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Furniture exporters fight to master challenge of recession
The ‘big guys’ in Vietnam’s furniture industry, An Khanh and Placo, did not imagine that they would have to lay off workers one day. Now, however, many wooden furniture makers are struggling to survive, producing below capacity because of a sharp fall in export prices.
VnEconomy reports that the global recession is testing the competitive ability of Vietnam’s furniture industry. Tightened US safety standards and lower tolerance for defects add to the pressure..
Vietnam’s General Statistics Office says woodwork exports in the first eight months of 2009 decreased by 15.2 percent in comparison with the same period of 2008, reaping $1.55 billion only.
The new rules of the game . . .
Shinec, a wooden furniture producer, seems to be among the lucky ones; it has just signed a new export contract worth $3 million. However, with the new contract, the company has had to accept new rules that were laid down in the 2008 US Farm Bill. Even its customers in Europe require Shinec to apply the more rigorous safety standards.
At Shinec’s 1,000 square metre workshop, the percentage of workers who supervise and examine product quality is higher than usual.
It seems, says Shinec Director Nguyen Dac Hanh, is that importers themselves are not sure about the trend and the consumption level of the world market; therefore, they have shifted the brunt of the adjustment requirement to their suppliers.
Hanh said that in previous years, his company used locally made MDF (Medium-density fiberboard), which contained formaldehyde. Now Shinec has to import non-toxic products from Thailand.
The foreign partners are keeping careful track of suppliers’ sourcing decisions. They want to know where Shinec purchases materials and they have interest in the quantity and quality of materials. Especially, they are always ready to go directly to suppliers to examine the quality of products.
“They have also examined the capability of our equipments. They have set up a quality control process which we have to follow,” he said.
To meet these requirements, Shinec added more inspectors and testing equipment. “All these things have made our costs increase, but we do not have other choices,” Hanh said.
Although production costs have increased, producers cannot raise the sale prices accordingly. It’s a buyer’s market ; importers can force the price down, since there are few orders and businesses are trying to scramble for jobs.
“The export price has dropped by 10 percent on average. Nowadays we are happy to make a profit of six or seven percent on our turnover,” Hanh explained.
Exporters feeling the pressure
Hanh’s view that furniture importers are trying to shift all the risks to producers is widely held by Vietnam’s furniture makers.
In previous years, producers only took responsibility for big problems, for example, the products could not meet the quality standards. However, the situation is quite different this year: the suppliers must take responsibility if clients do not like the products.
According to Hanh, in previous years, clients would fixed small mistakes and then charge the producers. However, they do not do it this way any more.
“In previous years, a 2.5 percent defect rate was acceptable. Now they hold us to 0.2 percent only. If we miss that mark, we must either destroy the products or take them back,” Hanh said.
“Further, if the importers cannot sell our products on their markets, Vietnamese producers will bear high risks,” Hanh said. However, he admitted, he has no choice but to accept the new rules of the games. “If do not accept the new rules, we will not have jobs to do, and having no job is the worst,” he concluded.
vietnamnet, vneconomy
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