CHAPTER 3. DISTRIBUTION SYSTEM OF KEY IMPORTED
3.2.2. The current state of export and distribution of Vietnam’s wood
3.2.2.1. Trade turnover and trade rate of wood and wood products between Vietnam and Japan
Last year Vietnam yielded a total export turnover of US$6.9 billion from wood and wood products, up 10.7 percent over the previous year. Still this number was behind forecast of US$7 billion. Of the US$6.9 billion; wood products brought US$4.3 billion, a year on year increase of 7.8 percent.
Recent years have shown stable demand of wood and wood product from Japan market with average amount falling around US$ 10 billions per year, up to 2% in compare to 2010 – 2014.
Japan is still one of the largest import markets of Vietnamese wood and wood products. Particularly the Japanese market has now surpassed the Chinese market and has become the second largest wood import market of Vietnam. In the future, demand for importing wood and wood products from Japan will be increasingly higher. In compare to previous years especially the year 2013, wood and wood product in 2015 imported from leading marketing such as China went
down 5%, US down 4% but ones from Vietnam go up 15% with total exports reached US$791.17 million, and accounting for 15.7% of total exports. Vietnam wood and wood product are getting preferable in Japan market. Trade turnover of wood and wood product in 2010-2015 is 24%, while China’s is 3%, Malaysia’s is 3%... There are rationales for intermediary firms to believe that Vietnam enterprises can push wood furniture exports up to 1 billion USD.
3.2.2.2. Composition of wood products exported to Japan
Table 3.4. Composition of wood products exported to Japan in July 2014 in compare to July 2015 (thousand USD)
Composition
Quarter II-14
Quarter II-15
% Grown
% Trade turnover 2015 Shavings or wood chips 115428 133995 16.09 78.2%
Others 10609 8390 -20,92 4.9%
Wood for construction 5412 7837 44,81 4.6%
Plywood 7884 6613 -16,12 3.9%
Kitchen furniture 4621 5623 21,68 3.3%
Slats and strips of wood for
decorating floor 4845 4467 -7,80 2.6%
Plywood veneer 1771 1568 -11,46 0.9%
Charcoal 1860 1541 -17,15 0.9%
Inlaid wood and box from wood 843 639 -24,20 0.4%
Wood for flooring 493 570 15,62 0.3%
Source: Market Information (www.vietnamexport.com) The above chart shows that Vietnam’s woodproduct exporting to Japan are improving in terms of its composition. Export turnover of Shavings and wood chips in July 2015 reached 133,995 thousand USD, increased by 16.09% compared with July 2014, and took 78% of total trade turnover. Next, other products not listed in the table are worth 8,390 thousand USD in July 2015, down 20.92% compared with the same period of last year, and took about 4.9% of total trade turnover. Wood for construction also brought back high trade turnover with more than 7,837 thousand USD, increased by 44.81% compared to July last year and took 4.6% of total trade turnover. Additionally,
export turnover of polywood in July 2015 reached 1,568 thousand USD, decreased 11.46%. Export of charcoal, inlaid wood and box from wood are all recorded decreased numbers which are 17.15% and 24.20%; those take account for less than 1% of total trade turnover. Wood for flooring has small share of composition of wood product export to Japan but it recorded positive number of trade turnover 2015 in compare to one’s 2014; this might be consider as potential product.
3.2.2.3. The penetration of Vietnam’s wood and wood product exported into Japan’s domestic markets
Compared with other countries such as China, the Philippines, Taiwan,..the competitiveness of Vietnam’s exported wood products is not high due to the 2 following reasons: product quality and market penetration ability. In general, Vietnam’s companies do not take initiative to find out more about partners and Japan’s market as well as to build up a long-term detailed development plan in Japan’s market. The majority of businesses work based on short-term contracts, therefor there is a lack of sustainability in business.
