Arts and Crafts Export Strategy - Final

NATIONAL SECTOR EXPORT STRATEGY
Arts and Crafts Vietnam
National Sector Export Strategy Arts and Crafts Vietnam
Prepared by: VIETRADE/ITC
Table of Content
Page Preamble 1 1.1 1.2 2 2.1 2.2 2.3 2.4 2.5 3 3.1 3.2 3.3 3.4 3.5 4 5 5.1 5.2 6 6.1 6.2 7 8 8.1 8.2 Introduction Rationale Approach The Sectors Current Status Product Groups The Sectors Current Value Chain Assessment of Arts & Crafts Export Performance 1999-2004 Performance against Critical Success Factors International Competitiveness Framework Conditions Government Sector Policy Institutions Trade Support Network Financial Support Funds Export Services SWOT Analysis of the Sector Vision and the Sectors Future Value chain The Vision The Sectors Future Value Chain The Way Forward The Development Perspective The Competitiveness Perspective Weighting of the Stakeholder Perspectives Resource Mobilization Long-term Strategic Priorities Short-term Action Plan for VIETRADE 3 4 4 5 6 6 10 13 17 21 22 22 25 27 30 31 32 33 33 35 37 37 38 43 45 45 47
Preamble
The present Sector Export Strategy, which was prepared within a VIETRADE/ITC International Trade Center - project, aims at providing practical solutions for the development of the Vietnamese Crafts Industry. For the preparation of the strategy, the authors have drawn on a vast array of available secondary information and have validated key findings made at stakeholder workshops at different sub-sector levels. This included discussions with key importers from the EU and US markets. The strategy is not meant to be a comprehensive study of the vast arts and crafts sector, but focuses on an assessment of the most important critical success factors for export growth, providing recommendations on how to best exploit Vietnams potential in order to contribute to employment creation and poverty alleviation. Depending on the definition of arts and crafts, diverging data on the arts and crafts export volume are to be found in sector reports and statistics: According to the Harmonized System (HS) codes applied for arts and crafts by the General Statistic Office of Vietnam (GSO) and the Vietnamese Government handicrafts exports totaled 533 million US$ in 2004. The international HS codes being defined as arts and crafts in the Methodological Guide to the Collection of Data on Crafts published by UNESCO include product groups, which are not part of the GSO statistics. Based on the UNESCO definition, Vietnams arts and crafts totaled 952 million US$ in 2003.
Based on the GSO statistics, the Vietnamese Government has already set forth the target for the craft sector in Vietnam to reach an export turnover of 1.5 billion US$ in 2010, which means a targeted average growth rate of 20% per year. The Ministry of Agriculture and Rural Development (MARD) has also approved the plan for the development of rural trades up to 2010, of which the objectives of yearly job creation for 300,000 persons in the rural areas and annual growth of export turnover of 20-22% are set forth. The authors thank all parties concerned who assisted in preparing the sector export strategy, notably the VIETRADE and ITC project teams in Hanoi and Geneva. August 2006
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1.1
Introduction
Rationale
Vietnams arts and crafts sector has existed for a long time already, but the impressive growth which the sector has seen recently has only emerged during the past five years, mainly due to increased exports on the world market. The prosperity of the arts and crafts sector has considerably contributed to the overall Vietnamese socio-economy development. The arts & crafts sector has an enormous impact on the countrys social and economic development, especially in terms of poverty reduction and rural development: Raising income in rural areas, creating jobs for an estimated 1.35 million people in more than 2,000 crafts villages spread nationwide, thereby narrowing the gap between urban and rural living standards. Arts and crafts have also led to the establishment of thousands of producers, traders, exporters and other support service agencies in Vietnam. The Vietnamese arts and crafts sector has proved to be highly competitive on the world market for interior decoration, accessories and gift articles. From 1999-2003/2004, the export volume of the industry increased with an annual growth rate of 10-12% to a total amount between 533 million and 952 million US$ (depending on the different HS codes definitions). On its largest single market, the European Union, Vietnam is the 2nd most important supply country for ceramics and wicker ware. For wicker ware, Vietnam was able to increase its EU-wide market share from 7.5 to 11.0% just within one year. Nevertheless, the Vietnamese arts and crafts sector is facing a set of structural constraints such as production deficiencies, an ineffective sector support system, poor product innovation, or a limited range of products. Therefore, in order to enhance export capacity and to reach the ambitious aim to double the annual average export growth rate, a feasible strategy is needed to enhance sector competitiveness, boost the sectors export volume and shape up private enterprises for a viable and strong arts and crafts industry for the country in the next five years. The need to support the development of arts and crafts has been often discussed in the context of poverty eradication in rural areas, preservation of a cultural frame of reference, and export promotion. The Vietnamese governments initiative is to utilize the craft sector as a tool for development in rural regions and a vehicle to pump prime economic activity in the rural areas and help alleviate rural poverty. Thus, it is imperative to undertake an assessment of the development of the Vietnamese craft sector and the multifaceted impacts which such development will entail, in order to achieve the Governments ultimate goal of rural progress, specifically development strategies to promote the artisan craft sector, trying to achieve a target for the industry to create jobs for 4.5 million people. 4
National Sector Export Strategy Arts and Crafts Vietnam 1.2 Approach
The arts and crafts sector export strategy aims at developing a framework to meet the objectives of promoting exports in the arts and crafts sector and advancing the development of the industry. Building on a comprehensive assessment of the current value chain, export performance, export competitiveness, critical success factors, related government policies and strategies and the sectors support network, the strategy sets out a long-term vision and proposes actions and measures that should be taken into account and implemented within the next 1-5 years. The main tools applied are Value Chain Analysis and the Four - Wheel Gear Interactive Frame provided by the ITC. A value chain consists of all the companies that buy and sell from each in order to supply a particular product or set of products including vertical and horizontal linkages. In the arts and crafts sector, the value chain can be described as a set of connected raw material producers, material collectors, traders, support service suppliers, manufacturers, wholesalers, retailers and exporters on the domestic side and importers, wholesalers, retailers and end-users in the international part of the chain. The Four - Wheel Gear Interactive Frame is used to create a comprehensive sector export strategy by having a closer look at four categories of value chain development issues: Border-In: This deals with issues related to: (1) Capacity development that involves the sectors production capacity improvement with regard to productivity, volume, quality and value addition; (2) Capacity diversification such as producing new product lines and/or related products; and (3) Human capital development that includes the development of human resources and the entrepreneurship within the sector. Border: This deals with the issues related to: (1) Infrastructure improvements which is needed for the sector development; (2) Trade facilitation which is necessary to enhance trading effectiveness and efficiency; and (3) Cost-of-doing business reduction to keep the sector competitiveness Border-Out: This deals with the issues related to: (1) Market access that includes tariff, non-tariff barriers and other related market entry issues; (2) In-market support services; and (3) National promotion in term of building and reinforcing the sectors image in the target markets Development: This deals with issues related to the social and economic development of the country that the sector contributes to.
The Sectors Current Status
2.1 Product Groups The arts and crafts sector in Vietnam can be classified into 10 sub-sector and basic groups, namely: (1) Bamboo/rattan/rush/leaf (2) Pottery (3) Wood (4) Embroidery (5) Textile (6) Metal (7) Handmade paper (8) Various materials (9) Works of Art (10) Others. According to a recent report of the Ministry of Agriculture and Rural Development (MARD) and the Japan International Cooperation Agency (JICA), handicraft production in all these sub-sectors is mainly based on a nation-wide system of 2,017 craft villages. Handicraft villages can be found throughout the country. There is a particularly high concentration of handicraft villages in the Northern provinces. Bamboo, rattan, rush and leafs From the vast array of local raw materials available, such as bamboo, rattan, rush and leafs, which also include raw materials like fern, water-hyacinth, areca of banana or rice straw, Vietnam produces small furniture, baskets, cradles, cases, shopping bags, table-mats, blinders and many other articles. Products are both utility and decorative articles. The product assortment offered is extensive, catering to a wide range of consumer preferences. Basketry accounts for the highest export earnings. Basketry can be made in many provinces 6
National Sector Export Strategy Arts and Crafts Vietnam nationwide, but most of them come from Ha Tay, Ha Nam, Thai Binh, Thanh Hoa, Khanh Hoa, Tien Giang. In recent years the export of water-hyacinth handicrafts has been particularly booming. There are many craft villages in the Southern provinces such as Tien Giang, Dong Thap, Dong Nai and Hochiminh city, which have specialized in water-hyacinth products. The supply of raw material such as rattan/bamboo/rush/leaf is an industry in itself, with particular importance for rural incomes. But the previously abundant raw material is getting increasingly scarce. Vietnam has become an importer of bamboo from China and of rattan from Laos, Cambodia and Indonesia. Particular attention should be paid to rattan because of its long tradition. Vietnam has always been considered a country of rattan (ranking third only after Indonesia and Malaysia) and the Vietnamese people are very good at making not only rattan basketry but also furniture for both indoor and outdoor use. Rattan chairs, tables and shelves made in Vietnam have become very popular in many countries like Germany, Italy and the US, with demand even growing. Pottery Vietnamese ceramics can be divided into four main groups: Tableware, pots and vases, statutes and other ornamental wares. Depending on the technologies and burning temperatures used, pottery is available as porcelain, terracotta or glazed terracotta. Ceramics have been found in Vietnam for 10,000 years, with the production of ceramic items spreading nationwide. However, a few large centers for pottery production are to be found in Hanoi (Bat Trang), Dong Nai and Binh Duong. Recently, terracotta articles for arts, home and garden decoration have been booming in the Dong Nai, Vinh Long, Ha Nam and Bac Ninh provinces, with particular attention being paid to them by importers throughout the world. Wood The product group predominating in the wood sector is furniture, which makes up for more than 70% of export earnings. Most of the wood crafted furniture production is centered in the Northern provinces of Vietnam like Bac Ninh, Hanoi, Hai Duong, Nam Dinh, Ha Tay while the wood processing industry is mainly centered in the Central provinces and in the South. Other important product groups are to be found in table and kitchenware; in Vietnam they are typically made of lighter woods, such as pine and maple. There is also a large production of accessories such as picture frames, photo frames, mirror frames. Some other labor-intensive wooden handicrafts like inlaid wood or statutes continue to grow, especially for Asian markets like China, Hong Kong, Taiwan etc. 7
