hinrich Foundation's industry-specific sourcing reports spanning seven different countries in Asia, including Vietnam, visit Online Developing Country Sourcing.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.