Vietnam’s wood products are brought to Japan in these 2 following ways:
a. The first way
It is the most common way that Vietnam’s wood product exporters use to bring their products to Japan. The majority of companies often depend on representative offices of Japanese companies in Vietnam to sign contracts to export their products to Japan. Normally, Vietnam’s wood products can reach Japanese final consumers in the following steps:
Figure 3.4 Mechanism of distribution of wood products from Vietnam in Japan’s market
Source: VCCI (1) Wood Goods producers or exporters sign a contract and supply their products to Japanese importers. (2) Next, Japanese importers distribute goods to big product distribution firms, and then to Japanese wholesalers. From this, products are brought to retailers (department stores), (5) supermarkets and (6) specialized retailers.
Importers also take the role of wholesalers. However, because the Japanese have different taste towards different types of wood products and it is continuously changing; wholesalers usually have to maintain many kinds of products, which comes in small quantities. Therefore, wholesalers’ only place orders of products with high marker depend to avoid accumulating stocks that may not be sold.
Supermarkets and big stores (such as stores specialized in interior furniture) can choose to order goods directly from Japanese importers instead from wholesalers to avoid intermediate cost and to save time.
The strengths of this way are that companies do not need a lot of time and money to research Japan’s market as well as their market distribution system.
Vietnam’s producers and exporters only need to supply wood products to Japanese partners, then they do not need to care about how these products are distributed to consumers. Many Vietnamese big enterprises have succeeded with this method. For example, Hung Vuong Joint Stock Company (Thuan An District- Binh Duong Province) in 2006 managed to export wood products all of type, worth 12 million USD, to Japan through Sumitomo and Mitsuwadenki Corporations. DucThanh Wood Processing Joint Stock Company in Ho Chi Minh City also exports wood household furniture, worth 20 million USD, through commercial contracts with Sojisu every year. However, this method of exporting products largely depends on Japanese partner, which can cause price fixing and suffer from lower price than trading with other retailer stores in Japan. Nevertheless, many Vietnamese companies still choose this way to export their products because they do not have enough ability and condition to follow direct exporting method. Also this way is considerably safe and not very risky.
b. The second way
Japanese retailers establish direct relationships with foreign producers and exporters to save cost of production, and to be able to update changes in consumers’
taste and preferences for producers to fulfill consumers’ demand at the maximum.
With this way, Japanese retailers come to Vietnam to select products and directly sign contracts with producers or wood product commercial firms to export to Japan. In this way, there is a decrease in the number of middlemen needed, which lowers prices for Vietnam’s wood products. However, according to Vietnam Wood and Forestry Association, only 20% of total wood products are exported to Japan in this way. Some pioneers in this field is Truong Thanh Corporation (Binh Duong), in recent years, have signed many contracts to supply their products to AEON and Homac. This method clearly have more advantages such as a lower price due to cut on intermediate costs, better ability to capture changes in the market at a faster pace and chances to receive assistance and consultancyfrom partners to maximize
product adaptability to meet consumers’ demand. However, this method requires Vietnamese firms to have an established brand, trustworthy input sources, large amount of capital, and a promise of frequent supplies and not to break regulations regarding delivery time. It is clear that this method is not suitable from the majority of Vietnamese small and medium enterprises.
c. The third way
More and more Japanese companies choose to open firms with 100% foreign capital, or are in business partnership with Vietnam to produce goods that are largely made from wood, and then import them again into Japan to distribute in local markets. Vietnam’s wood products, exported to Japan in this way, take around 15% of total export turnover in this industry. There are some typical examples such as Vietnam-Japan Chip Corporations (VIJACHIP), Mori Shige. Co Ltd…
VIJACHIP is an afforestation and primary- paper- material- process company between Nisso Iwai (Japan) in 5 regions in Middle Vietnam including Quang Tri, ThuaThien Hue, Da Nang, Quangnam and QuangNgai. In VIJACHIP started to export the first containers of woodchip to Japan. Since then, the total export quantity of this company has continuously increased over the years. This company received an award of “Trustworthy Exporting Enterprise” (Vietnam’s Ministry of Trade selected and announced the winners) years ago.
Apart from the above-mentioned method, Vietnamese companies
individually export their products in other ways. For example, Japanese tourists visit Vietnam, buy products in Vietnam and bring them back to Japan. Alternatively, Japanese consumers book products online. However, these methods are segregated, unstable and generate small export value.