National Sector Export Strategy Arts and Crafts Vietnam Lacquer ware Lacquer ware products (such as vases, bowls, trays etc.) are a particular important product group of Vietnamese handicraft exports. Mostly made of wood or bamboo, they are a subgroup of wooden articles or bamboo/rattan/rush/leaf products. Embroidery and Lace The embroidery and lace items mostly produced are hand-made tablecloths, clothing, skirts, bags, and items for common use. They are made mainly in craft villages in the Ha Tay, Thai Binh, Ninh Binh and Hanam provinces. In the past, these products were mainly exported to Eastern European countries, but now the markets have been expanded to many countries, especially Korea, Japan, France and Italy. The exporters in this field face many difficulties to open up new markets and compete with machine-made factory production in China. Textiles Textile products in Vietnam are made in 432 villages, many of them from ethnic minorities. The popular materials used are silk, cotton, wool and hemp. Almost ninety percent of the weaving villages are located in the North, especially in the Red River Delta area. The range of textile products is in general not diversified and most of the finished products are still at low value added. Silk and cotton products are the main sources of income. Handkerchiefs made of cotton (in Thai Binh, Ha Tay, Nam Dinh, etc), toilet and kitchen linen of other textile materials (Ninh Binh, Ha Tay, etc.) are some of the textile items with the highest export potential. However, it should also be recognized that most of the cotton raw material is imported. The other group is composed of ethnic minorities living in the mountainous regions using traditional looms and some unique materials with natural dyeing. These are assets that have the potential to create additional income sources for deprived groups if niche and fair trade markets are developed further. Due to difficulties in obtaining raw material, producers increasingly use cheap imported raw materials, which decreases the quality of weavings. For both textiles produced for export and weavings made by ethnic minorities it is of utmost importance that success criteria such as the availability of high-quality raw materials, quality improvement or market development are fulfilled. Metal Gifts and decorative articles made of metal include items like statuettes, ornaments, bells, 8
National Sector Export Strategy Arts and Crafts Vietnam gongs and picture frames. Among them, silver-plated, wrought iron and bronze casting items are exported. Wrought iron products have recently seen a strong increase in export turnover, particularly due to the combination of wrought-iron with other natural materials like rattan, water hyacinth or others, from which can a wide range of contemporary products can be created. Handmade paper The production of hand-made paper has almost disappeared in Vietnam in recent years, although it looks back to a long history of thousands of years. The materials used for paper making are quite popular, ranging from wood (Do, Duong) to fibers of banana, pineapple or straw, and on top there is still a large number of craftsmen who master the technique of paper making. The handmade paper sector is well developed in some countries like Thailand, Nepal, Japan and Brazil, and the demand for handmade paper (for gift products) seems to be increasing in many countries. The potential of this sub-sector should be studied seriously not only to preserve the traditional heritage but also to develop new ranges of products. Recently, the Vietnam Handicraft Research and Promotion Center (HRPC) has studied various traditional techniques, developed a group of 50 producers in Hoa Binh and started exporting to Japan. A Korean company has also invested into this business in Vietnam as a 100% foreign-owned company to optimize the availability of labor and raw material. Stone arts, bone, horn, glass or combination There are 45 stone carving villages in the country. Although 90% are located in the north, the domestically and internationally most well known villages are located in the central region (Da Nang City). The prevailing design of stone carvings basically centers on Buddhist or religious images, human statues, animal figures and home utensils. The aesthetic look of these designs is basically Asian. Hard stones are mainly used for the crafting of traditional items such as Buddha images, traditional animal figures, architectural pillars, staircases, etc. Various designs can be applied on soft stones. White stone can be dyed with different colors, thereby accommodating a diversity of designs. The stone items for EU, US and Canada include statues and garden items. The use of soft stone has been increasing. Foreign buyers often prefer simple and uncomplicated designs on stone craft products. Besides stone, shell and buffalo horn are also widely used for products like handbags, bowls, spoons, etc. Works of Art As explained previously, works of art are produced in most cases by an individual crafts mas9
National Sector Export Strategy Arts and Crafts Vietnam ter/artist. The entire production process is self-contained. Crafts masters prepare raw materials and complete the entire production process and they tend to work by themselves. Most of their products are sold at art galleries and their customers often are foreign tourists. Some of them are exported through individual orders. Art works only account for 1% of sector-related export earnings and have tended to decline in recent years. Others The so-called other arts and crafts include a wide range of articles, from candles, Christmas articles, artificial flowers, dried fruits, to percussion (e.g. drums, xylophones, cymbals, castanets), dolls, toys, etc. Jewelry products make up for more than 50% of all export earnings in this category. Stuffed toys come second with another 20% of export earnings. Candle exports accounted for exports worth 7 million US$ in 2003. Except for jewelry, the production of other arts and crafts products is heavily underdeveloped. 2.2 The Sectors Current Value Chain
The main sub-sectors of wood, rattan/bamboo/rush, ceramics, textiles, embroidery and lacquer ware all have in common that a high part of the production is done by small household producers on village level. The value chain model of the different sub-sectors is similar and can be summarized like in the following chart.
Raw materials are either locally produced or imported. For products made of bamboo, rattan, rush, or for wood carvings and ceramics, domestic producers dominate, who are mostly
Raw materials are either locally produced or imported. For groups of materials like bamboo, rattan, rush, wood carving, ceramics, etc, dominant producers are domestic ones who mostly are individuals or households and directly harvest and exploit materials from nearby local 10
National Sector Export Strategy Arts and Crafts Vietnam forests or areas. After that, they supply it to collectors at very low price to get daily earnings for living. For other products like textiles and embroidery, most of the raw materials including cloth or threads are imported due to the low quality of the domestic materials available. Vietnamese silk is good at quality but not at dyeing. Raw material collectors gather raw materials from the raw material producers, do some basic sorting and then transport the materials to provincial wholesalers. Many middlemen involved in this connection make the channel of raw materials complicated, leading to high prices on producer level. Raw material processors purchase materials from collectors or provincial wholesalers. They are different from material producers/collectors/wholesalers as they are more involved in processing and selling processed products. Household producers at village level in rural areas are the main workforce at manufacturing level; except for ceramics, which have a higher share of factory production. Even if the income level is low, handicraft production enables the smallholder farm to gain a substantial non-agricultural income in addition to the basic food production. In many cases, the income obtained from handicraft production is higher than from agriculture. For instance, with the weaving of rattan chairs, a smallholder farmer can earn on average 20,000 VND/day (1 ), which is two times more than he earns from rice production based on an average cultivation area of 360 sqm. The income level varies from one product group to the other, with furniture producers, with an average rate of about 1.5 US$ per day to be found at the upper end of the scale, whereas the embroidery sub-sector provides the lowest income, averaging at about 0.55 US$ per day. Household production in rural areas is significantly cheaper than factory production in larger cities. Workers in factories in Hanoi doing product finishing earn about 50 US$ per month, while sewing workers in garment factories earn some 70-80 US$ per month. Product collectors are persons who live in the craft villages and play a role as a bridge to connect handicraft traders with the producers. They are responsible for a wide range of works, from providing materials to the producers (not always), supervising production, collecting and sometimes, they are also in charge of product finishing (treatment, coloring) and packing.
Rural crafts business establishments are small-scale handicraft producing enterprises located at village level, who have a number of employees, some basic equipment and also carry out product collection, production supervision and finishing activities. 11
National Sector Export Strategy Arts and Crafts Vietnam Machinery suppliers currently do not play a major role, since equipment used for the arts and crafts industry is quite simple including kilns for ceramics, dryers, lathe, shaper, small sawing machine, drilling machines, spraying equipments in case of furniture making or sewing machines for textiles, etc Exporters source from village producers, product collectors or rural craft businesses. Mostly, orders are subcontracted to producers. In some cases, exporters also provide village producers with raw materials or pre-fabricated frames. Increasingly, part of the production is done at the exporters factories (products requiring special skills or equipment, product finishing, production of pre-fabricated frames for weavers, ceramics requiring modern technologies), with a workforce of several hundred or even thousands of workers. Until recently, craft exporters in the main cities and other provinces mostly were state-owned. For a few years now, a quickly growing number of successful private limited companies has been emerging and is competing fiercely with the state-owned companies. Private-sector exporters gain more and more importance. A recent survey counted a total number of 1.120 craft exporters in Vietnam.1 Importers are mostly European, Asian or American wholesalers or large overseas department store and retail chains, which buy directly from Vietnamese producers or exporters. Some international buyers have their own agents and representative offices in Vietnam to source handicraft articles. Some of them are large and well-known international brand names. These foreign companies play an important role on the market and buy large quantities. The overall volume of Vietnams craft exports currently highly depends on very few large buyers. One EU retail chain alone makes up for about 20% of the national export volume of crafts, a few other firms also hold pre-dominant positions. The presence and buying activities of such chains in Vietnam provide a major advantage for the country and are the main reason for the rapid growth of the industry. Their predominance, however, is also a major threat, since the industry heavily relies on them. Usually, foreign companies source handicrafts through private traders/exporters and stateowned craft exporters. Buyers usually schedule their production 3-6 months in advance. They provide exporters with catalogues, photos and drawings with coding. Domestic retailers, especially shops in the large cities of Hanoi and Hochiminh city, also play an important role in marketing Vietnamese handicrafts. Handicraft items displayed in these shops are mostly collected from craft villages by the shop owners or introduced by craft collectors and sometimes by private traders in the craft villages. Shops differentiate themselves by the quality of craft products. Some of them specialize in
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National Sector Export Strategy Arts and Crafts Vietnam high quality products. In this case, their income is mostly sourced from exporting to foreign buyers, and they contribute a lot of new designs and information to craft villages. They develop new products as a strategy to compete against other shops. Many shops also target local residents and tourists. Shipping and forwarding companies either belong to local or foreign companies and offer various kinds of services, from customs declaration and clearance to hiring containers, chartering vessels, inland transportation etc. Competition between forwarding and shipping companies is fierce. Each company is often strong at a certain shipping route. Freight rates are in general higher in Vietnam than in China. The value added from one step of the value chain to the other can be illustrated for two specific products:2 Price from stakeholders (VND) & mark-up rate Producer Collector(s) Local trader Exporter Foreign Retailer Sea-grass cushion 50 x h4.5 cm 26,000 29,200 12% 36,400 24% 396,250 988%
Price from stakeholders (VND) & mark-up rate Producer Collector Local trader Exporter Foreign retailers Sea-grass carpet 38 x 55 cm 2.3 3,700 5,200 40% 6,100 17%(*) 6,832 12% 33,285 387%
Assessment of Arts & Crafts Export Performance 1999-2004
Two statistics on the exports of arts and crafts are available. They are based on different HS coders and therefore differ significantly regarding the general export volume. According to the figures from General Statistic Office, crafts exports have seen an average growth rate of 10% from 1999-2004 and accounted for a total export volume of 533 million US$ in 2004.
