A landscape changed

The Saigon Trade & Production Development Corporation (SADACO), which specialises in exporting wood products, exported a large volume of bamboo chopsticks worth millions of dollars to Japan last month. It is one of many exporters in Vietnam to have secured large contracts with Japanese partners, especially after the country’s earthquake and tsunami. Before the opportunity became available, SADACO planned to focus on storing raw materials to mitigate any damage from rising timber prices.

With the majority of its turnover and profits coming from trade with Japan, SADACO’s export turnover increased 27 per cent in the first quarter compared with the same period last year. A representative from the company said it been restructuring its product list to ensure quality and price in exports to Japan - traditionally one of its toughest markets.

After the disaster demand for many products increased dramatically, requiring it raise its import levels. And this gives Vietnamese enterprises the chance to bolster their exports to the market, along with utilising the advantages provided under the Vietnam-Japan Economic Partnership Agreement, signed in October 2009.

Figures from the Vietnam Industry and Trade Information Centre under the Ministry of Industry and Trade (MoIT) show that first quarter turnover from Vietnam’s exports to Japan was $114.8 million, an increase of 21.2 per cent compared with the same period last year. The majority are products such as woodchips, wood, processed wood, and home and office furniture.

According to Mr Tran Quoc Manh, Deputy Chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City (Hawa), Japanese people use a lot of porcelain and wooden furniture to decorate their houses. During this period of reconstruction, demand seems certain to increase and Vietnamese exporters must be ready to provide these much-needed items and boost their business at the same time.

Seafood, especially shrimp and fish, are very popular in Japan and according to Mr Nguyen Trung Dung, Deputy Director of the Competitiveness Administration Department under MoIT and former Commercial Counsellor at the Vietnamese Embassy in Japan, consumers are now very concerned about the local seafood supply since there may have been some contamination from the radiation leak at the damaged Fukushima nuclear plant. Japan has therefore been forced to increase its seafood imports, and people have long been fond of Vietnamese seafood.

Vietnam was already one of the largest seafood exporters to the country, with a market share exceeding 20 per cent, so the opportunity is there for Vietnamese exporters to increase their business. Mr Ly Van Thuan, General Secretary of the Ca Mau Association of Seafood Processors and Exporters, said that contrary to some initial predictions that seafood exports to Japan would face difficulties because of the earthquake and tsunami, the number of orders skyrocketed in late March, especially for frozen shrimp and filleted tra fish. To ensure timely delivery to Japan, export enterprises in Ca Mau are speeding up the processing of seafood products for export.

The Ministry of Agriculture and Rural Development (MARD) said that, together with the EU and the US, Japan is a key market for Vietnamese seafood, valued at $898 million in 2010, up some 19 per cent over 2009. Vietnam is also Japan’s leading frozen shrimp supplier, accounting for 21 per cent of the market. In the first three months of this year Vietnam’s seafood export turnover to Japan stood at $1.1 billion, representing a year-on-year increase of 22 per cent.

Exports to Japan in general saw rising turnover in March, according to the General Department of Customs (GDC), reaching $772.4 million and much higher than the $465 million recorded in February. Garment export turnover, for example, stood at $132.58 million, more than double February’s $63.7 million. Meanwhile, machinery, equipment and component exports brought in $90 million, against $30 million in February.

Some export items, though, were affected by deteriorating markets and saw turnover fall sharply in March compared with February and January, such as coal ($24.43 million compared with $26.2 million in February and $31.68 million in January) and footwear, which saw a sharp decline in the second half of March. The focus in Japan is now on rebuilding the country as quickly as possible, so the preference at this stage in on importing goods such as construction materials and furniture for the reconstruction effort as well as consumption goods such as agricultural products and seafood.

Many Vietnamese importers, meanwhile, have seen their figures falling. Among the key eleven categories of goods imported from Japan, only two saw import turnover increases: steel and marine vessels. Remaining categories such as fabric, garment materials, and car parts all saw slight falls.

Turnover from imported products will likely continue downwards for a few months to come, according to one enterprise that imports electronics components from Japan. In the initial period it will take time for industrial production bases in Japan to restore capacity.

So exporters remain the ones with the chance to bolster their books, especially in the short term, according to a representative from MoIT. The Trade Research Institute of Vietnam also believes that some export items will see short-term growth because Vietnam’s export items are mostly essential consumer goods, which are always in high demand. Vietnamese enterprises should focus on exports of farm produce and seafood, materials and minerals.

But Japan is known as being a very difficult market, so Vietnamese enterprises need to satisfy its high requirements as regards food hygiene, and its quarantine regime may be even harsher following the disaster. According to SADACO, if a company can meet the high requirements imposed by Japan then they will have no trouble meeting those of many other markets. As usual, challenges accompany opportunity.

The representative from SADACO said that in 2011 the company’s business plan is to record $4-5 million in turnover from exports to Japan, for growth of more than 30 per cent compared with last year.

However, “it’s a challenge for enterprises like us,” he said. “We face obstacles like high inflation, rising raw material prices, exchange rate fluctuations and a lack of capital.” Wood product exporters like SADACO, though, may find new markets in Japan and increased demand for traditional products in the quarters to come. In cooperation with Hawa, they will focus on providing timber of high quality and at reasonable prices to satisfy market potential.

At this time, however, the government should adjust its policies and regulations and introduce support programmes similar to the previous stimulus package for small- and medium-sized enterprises. “If support comes at the right time, it will promote efficiency in our business activities,” according to the representative.

Many enterprises have urged MoIT to organise a Vietnamese food trade fair in Japan in the second quarter, where Vietnamese producers could introduce their products. MARD, meanwhile, has asked that seafood enterprises diversify their export products, keep a strict eye on production and processing as well as product quality, and boost their trade promotion activities.