Table 1: Exports of Arts and Crafts from Vietnam 1999-2004 (HS codes according to the GSO definition) 3 No.
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Items 1999 2000
Year (in 1,000 US$) 2001 2002 2003 2004
Source: Survey in Ninh Binh province in January 2006 Source: GSO, Vietnam
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1 2 3 4 5 6
Bamboo, rattan, rush, leaf HS 60/120,210,'6504,'940/150,380 Ceramics HS '6913','6914' Lacquer ware HS '7113','9601','9602' Embroidery HS: '6302','5810' Wood crafts ( HS: 44 /1400, 1900, 2000, 2010, 2090,2110, 2190) Others HS:'57' Total
62,200 83,078 22,473 32,591 116,080 15,207 331,629
78,647 26% 108,393 30% 36,219 61% 50,463 55% 80,960 -30% 13,869 -9% 368,551 11%
93,857 19% 117,082 8% 34,043 -6% 54,735 8% 85,402 5% 9,192 -34% 394,311 7%
107,921 15% 123,480 5% 50,996 50% 52,673 -4% 69,488 -19% 5,344 -42% 409,902 4%
136,092 26% 135,860 10% 59,612 17% 60,615 15% 58,997 -15% 5,069 -5% 456,245 11%
171,018 26% 148,655 9% 89,673 50% 65,374 8% 54,901 -7% 3,477 -31% 533,098 17%
A different picture of the export volume of arts and crafts emerges if the internationally applied HS codes used by the UNESCO are drawn on: they indicate an export volume of 952 million US$ in 2003, which is twice as high as the figures given by the statistical office.
Table 2: Exports of Arts and Crafts from Vietnam 1999- 2003 (HS codes according to the UNESCO defintion)4
Description 1999 1 2 3 4 5 6 7 8 9 10 11 Wood crafts Textile Ceramic Bamboo/rattan/rush/leaf Metal arts Stone arts, born, horn, glass Embroidery & Lace Porcelain & China Work of art Handmade paper Others Total 152,152 113,460 67,414 62,499 2,723 3,901 1,066 153 1,414 61,631 466,413 2000 157,527 126,766 108,393 78,730 1,020 1,140 69 244 619 77,312 551,820 Year (in 1,000 US$) 2001 213,703 141,021 116,715 95,878 4,850 2,378 824 776 322 368 85,364 662,200 2002 209,711 168,970 120,002 113,379 8,836 5,893 2,765 524 119 26 90,401 720,625 2003 384,140 162,862 132,829 142,673 19,029 9,453 974 1,692 176 977 97,411 952,215
Total (5 years) 1,117,233 713,080 545,353 493,158 36,459 22,764 5,697 3,389 2,649 1,371 412,120 3,353,273
The divergence that emerges in the two statistics is mainly due to a different categorization of furniture, textiles and embroidery, for which a clear distinction between manual production and industrial processing often is impossible: Whereas the GSO statistics exclude furniture and parts (HS codes 9403.60 and 9401.69), the UNESCO definition includes them. In fact, part of the furniture production in Vietnam is handmade in crafts villages and needs to be included when assessing the crafts export
Source: Export Potential Assessment of Arts and Crafts in Vietnam, Vietnam Handicraft Research and Promotion Center
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National Sector Export Strategy Arts and Crafts Vietnam volume. Textile products are also excluded in the GSO statistics, but part of it (such as cotton towels and handkerchiefs) are produced in well-known larger handicraft villages (but the UNESCO codes also include footwear with uppers of textile material, which are more likely not be handmade) Vietnamese embroidery products such as bed linen, table linen, kitchen linen etc. are also sometimes handmade, sometimes machine-made. They are included in the GSO crafts exports statistics, but excluded in the UNESCO statistics, which consider them as an industrial product.
It is assumed that the real volume of crafts exports lies between the two figures. As an important part of the handicraft production is not accounted for by the GSO figures, it is recommended that the national statistics should be reviewed (there are also particular inconsistencies with regard to lacquer ware, for example: HS7113, HS9601 and HS9602 are defined lacquer ware, but in fact are not lacquer ware at all). The annual sector growth rate is similar in both statistical methods (10-12% average annual growth rate between 1999-2003/2004). There are also 4 product groups which predominate and account for approximately 90% of all crafts export earnings: Wooden products Bamboo/rattan/rush/leaf Ceramics Textiles/embroidery.
In general, international markets for Vietnamese handicrafts have changed a lot during the past few decades. While traditional Vietnamese handicrafts such as silk textiles or silverworks are still mostly exported to neighboring countries such as Laos, Cambodia and Thailand, contemporary Vietnamese crafts products are now mostly sold on the world market. In 2003, Vietnamese crafts were exported to 133 different countries (compared to 50 countries in 1998). At present, the three major markets for crafts exports from Vietnam are the EU, South-East Asian countries and the US. Even if Japan ranks first among the major target markets for exports, the European Union is by far the most important single market. Among the 15 main export target markets of Vietnamese crafts in 2003, 7 EU countries account for an export volume of 404,702 (43% of all crafts exports and three times the export volume of Japan or the US). It should be emphasized that the United States, which saw an impressive growth during the period of 1999-2003, also hold much potential for future growth.
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Table 3: Main Export Markets of Arts and Crafts from Vietnam (HS codes according to UNESCO definition)5
No Country 1999 (US$) 2000 (US$) 2001 (US$) 2002 (US$) 2003 (US$) Total (5 years)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Japan France Germany United Kingdom Taiwan United State Korea, Republic of Netherlands Italy Australia Belgium Spain Singapore Canada China Other Total
109,355 43,089 38,081 35,586 57,470 6,507 18,535 20,316 11,695 8,018 9,822 6,932 15,297 3,875 7,077 74,758 466,413
122,850 59,703 58,791 49,502 53,829 14,870 23,589 23,493 13,265 9,793 12,607 10,016 7,464 4,860 5,289 81,899 551,820
137,837 71,483 67,385 62,518 65,309 24,293 25,349 22,955 16,371 13,706 18,064 12,378 8,845 6,607 4,334 104,766 662,200
133,118 79,773 67,512 73,339 48,998 50,444 29,999 27,238 22,789 21,965 16,842 13,376 8,722 9,567 4,221 112,723 720,625
150,945 96,943 95,698 83,021 42,945 124,252 33,182 39,989 36,735 34,812 22,412 29,904 6,940 12,632 3,205 138,599 952,215
654,106 350,990 327,466 303,966 268,551 220,366 130,653 133,991 100,856 88,295 79,748 72,605 47,268 37,540 24,125 512,745 3,353,273
For the European Union, Vietnam is the 2nd most important supplier of ceramics and wicker ware. Particularly wicker ware imports grew quickly in recent years, increasing the EU-wide market share from 7.5 to 11.0% within one year only from 2003-2004.
Table 4: Leading Suppliers of Home Accessories and Gift Articles to the EU6 Product group Share of developing countries imports into the EU in 2004 Candles Wood ware 30.1% 54.4% China (27.8%), Thailand (0.7%), India (0.3%), Indonesia (0.2%), South Africa (0.2%) China (34.9%), Indonesia (5.3%), Thailand (5.0%), India (3.7%), Vietnam (1.2%), South Africa (0.3%), Brazil (0.2%), Kenya (0.2%) Wicker ware 80.5% China (54.8%), Vietnam (11.0%), Indonesia (7.1%), Philippines (2.7%), Madagascar (1.1%), Morocco (0.8%), Myanmar (0.6%), India (0.5%), Thailand (0.5%), Bangladesh (0.4%) Artificial flow5
Leading developing country suppliers to the EU in 2004
70.0%
China (67.1%), Thailand (1.5%), Philippines (0.5%) India
Source: Export Potential Assessment of Arts and Crafts in Vietnam, Vietnam Handicraft Research and Promotion Center 6 Source: CBI, Eurostat, 2005
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ers & fruits Ceramics 50.7%
(0.4%), Sri Lanka (0.2%), South Africa (0.1%) China (30.6%), Vietnam (11.0%), Malaysia (2.1%), Thailand (2.1%), Mexico (0.6%), Tunisia (0.5%), Philippines (0.5%), India (0.4%), Morocco (0.3%),
Glassware
27.2%
China (19.3%), India (1.0%), Brasil (0.7%), Thailand (0.4%), Indonesia (0.3%), Mexico (0.2%), Egypt (0.1%) Malaysia (0.1%)
Metal ware
54.4%
China (35.3%), India (10.0%), Thailand (2.7%), Vietnam (2.6%), Indonesia (0.6%), Philippines (0.6%), Malaysia (0.3%), Morocco (0.3%), South Africa (0.1%),
Bone ware
17.3%
China (6.3%), Philippines (3.7%), India (3.5%), Indonesia (0.8%), Thailand (0.3%), Morocco (0.3%), Tunisia (0.2%), South Africa (0.2%)
2.4
Performance against Critical Success Factors
There are a number of critical success factors that determine competitiveness in the arts and crafts sector: Availability of appropriate and affordable raw material

Vietnam has a broad range of cheap and varied raw materials available, which provide a major asset for the export of crafts, particularly bamboo, rattan, leaves etc. On the other hand, the rising demand for Vietnamese exports has led to the effect that some rattan and bamboo species have already become rare. In the Thanh Hoa province for instance, bamboo prices increased from 7,000 to 17,000 VND per tree within the last 2 years only. Raw material costs exceeded those in China, reducing competitiveness significantly. Vietnam started to import bamboo from China, an estimated 50% of rattan is imported from Laos, Cambodia and Indonesia through both legal and illegal ways. Severe shortages of raw material are expected within 3-5 years, if no appropriate action is taken. A major obstacle is an effective organization of the raw material supply chain. The non-availability of cheap raw material is also a problem for other sub-sectors. Quality fabrics for embroidery mostly have to be imported, leading to a situation where the raw material costs make up for 60-80% of the production costs. High costs of viscose imports constitute a threat to other textile industries. The non-availability of different grades of clay does not allow for an appropriate production on fine ceramic qualities demanded by the world market. In general, the worsening raw material situation has become a major threat to the Vietnamese producers.
Skilled labor force Vietnam has a work force with excellent craft skills, being able to learn new technologies quickly and in the position to produce a wide range of products. 17
National Sector Export Strategy Arts and Crafts Vietnam The labor force is organized mainly in specialized handicraft villages, where training is based on a 2,000 year old Confuzian tradition with master trainers passing on their skills to the young generation. The specialization of the labor force at village level within a region allows for the production of crafts to be made with a mix of raw materials.
Product range Vietnams craft exports are largely dominated by 4 main sub-sectors: Wooden articles, bamboo/rattan/rush/leaf, ceramics, textiles/embroidery. There is a limited product range in other sub-sectors: Metal products, garden articles, seasonal articles, paper ware etc. The product range comprises largely basic simple products such as baskets, vases, and chairs.
Production costs Vietnam is highly competitive and able to compete with China on production costs, which are in general lower than in the Philippines or Thailand. Vietnam is being thought of as The New China, the next low-wage producer. As Chinese labor costs increase, Chinese businessmen are opening factories in Vietnam. Labor costs per hour for Vietnamese workers range from 0.2-0.6 US$, for Indonesia from 0.3-0.4 US$, for China from 0.5-0.75 US$, for Malaysia from 1.25-1.40, for Thailand from 1.5 US$ onwards and are about 5 US$ in Taiwan).
Product quality The quality of craft products relies on the quality of raw materials, production techniques as well as management and improvement efforts. Quality suffers due to inadequate facilities, especially at the treatment and finishing stages, and the lack of quality standards and regulating agencies conducting inspections. Putting it in another way: the products for the high-end market are not so popular in Vietnam. Critical success factors are thus quality enhancement and standardization. Vietnamese clients (international importers) in general report a good price/quality relationship of Vietnamese products for medium and low-end products. Complaints about poor quality are only made at a low-profile level, with both importers and exporters not reporting bigger problems. Ability to supply larger quantities Vietnam has developed a crafts export capacity that is able to supply large international retail chains and importers with the quantities needed. Speed is a major critical success factor. China is still ahead in terms of organization and the abilities of fast delivery. 18
National Sector Export Strategy Arts and Crafts Vietnam Supply reliability Vietnamese exporters have a reputation for being particularly reliable suppliers.
Physical Distribution Many middlemen stand between the craft villages and the urban markets in the product distribution chain. Due to the absence of market information, appropriate price setting and quality improvement cannot be made resulting in lower competitiveness. It is thus necessary to establish a fair distribution system where the distributors act as business development service (BDS) providers.
Product design and innovation An estimated 90% of Vietnams production is based on customer specification. Little product development and innovation is made on the industrys own initiative, exporters lack design competence. Vietnamese products have a highly uniform appearance. Vietnam lacks adequate research and development support for the production of crafts. The market potential in the US, EU and Japan for low-cost, mass market suppliers is limited, as the entire distribution chain upgrades to higher quality, better designed products. At the moment Vietnamese suppliers are currently competing almost entirely on the lowest price and are still being outbid by Chinese factories. To supply a higher market, producers will need to upgrade their designs, quality, and finishing techniques, and constantly stay on top of current design and consumer trends. There is greater long-term export potential for mid-sized companies that supply higher-end, more fashionable products to mid-level international importers.
Access to Financing Although financing facilities for enterprises in rural areas and for the poor exists, they are not available to micro enterprises, producers and exporters of crafts, thereby limiting their financial resources. Handicraft exporters are always short of funds as processing of applications for short-term loans takes so long, loanable amounts are lower than needed, and conditions in securing collateral are hard to comply with. It is therefore essential that appropriate financing schemes for craft producers and exporters are established. Trade promotion
Vietnams competitors from other Asian countries have more advanced trade promotion systems. They have important international trade fairs, better information systems, attract more foreign business visitors, organize trade fair participations abroad more efficiently. International buyers report problems in identifying suitable suppliers. Exporters report poor access to market related information and have little knowledge about 19
National Sector Export Strategy Arts and Crafts Vietnam international market structures. Entrepreneurial skills Vietnams private arts and crafts sector is still a very young industry with many companies having emerged during the last 2-5 years only. Entrepreneurial skills, know-how on marketing, financial planning, company organization, command of foreign languages etc are weak. Business managers manage everything from product development, marketing, and quality management to financial management. There is no organizational hierarchy with delineated functions within craft enterprises. Hence, the structure of enterprises is significantly weak, as business operation stops in the absence of the business manager.
Cluster Development (Supporting industries) Supporting industries play an important role to enhance the competitiveness for craft industry in Vietnam. However, as the existing supporting industries are rather poorly developed, Vietnamese handicraft exporters often have to import various kinds of materials and accessories abroad, for instance PU lacquer and color pigments for surface finishing.
Infrastructure Compared with China, Vietnamese exporters incur relatively high overseas transport costs for both sea and air transport. Recent findings from the Georgetown University, USA7 on ocean freight from China and Vietnam to the States show that Ocean freight and delivery time from Vietnam to the States for 50 containers are 322,000 US$ and 17-35 days, while those figures from China are 136,000 US$ and 11 days, respectively International importers indicate that there are 10-30% hidden subsidies for Chinese exporters Poor roads infrastructure
Corporate Social Responsibility Standards The ability to meet Corporate Social Responsibility Standards (CSR) is an increasingly important critical success factor as are ecological issues. Vietnam is expected to have a major competitive success factor in this regard over China, if the industry is able to clean up the production system.
On the international market, Vietnams most important competitors for crafts are China, Thailand, Philippines, Indonesia, and India. 2.5
7
International Competitiveness
Workshop in Binh Dinh, organized by MPDF-IFC.
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National Sector Export Strategy Arts and Crafts Vietnam Based on the explained critical success factors, Vietnams relative competitiveness with regard to these countries is summarized as follows:
Overview on selected critical success factors Raw Material Availability +/-
+ In general, Vietnam is highly competitive, due to its Skilled Labor Force capacity to supply large quantities, its labor costs, Product Range ++ which are even lower than in China, and the wide Production Costs + array of raw materials available. This mix of high Product quality + production capacity/low production costs/availabili- Quantities deliverable + ty of raw materials together with the obvious reputa- Reliability -tion of Vietnamese companies for being reliable Product design/innovation suppliers, has led to the strong growth which the Trade promotion framework +/sector has seen during the past few years. As a re- Entrepreneurial skills +/sult, Vietnam has taken over market shares from Infrastructure CSR standards + other Asian countries. With China being the benchmark in the industry, Vietnams competitiveness can be summed up by the remark of a large international buyer: If Vietnam was not competitive with China in handicrafts, we would not buy from Vietnam. The fact that we buy large quantities from Vietnam proves that Vietnam is highly competitive in handicrafts. The second indicator of Vietnams competitiveness is the fact that Chinese companies increasingly invest in Vietnam and set up production facilities in the country. Due to low labor costs and high production efficiency, much of the production has been shifted from Thailand, Indonesia and the Philippines to China and Vietnam. It is said that in the handicraft sectors in Thailand, Indonesia and the Philippines there are now only less than half the producers to be found than had appeared on the market 10 years ago. The presence and activities of a few large international buyers in the country are also the main driving forces, which put Vietnam ahead of other Asian countries (except for China) On the other hand, the threats faced by Vietnam are twofold: increasing raw material prices and the reduced availability of raw material threaten the sectors competitiveness, while at the same time a limited product range and a poor innovation level make Vietnam very vulnerable when it comes to keeping on top of world market trends. The main competitors have developed a much more diversified product base, which is more targeted to the needs of international customers. At present Vietnams competitiveness mainly builds on simple wood ware, bamboo/rattan/rush/leaf products and ceramics, produced by a cheap and efficient labor force (village-based production is cheaper than factory production) and the availability of raw materials. The fact that simple rattan/bamboo/wickerwork, wooden products and ceramics may no longer be of huge commercial interest on international markets may constitute a major threat to the sector. Therefore, product upgrading and diversification are required.
Framework Conditions
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National Sector Export Strategy Arts and Crafts Vietnam 3.1 Government Sector Policy
The Vietnamese government supports the enhancement of the crafts sector as an important tool to alleviate poverty, particularly in rural areas. The following table shows all updated and valid policies that directly address the development of the crafts sector, ranging from raw material supply and land to investment incentives and trade promotion:
Regulation Decision No. 132/2000/QD/TTg dated November 24, 2000 on a Number of Policies to Encourage the Development of Rural Trades Decision No. 132/2001/QD-TTg dated September 7, 2001 on Financial Mechanisms for the Implementation of the Programs on Developing Rural Traffic Roads, Infrastructure for Aquaculture and Infrastructure in Rural Craft Villages Circular No.79/2001/TT-BTC dated 28 September, 2001 giving guidance on Financial Mechanisms for the Implementation of the Programs on Developing Rural Traffic Roads, Infrastructure for Aquaculture and Infrastructure in Rural Craft Villages Circular 84/2002/TT-BTC dated 26 September, 2002 giving guidance on financial incentives to encourage the development of craft industries Official letter No.670/BNN TCBC dated 26 March, 2003 giving guidance on training and development of rural craft industries Decision No. 124/2003/QD-TTg of June 17 2003, approving cultural preservation and development for minority groups in Vietnam to fully utilize traditional crafts Decree No.134/2004/ND-CP dated 9 June 2004 on encouragement of rural industries Circular No.65/2004/TTLT/BTC-BLDTBXH dated 02 July 2004 giving guidance on subsidy for training on crafts in rural areas. Decision No.184/2004/QD-TTg dated 22 October 2004 on using States development credit to upgrade infrastructure in craft villages from 2006-2010 Circular No.03/2005/TT-BCN dated 23 June 2005 giving guidance on encouragement of rural craft industries Decision No.910 Q/BNN-CB dated 31 March, 2006 on the plan to develop rural craft industry to 2010 Decree 66/2006/ND-CP dated 7 July 2006 on the development of rural craft industry Agency Prime Minister Prime Minister Ministry of Finance
Ministry of Finance Ministry of Agriculture and Rural Development Ministry of Culture and Information (MOCI) Government Ministry of Finance and Ministry of Labour, Invalid and Social Affairs Prime Minister Ministry of Industry Ministry of Agriculture and Rural Development Government
According to the above decrees, decisions and circulars: The State shall encourage, create favorable conditions and adopt policies for the protection of the legitimate interest of production and craft establishment engaged in rural trades, especially the traditional trades, in order to meet the domestic consumption and export demand, attract labor and contribute to generating employment in the country side, eradicate hunger and reduce poverty, preserve and promote the nations culture values. To encourage the voluntary setting up of associations of different trades or in different localities so as to render practical assistance to the development of the craft establishments, reflect their feelings and aspirations, contribute opinions to the State bodies in the elaboration of rural trade development mechanisms and policies. The State shall provide capital support for investment in infrastructure (roads, electricity and water supply, environment), warehouses and storing yards for population quarters en22
National Sector Export Strategy Arts and Crafts Vietnam gaged in rural production and or business line and crafts, subsidy expenses for training and trade promotion for rural production or business and craft establishments for the purposes of maintaining and developing traditional craft villages, rural production and /or business lines and crafts, creating jobs and increasing incomes for laborers. The capital support from the state is limited not be over 60% of total investment. Besides, the provinces are allowed to borrow money from the Development Assistance Fund at the interest of 0% for a period of 4 years to upgrade their infrastructures for craft development. The rural craft establishment which is using undisputed land in a stable manner shall be issued the land use right certificates by the Peoples Committees of the competent levels. The lowest land rental will be offered to the rural craft establishments and they will be exempted land rental for three years if they move their production factories out of populated areas. The provinces and centrally run cities shall base themselves on their rural trade development requirements to elaborate plannings and plans on development of agricultural, forestry raw material areas so as to ensure abundant sources of the rural trades. Any rural craft establishments wishing to exploit raw materials being minerals resources shall be given priority in the granting of exploitation and use permits according to law provisions. They will also enjoy natural resources tax reduction or exemption according to the regulation of the government. The Ministries, branches and the Peoples Committees of different levels shall create conditions for the rural craft establishments to have timely access to information on markets, prices, specifications and standards of products according to the domestic and overseas market demands. The rural craft establishment enjoys a reduction of 50% or more of the space rental when participating in domestic product-displaying fairs and exhibition. The rural craft establishment may enter into join venture and cooperation with organizations and individuals inside and outside the country for production and sale of products The Ministry of Trade shall direct overseas trade counselors to explore the markets of the host countries, introduce them to the domestic craft establishments. The Ministry of Science, Technology and Environment shall organize, direct and earmark necessary funding sources in the annual plans for the technological research and renewal, design improvement and utilization of domestic raw materials resources, guide the application of appropriate technologies in order to raise labor productivity; reduce costs, diversify products and increase the aesthetic value and sophistication of products turned out by craft villages products; study and transfer technologies treat wastes, putting an end to the environment pollution cased by the rural trades. Regarding labor, priority shall be given to the training and use of laborers who are members of households with land recovered by the State for the development of the rural trades, and local laborers. Regarding training, craftsmen may personally organize the handing-down of their trades and collect fees from their learners on the principle of mutual agreement and shall be exempt from various taxes on trade handing-down activities; craftsmen, cooperatives, organizations and associations shall be encouraged to conduct trade handing-down and training courses for laborers; the State-rum vocational training schools shall prioritize the job train23
National Sector Export Strategy Arts and Crafts Vietnam ing for the rural craft establishments; each district may set up a center to train trades, particularly the traditional crafts of the locality. The government will support VND200/trainee/month during their training time. Not only benefiting from the above policies, the rural craft establishments shall also enjoy investment preferences under the Governments Decree No. 51/1999/ND-CP of July 8, 1999 detailing the implementation of Domestic Investment Promotion Law No. 03/1998/ QH10 dated 20 May, 1998. In addition, craft exporters also operate under other supportive programs. The following table shows the policies that directly address investment incentives and trade promotion:
Issue Investment Promotion Regulation Decision No.3/1998/QH10 of May 20, 1998, The Law on Domestic Investment Promotion (amended) Decree No.68/1998/ND-CP dated 3 September, 1998 giving guidance on implementation of Ordinance on Natural Resources taxation Decree No. 51/1999/ND-CP of July 8, 1999 Detailing the Implementation of Law No. 03/1998/QH10 on Domestic Investment Promotion (amended) Circular No 02/1999/TT-BKH dated 24 September, 1999 Instructing procedures for granting investment incentives in compliance with the Decree No 51/1999/ND-CP Circular No 22/2001/TT-BTC dated 3 April , 2001 on Instructing the implementation of tax exemption and deduction for the objects of these investment incentives in compliance with the Decree No 51/1999/ND-CP dated 8/7/1999 of the Government. Decree 164/2003/ND-CP dated 22 December, 2003 on exemption and reduction of corporate income tax Decree No.106/2004/ND-CP dated 01 April 2004 on development investment credit of the State Decision No.71/2005/QD-TTg dated 5 April, 2005 on mechanism of management and operation of loan from National Fund for Job Creation. Decision No.108/2006/QD-TTg on the establishment of the Vietnam Development Bank Decision No. 195/1999/QD-TTg dated September 27, 1999 on Establishment of Export Support Funds Decision No.02/2001/QD-TTg dated 2 January, 2001 on Policies to support investment from Development Assistance Fund toward export processing projects Decision No.133/2001 dated 10 September 2001 on promoting the Regulation on export support credit Circular No.76/2001/TT-BTC dated 25 September 2001 giving guidance on the Regulation on export support credit Decision No.279/2005/QD-TTg dated 03 November 2005 Promulgating the Regulation on elaboration and implementation of the 2006-2010 national trade promotion program Decree No. 02/2000/ND-CP of February 3, 2000 on Business Registration Decree No. 90/2001/ND-CP of November 23, 2001 on Support for Development of Small and Medium Enterprises Agency National Assembly Government Ministry of Planning & Investment Ministry of Planning & Investment Ministry of Finance Government Government Prime Minister Prime Minister Prime Minister Ministry of Planning & Investment Prime Minister Ministry of Finance Prime Minister Ministry of Planning & Investment Ministry of Planning & Investment
Export Promotion
SME Promotion
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National Sector Export Strategy Arts and Crafts Vietnam According to these regulations, craft exporters enjoy many investment preferences (reduction or exemption) in terms of land-rent, land-use tax, income tax rate, personal income tax, import tax on equipment and machinery imported to create fixed assets. They will be supported by the national trade promotion program to enhance trade promotion activities, develop export markets and to build and enhance business capacity. Exporters and producers can also access many preferential sources of finance at the Development Assistance Fund and National export support fund for their investment and export activities 3.2 Institutions
In the Prime Ministers Decision No. 132 titled Decision on Some Policies to Promote Rural Industrial Development dated November 24, 2000 and recent Decree No. 66/2006/ND-CP dated 7 July 2006 on the development of rural industry, MARD was given responsibility to implement measures. Among the central government agencies, MARD plays the lead role with regard to craft development, promoting the sector through local industry support and rural development (i.e. poverty reduction). However, other institutions also intervene in the sector. The MOI, for instance, fosters the industrialization of local industries, and has increased its responsibility through the Department of Local Industry Promotion, which was established in July 2003. Other related ministries, acting on their own mandates, have their respective policies and programs. Namely, the Ministry of Planning and Investment, for small and medium-sized enterprise promotion; the Ministry of Culture and Information, for tradition preservation; the Ministry of Trade, for trade promotion; and the Ministry of Science and Technology, for technology improvement; the Ministry of Labor, Invalid and Social affairs for training activities. The provincial government and various regional organizations act as agents between the central government and the craft villages/craft workers who are the actual beneficiaries. In fact, the developmental policies of each of these agencies are implemented seemingly without any coordination among themselves or the establishment of a common thread of understanding of problems and issues. Because there is a prevailing lack of efficiency in the implementation of developmental policies, such policies lose their effectiveness for their assumptive recipients as well as some of their merits. The main stakeholders involved and their primary activities are presented in the following table.
Stakeholder Ministry of Agriculture and Rural Development Role in Craft Promotion Main Activity and Issue
MARD is concerned with material supply and rural development from the viewpoint of agriculture and rural industrialization and modernization.
Plans projects, systems and policies related to non-agricultural sector promotion
Leads regional governments on the
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(MARD
Responsible for the implementation of policies on non-agricultural industries and unifying the administration of craft industries and craft villages.
plan implementation Sets indicators for traditional craft items Recognizes Master Artisans Introduces preferential policies. The Dept. for SME Promotion mainly supports small-and medium-sized enterprises through investment, credit, production, marketing, strengthening of competitiveness, export promotion, information, consulting services, and human resource development.
Ministry of Planning and Investment (MPI)
Assumes the prime responsibility over concerned ministries and investments for projects, and issues permits.
Assists in small and medium-sized enterprise promotion, including craft enterprises, led by the Dept. for SME Promotion.
Technological instructions, machinery protection and training will be done in the technology support center for small and medium-sized enterprise
Ministry of Industry (MOI)
Promotes heavy and light industries. Assists in promoting local industries from the viewpoint of industrialization led by the Department of Local Industry.
Small and craft industry promotion and management. Development of industrial zones. Providing industrial extension funds for SME Introduction of traditional craft industry Promotion of craft industry and historical research on craft villages Publishing. Hosting of exhibitions and workshops Export support, publishing. Supervision and promotion of interaction with overseas trade promotion institutions.
Ministry of Culture and Information (MOCI)
Assists in daily promotion of fine art and craft products led by the Department of Fine Arts from the viewpoint of preserving traditional values and the promotion of artistic values.
Ministry of Trade (MOT)
Promotes craft exports as a major export item. VIETRADE is under the MOT for promoting export activities.
Ministry of Science and Technology (MOST) Ministry of Labor, Invalid and Social Affaires (MOLISA) Implements craftsmanship trainings as part of craft industry promotion and poverty reduction.
Hosting of exhibitions and trade fairs. Implementation of projects for improvement of the working environment in craft villages and support for research on production technology.
Implements technology improvement, research and projects related to the craft industry.
There are few vocational schools specializing in craft technology training. Craft training in vocational schools under the management of other ministries and PCs is usually supplementary.
The General Department of Vocational Training will manage craft technology training in vocational schools.
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Ministry of Health (MOH)
Has no particular role in craft promotion, but is responsible for health of workers and measures against occupational diseases and on hygiene management.
Research on health improvement for craft enterprises or craft village workers and on occupational diseases and hygiene management.
3.3 Trade Support Network At the end of 1998, the Minister of Trade of Viet Nam issued a decision on the establishment of the Trade Promotion Commission. In July 2000, the prime minister issued a decision on the establishment of the Trade Promotion Agency (VIETRADE) directly under the control of the Ministry of Trade. VIETRADE was authorized to undertake the same functions and activities Ministry of trade as other national trade promotion organizations throughout the world and plays the guiding role on Vietnam Trade trade proVIETRADE Center in Dubai motion.
Vietnam Trade Center in New York
Internation al Relations Dept.
Administrati on Dept.
Enterprise Promotion and Support Dept.
Information & Market Research Dept.
ECommerce Dept.
VIETRAD E Rep. Offices HCMC
Currently, in terms of organizational structure, VIETRADE has five departments, a representative office in Ho Chi Minh and two overseas trade centers in New York and Dubai (see figure below). In the future, it is likely that VIETRADE will establish some additional export development centers in key areas in Viet Nam as well as trade centers abroad. The agency is now drafting proposals for the establishment of such centers for submission to the relevant authorities. Further on, in 15 provinces and municipalities directly subordinated to the central Government, Trade Promotion Offices/Centers report to the provincial Trade Departments. These offices/centers have vertical links with VIETRADE. 27
National Sector Export Strategy Arts and Crafts Vietnam In addition to VIETRADE, other trade support organizations are also active in the sector. These are: Vietnam Chamber of Commerce and Industry (VCCI): The Vietnam Chamber of Commerce and Industry (VCCI) is an independent and non-governmental organization that was established in 1963. In addition to its role of representing the interests of the business community in Viet Nam, VCCI is also involved in trade promotion. Every year VCCI organizes trade missions for craft exporters to foreign markets (e.g. Hong Kong, Japan, Germany) and organizes exporters to participate in international trade fairs. VCCI has launched a trade postal VNemart (www.vnemart.com) in late 2002 to help build up a bridge between Vietnamese enterprises and the international business community via internet. VCCI has also offered marketing services (SME directory preparation and introduction, e-commerce of craft items), training (mainly business courses by university professors and managers), information provision, consulting services (management plan and financial analysis) and research. Vietnam Cooperative Alliance (VCA): The Vietnam Cooperative Alliance is a Non-Governmental Organization, founded in 1993 with a wide network from central level to 64 provinces and cities in Vietnam (6400 member-organizations include cooperatives and small and medium-sized enterprises). It supports, represents and protects the rights of cooperatives in the areas of small handicraft industry, transport, trade, service and construction. VCA offers consultation services, other services on legal issues, technology, information, funding, credit guarantee and marketing. It implements support services, protection of master artisans and craft workers. Every year, VCA also organizes trade missions for craft exporters to foreign markets and international trade fair participations. VCAs financial sources are partly government-based. Trade representatives of Vietnam in foreign countries: There are 41 Vietnamese Commerce Sections abroad, which collect market information to support the strategy development of the Ministry of Trade and provide information on target markets to exporters from various sectors. Trade representatives of foreign countries in Vietnam: Embassies, Commercial Sections of foreign countries and foreign representative offices in Vietnam conduct some activities in the trade promotion field. Department for SME promotion of the Ministry of Planning and Investment: The Department for SME Promotion mainly supports small and medium-sized enterprises through investment, credit, production, marketing, strengthening of competitiveness, export promotion, information, consulting services and human resource development. Technological instructions, machinery protection and training are to be provided in the technology support center for small and medium-sized enterprise, which will be built in Hanoi, Da Nang and HCMC. 28
National Sector Export Strategy Arts and Crafts Vietnam Vietnam Handicraft Research and Promotion Center (HRPC): HRPC is a non-profit organization (NGO) working to support the development of the craft industry since 1997. Through its connection with different trade organizations as well as craft associations in the world, HRPC became a partner in offering business services for craft exporters in Vietnam, especially business information. HRPC is also a bridge to connect craft exporters with foreign buyers and also it connects craft exporters and producers with financial support from different development projects. HRPC has over 400 craft exporters and producers as members and also provides special training to exporters to deal with different technical, business and management issues. Association of Rural Industry and Small and Medium-Sized Enterprises of Vietnam (VARISME): The association was founded in September 2002 in an effort to bring together regional SMEs to generate employment and improve social conditions. It has 300 craftrelated SME members mainly in rural areas. Its main activities are to provide market information and submit proposals to the government according to members request. Vietnam Craft Villages Association (VCVA): Founded in 2005 in order to restore, preserve and develop craft villages in Vietnam. VCVA also focuses on technical training, providing information and trade promotion. Developing tourism in the craft villages a stream of activities of VCVA. Local craft Associations: In recent years, in parallel with the rapidly increasing number of enterprises, some handicraft associations have been formed in different provinces e.g. Hochiminh, Ha Tay, Bac Ninh, Quang Nam. In addition, craft associations on community and village level are also being developed such as the Van Phuc Silk Association, the Van Diem Furniture Association in Ha Tay province, Bat Trang Ceramic Association in Hanoi etc. One of the main tasks of these associations is to support and assist member companies in developing business and boosting exports. However, all of these institutions still lack the capacity to successfully and efficiently carry out their mission. They need both human and financial resources. International donor projects: There are many international donor projects working on craft promotion. The German Technical Co-operation Agency (GTZ) recently started to work on the sustainable development of rattan handicrafts in Quang Nam and Quang Binh provinces. The USAID-funded Vietnam Competitiveness Initiative (VNCI) and the Danish International Development Agency (DANIDA) support handicraft exporters in the areas of design development and trade promotion. The Mekong Project Development Facility (MPDF) and the International Labour Organization (ILO) offer training to build the capacity of exporters, the Netherlands Development Organization (SNV) is working with seagrass and embroidery companies in Ninh Binh province.
While most of the above organizations intervene in the areas of trade promotion and capacity building of exporters from various sectors, none of them specialize in craft development, with the exception of the Vietnam Handicraft Research and Promotion Center. Some of them lack 29
National Sector Export Strategy Arts and Crafts Vietnam the capability to deliver competency development services of the type that will have a direct impact on enterprise competitiveness. In terms of quantity, the training courses offered by these organizations are more than enough. However, most of the training programs currently on offer tend to be of a more general nature rather than tailored to the needs, and more conceptual than practical, and more information-based than competency-based. As a consequence, many exporters are reluctant to participate in these courses. The same applies to trade information services. According to a survey undertaken by the MARD-JICA project, 80 percent of handicraft exporters lack market information and most of them feel this is serious. While handicraft enterprises in urban areas can obtain some market information and are more competitive, those in rural areas and provinces (Ninh Binh, Nam Dinh, Thai Binh, Nghe An, Quang Nam) have little or no information at all on market trends and products prices. The shortage of handicraft business information is also a constraint for policy-makers at different levels nationwide, leading to less efficient support activities on the one hand and jeopardizing the preservation of many traditional craft heritages on the other. 3.4 Financial Support Funds
As far as the trade finance is concerned, for the time being, sector enterprises can access the following sources of finance: Development Assistance Fund: The Government has established a Development Assistance Fund to support interest rates for handicraft exporters after investment (borrows from commercial banks) and provides credit guarantees for investment projects. After WTO accession, the Development Assistance Fund will be operated by the Vietnam Development Bank. The National Export Support Fund: Set up by the Government to provide preferential export credits and export credit guarantees in order to support enterprises producing export goods, conducting export business and expanding the export market. The craft exporters can borrow short-term loans for the purchase of raw materials and production elements to perform the export contracts. The borrowing levels shall not exceed 80% of the L/C value of not exceed 70% of the export contract value. The National Scientific and Technological Development Support Fund: Provides credits with favorable conditions or preferential interest rates, in order to support investors in studying and applying scientific, technical and technological advances, technological transfer and renewal. Fund from trade promotion programs: Exporters can be supported by covering 50% of expenses for hiring domestic and foreign experts to advise on export development and designing models and products to raise the quality of goods and services. They will be also 30
National Sector Export Strategy Arts and Crafts Vietnam supported by 50% of expenses for being trained in Vietnam or other countries for improvement of export capacity and business skills. For overseas training courses, the support shall be concentrated on specialized training courses of no more than 3 months to develop new products. Besides, the exporters can be supported with 100% of expenses for commodity pavilions, overall decoration of trade fair booths and organization of workshops (if any), for participating in overseas trade fairs and/or exhibitions; 100% of airfares and costs of organization of workshops and commercial transaction meetings, for market surveys or commercial transactions in foreign countries etc. National Fund for Job Creation: The craft producers and exporters can borrow money from the National Fund for Job Creation with an amount of up to VND 20 milllion or 500 million respectively and at a preferential interest. Fund for rural industrial extension: The Ministry of Industry will spend budgets for the development of rural industries in term of technology innovation, product development, trade promotion etc. Funds from programs and projects: The Ministry of Agriculture and Rural Development is going to launch a project named One village, One product, which will be implemented from 2006 to 2015 with an estimated budget of 7.2 million US$.
In addition to the above funding sources, craft producers and exporters can borrow money from the financial system in Vietnam in accordance with the Credit Law. Specifically, they can obtain loans from: Commercial Banks (4 state-owned banks with more than 1,200 branches nationwide, 36 joint stock banks, 15 branches of foreign banks, 4 joint-venture banks) People Credit Funds Bank for the Poor.
Although all banks try to offer the best services for their customers, they all require collateral for the amounts, even if that collateral is directly possessed by the borrowers or guaranteed by a third party. 3.5 Export Services
Independent quality control organizations such as SGS (Switzerland), OMIC (Japan), Vinacontrol (Vietnam) are operating in Vietnam and can be authorized by importers to make final inspections. Also, fumigation companies are available and work effectively. However, craft exporters often have to study themselves the mandatory technical specifications for their products that have been established in the main markets to protect consumers health, safety and the environment. As a matter of fact there are still many technical issues that are beyond the control of craft exporters, for instance, the technique of how to keep sea-grass 31
and water-hyacinth products free of mould, how to keep the color of these materials natural or how to guarantee color uniformity for a large shipment. While some of the technical issues can be sorted out by research institutes in Vietnam, these institutes often do not know the market requirements very well. Transportation services are widely offered by different companies (state-owned, private or foreign companies). There are hundreds of shipping companies and forwarding agencies in Vietnam, crafts can be shipped from Vietnam to any country in the world (even to door service) either by sea or by air, even by truck load to neighboring countries like China, Laos and Cambodia. The shipping companies and forwarding agencies also offer handling services (both in Vietnam and upon arrival abroad). Professional packaging services are also offered. Express carriers operating in Vietnam like DHL, UPS, FedEx, EMS, etc. facilitate the business transactions between Vietnamese exporters and foreign buyers. However, ocean and air freight in Vietnam is much more expensive than in China, which is one of the key problems that reduce the competitiveness of the Vietnamese arts and crafts sector.
SWOT Analysis of the Sector
The main strengths, weaknesses, opportunities and threats faced by the Vietnamese handicrafts sector are summarized in the following table.
Strengths Broad range of raw materials Skilled labor force Labor costs which are 25-30% lower than in China Weaknesses Compared with main competitors as China, Thailand, Philippines, Vietnam has a limited product range
Low design innovation limits growth potential. Vietnam has a lack of trained crafts designers, which are available in other countries
Diversified craft villages with a rich and diversified culture producing wide array of handicrafts A fast developing export industry Entrepreneurial spirit Reputation as a reliable supply source Ability to meet large order requirements The built-up export industry and experience in recent years. The number of large international importers already sourcing from Vietnam and having buying offices or agents in Vietnam.
Lack of management skills and qualified sales/management staff Lack of training programs for textile or wood workers Lack of close links between enterprises and research institutions whose research achievements and inventions could lead to be unused
Low sector organization level. Lack of a National Handicraft Association Lack of market information on export trends, opportunities, regulations, customers and prices Underdeveloped support industries such as paint, raw material processing, etc High freight costs associated with both air and
Favorable government support policy with a broad network of institutions and organizations involved.
32
sea shipment Opportunities The governments open market policy. Vietnam is on the way to join the WTO and Vietnams image as a leading supply locaThreats Vietnam relies more than other countries on just a few large international buyers Danger of exhausting natural material sources if lacking of well-organized exploitation plan Dependency on 4 product groups only makes Vietnam vulnerable for changed consumption patterns, for instance declining demand for basketware
fully integrate into the world economy tion for the world market
Stable world market demand for home acProduct groups such as seasonal and garden
cessories and gift articles articles, glass, metal, paper ware Increasing flow of tourists provides market for products
Fierce competition in the world market. Competitors countries like China, Thailand and India produce cheap and good quality
Rapid industrialization and urbanization may lead to reduce labor force in craft sector and increase labor cost
Raw materials appear twice in the SWOT table, both as a strength and a threat. In general, a vast range of raw materials of all kinds is available. However, a major area of concern for craft producers and exporters is the availability of certain species of raw materials that are needed for production, particularly in provinces with a vibrant crafts production. Some species have become rare and their sustainable exploitation is much less developed than in China. As indicated earlier, the local raw material supply chain holds a particular potential for rural poverty alleviation. The facts that Vietnam has started to import bamboo from China, and that 50% of rattan is imported from Laos and Cambodia imply that much of the potential for rural poverty alleviation is left unexploited. As the situation is expected to even deteriorate, this area needs to be addressed with appropriate measures.
52
5.1
Vision and the Sectors Future Value Chain

The Vision
Vietnams strengths include the availability of a broad range of diverse raw materials, a welldeveloped entrepreneurial and industrious spirit, a strong, eager labor pool, and good skills in sewing, beading, ceramics, lacquer, basket making, and other hand techniques that can be employed to produce contemporary products. But so far, Vietnam is mostly a cheap supply location due to its low labor costs. Within the value chain, the largest value added by far is through branding and marketing the products to international clients. The vision for the sectors future value chain is: 33
National Sector Export Strategy Arts and Crafts Vietnam To ensure a long-term sustainable raw material supply, in order to increase the industrys international competitiveness. To develop the entrepreneurial skills of crafts exporters and help them upgrade into better organized, sophisticated Trading Companies which undertake comprehensive international marketing activities in order to get a higher share of the international handicraft market. To develop a sector-oriented Business Development Services Infrastructure, providing information, training, research and product development services in a market-oriented way. To triple export turnover and employment based on intensifying international Export Promotion activities and broadening the product range. To have a more Organized Handicraft Sector, with strong cooperation between companies and an active private sector contribution to the political development debate.
In 4-5 years, the Viet Nam arts and crafts sector will have shifted to being a marketing and trade focused sector with exporters providing the main engine for sector growth, having gained an increased share of large key markets. The industry will grow from a cheap-labor supply and subcontracting location to having recognized craft trademarks on the world market. Standards of living of production villages will be assured and improved through the development of stronger in-house facilities, an integrated model of factory and village production, and an accompanying infrastructure of capacity-building organizations. In the short-term, exporters can become more efficient trade partners for a much larger number of importers in the world and in several other product categories. Innovation and technologies will be stimulated and exporters will be woven into international supply chains more effectively and in larger numbers. Vietnams supply potential will be broadened. By pursuing an ambitious long-term strategy, the dependency on foreign brand names and intermediate traders, who currently dominate the world market and benefit from the biggest share of value added, can be reduced and replaced by own trading houses offering competitive craft collections and distribution systems to clients all over the world. Based on its competitive advantages, rapid growth and built-up production facilities, the industry can develop its own in-country based trade structures and play a more important role on the world market with strong brand names, diversified logistics systems and direct supply to large retailers worldwide. The industry will grow from a cheap-labor supply and subcontracting location to recognized international craft trademarks. The national part of the value will thus be extended 5.2 The Sectors Future Value Chain 34
Important elements of the sectors future value chain are: Pillar 1: Exporters working on an Integrated Model Exporter/Producer with subcontractor structure at village level and strong in-house facilities for product development/marketing/logistics. Efficient, sustainable and well-organized Raw Material Supply Chains with less intermediary traders and higher direct control of exporters over raw material supplies. Efficient support organizations offering Business Development Services for promoting entrepreneurship, technological renovation, market intelligence, export marketing capacity, product development etc.
Retailers Importers Local shops Business Develpment Services providers
Pillar 2:
Pillar 3:
Directly importing retailers
Exporters Household producers on village level (1.35 mio. in 2,017 villages)

(1,120 companies with/without own production units)
Raw material collectors, traders
Raw material suppliers
Pillar 4: Pillar 5:
Higher Degree of Organization within the sector, with private sector representatives contributing to sector development programs. Intensified international Trade Promotion activities.
These goals need concerted action at different levels and by the different actors involved. The key issues for sector development are capacity building of exporters in order to enable them to fulfill a more sophisticated role in driving the market and sustainable management of 35
National Sector Export Strategy Arts and Crafts Vietnam raw material sources.
36
6
6.1
The Way Forward

The Development Perspective
Targets To achieve the Governments ultimate goal of rural progress, specifically development strategies to promote the artisan craft sector, trying to achieve a target for the industry to create jobs for 4.5 million people. Indicators 20-22% annual growth rate of handicraft exports Annual creation of 300,000 additional jobs
Objectives Development To raise employment as a direct result of increased export activity in the sector
Development To reduce poverty in rural and urban areas as a direct result of increased export activity in the sector
Increase income generated from non-farming activities, which is usually 2-4 times higher than purely farming production. The percentage of poverty households in craft villages is at 3.7% but the general rate of poverty in Vietnam is at about 10.4%
2-4 times higher income from craft production than from agricultural income
In order to be able to fulfill the aims of the development perspective, it is necessary to particularly support labor-intensive crafts industries with the potential to provide employment to a large number of persons in rural areas. A special focus lies on generating additional non-agricultural income in rural households. The sub-sectors of wood and bamboo/rattan/leaf/rush offer the highest potential for reaching these aims in terms of: Combination of income generation possibilities at both the raw material and production levels Current efficiency weaknesses in the organization of the value chain Unmet market demand of producers/exporters for local raw material Vietnams international competitiveness in these areas Relevance of the sub-sector in terms of export volume and current employment. 37
6.2
The Competitiveness Perspective
The broad range of activities suggested to improve the competitiveness of Vietnams arts and crafts sector can be sub-divided into the three categories of a) Capacity development of actors at different levels of the value chain, b) Infrastructure development and c) Improving access to foreign markets.
Objectives Capacity development Ensure access to affordable and appropriate raw material Initiatives Survey on the current situation of rattan nationwide to evaluate the real source/inventory and its distribution and define the actual area available for handicraft production. Develop plans and strategies for the plantation and exploitation programs for local raw materials such as bamboo and rattan. This should include the allocation of adequate resources, including human and financial The forest policies should be reviewed to ensure that rattan is mentioned specifically. The government could consider pre-investing for households, SMEs, SOEs to plant rattan for commercial purpose. Introduce incentive schemes for rattan cultivation such as providing credit and technical assistance. Credit schemes and Public Private Partnership programs with exporters to plant and exploit own provincial raw material sources Encouragement of exporters to set up local production and processing facilities in major raw material supply locations Hiring foreign experts for the improvement of treatment techniques Coordination of donor programs, e.g. of OXFAM, DANIDA, SNV, GTZ, UNIDO, MPDF in different sub-sectors ranging from sea grass to bamboo. programs MARDs strategy for non-timber forest products. Donor activities such as Oxfam Hong Kong, SNV Funds available such as ODA from forestry programs Vietnam Handicraft Research and Promotion Centre (for technical and marketing support) Provincial programs Funds from Industrial Extension from Ministry of Industry Funds from The National Scientific and Technological Development Support Fund Resources MARDs 5 million ha reforestation Indicators Maintain the area of rattan for exploitation at 20,000 ha of which 5,000 ha for Song and 15,000 ha for May Raw material prices for bamboo, rattan, sea-grass are stable Grading system for clay and other input materials will be set-up 50,000 CBM of natural wood is allocated directly to the wood exporters and wood associations. Treatment system for raw materials (bamboo, rattan, sea-grass, wood, silk dye...) is well developed.
38
Allocating legal natural wood directly to wood exporters and wood associations in craft villages Developing Pole bamboo (Truc sao in Vietnamese) Capacity building of local raw material suppliers (like diversification of clay supplies) Improving the quality of sea-grass in Thanh Hoa, Vinh Long, Ninh Binh, Thai Binh and Dong Thap Establish proper standards or a grading system of raw materials as the quality of final products substantially relies on raw material quality.
Capacity development Enhance exporters capacity with regard to knowledge, production technologies, managerial skills, marketing
Substitution of expensive imported raw materials (like fabrics for embroidery) Sourcing accessories and other needed raw materials from abroad. Step by step to develop supportive industries for arts and crafts Training programs for sales managers, accountants, designers, marketing specialists Training of staff on export logistics requirements, market analysis, foreign languages, negotiation skills etc. Training programs for qualified buying agents to serve the needs of importers Encouraging foreign investment in the field of material processing (wood, bamboo, sea-grass, textile dyeing...) in order to have technology transferred
Vietnam Craft Information Center (VCIC), Export Promotion Center (PROMOCEN/ VIETRADE), Vietnam Handicraft Research and Promotion Center (HRPC), Vietnam Chamber of Commerce and Industry (VCCI)
500 exporters used services of the Vietnam Craft Information Center and/or participated in training courses
VIETRADE Export Marketing Guidelines Donor programs such as MPDF, GTZ, SNV Ministry of Planning and Investment
39
Capacity development Promote design innovation and product development
Setting up of an international design school or Product Design Center Hiring foreign designers who are also working as trade promoters Co-ordination with Industrial Arts College in designing and offer training for the exporters Support training initiatives of designers (VNCI and VCCI) Linking designers to exporters, Internship programs for designers Increasing market intelligence by providing sector-specific information about main target market structures Market prospecting missions to Japan, the EU, US and other key handicrafts markets
VIETRADE Foreign designers from co-operation programs, e.g. from JICA
Capacity of a local design school built up 30 local designers trained 60 companies participated in an design internship program
Industrial Art College
Capacity development Building capacity of crafts sector specialists

Vietnam Craft Information Center (VCIC), VIETRADE (National Trade promotion program) VIETRADE Export Marketing Guidelines To be covered by the Ministry of Agriculture and Rural Development and Ministry of Labor, Invalids and Social Affairs
10 -20 crafts sector specialists trained
Capacity development Vocational training of workers
Training programs on woodworking are needed. Training programs in the textile industry are needed. Training programs on processing and treatment techniques for bamboo, rattan, sea-grass, wood, silk dyeing
Annual training of 200 wood workers, 100 tailors, 100 technicians on materials processing and treatment
Foreign Technician VIETRADE product design and development initiative Exporters marketing budgets Vietnam Handicraft Research and Promotion Center (HRPC)
Capacity development Broaden the product range of exportable goods
Promote non-traditional product groups such as seasonal articles (Christmas/Eastern decoration), garden articles, fine tableware and dining accessories etc.
3 new export product categories (season articles, garden articles, tableware/dining)
Infrastructure
Promote underdeveloped product groups such as metal products, paper ware, etc. Promotion of ethnic crafts for niche markets Increase in exports outside of the 5 main crafts exports sub-sectors Assessment of main infrastructure bottlenecks
30 mio. US$ increase in exports outside of the 5 main crafts exports subsectors within 2 years
Ministry of Agriculture and Rural
All bridges to the craft
40
Ensure that the physical infrastructure in the country is conducive
Improvement of infrastructure on Road/Inland transport Increase competitiveness of sea transport Improve the working environments to comply with international standards for labor (SA 8000 on child labor, workplace, etc.), environmental management (ISO 14000 series), etc
Development Ministry of Transportation Ministry of Science and Technology
villages in Ha Tay, Ninh Binh, Thai Binh, Nam Dinh are at least 15 ton loadable Freight costs are reduced by 10-20% 150 exporters obtain ISO and SA 8000 standards 30 private sector organizations targeting the handicraft sector offer a range of improved and needsoriented services
Infrastructure Promote private-sector oriented Business Development Services (BDS) markets Infrastructure Export credit facility for small and medium rural businesses
Build up more efficient private sector-related service providers offering design advice, training, research, technology know-how, packaging, sophisticated inputs etc.
VIETRADE Vietnam Handicraft Research and Promotion Centre (HRPC)
Grant scheme for stimulating use of BDS providers Organization of an internationally recognized trade fair for arts and crafts in Vietnam An export credit system designed for easy use and access by small and medium rural businesses as well as small exporters should be established to increase the number of crafts exporters (Factors to be considered are conditions on collateral, qualifications for loans, business skills, terms, evaluation of loanable amount, feasibility, etc.) Ministry of Trade, Ministry of Finance Ministry of Agriculture and Rural Development Ministry of Planning and Investment The State Bank of Vietnam
Contract and L/C is considered collateral Collateral property for loan is reduced Documentation checking time is within a day Lending time is flexible
Exporters with sufficient or spare funds should utilize credit facilities, collaborate more with producers and promote as well as expand the export business to the greatest extent.
Infrastructure Human resource development
Effective use of Overseas Development Assistance (ODA) Training of Public Officials Responsible for the crafts sector Establishment of Overseas Exchange Programs
Ministry of Agriculture and Rural Development Provinces
All public officials responsible for craft sectors down to village levels are
41
Vietnam Craft Information Center Village to Village program from JETRO
trained
3 overseas exchange programs are organized yearly
Infrastructure Establishment of intellectual property rights system Market access Promote exporters on foreign markets
Development of Intellectual Property Rights Protection for handicraft/ handmade products Issue of Special Accreditation Mark to Qualified Crafts Reduce dependency or few large clients Setting up of an incubator for stimulating participation in international trade fairs
Ministry of Science and Technology, Ministry of Industry
Intellectual Property Rights Protection is developed
Trade fair programs of VIETRADE and VCCI VIETRADE Export Marketing Guidelines
50 exporters participate in new international trade fairs
Give priority to current potential markets (Japan, EU, Taiwan, Korea, US) and promote activities on other foreign markets in addition (Canada, Mexico, Sweden, Denmark, etc.)
200 export companies use VIETRADEs Export Marketing Guidelines and intensify pro-active marketing activities
50% cost-share contribution from exporters Vietnam Handicraft Research and Promotion Center
Use Vietnams trade representatives more effectively Dispatch of Specialists and Exchange programs Establishment of Matching system for Producers and Buyers Expansion of fair trade system, especially for tribal crafts Organization of Vietnamese Arts and Crafts shows in targeted markets
Double export turnover to Japan & US and increase 50% in EU market.
Market access Attract foreign clients to Vietnam
VIETRADE Vietnam Tourism Administration Vietnam Handicraft Research and Promotion Center
50 fair trade companies International buyers participation in Vietnamese trade fairs is increased by 300%
Feasibility study for an internationally recognized trade fair in Vietnam Setting up of an Information Centre/One-stop shop for foreign buyers Organization of inward buyers missions to Vietnam Establish close co-operation with tourism operators Building brand name for craft villages in Vietnam
2 buyer missions to Vietnam are organized yearly
42
Weighting of the Stakeholder Perspectives
All the activities suggested above should be implemented if a balanced and comprehensive value chain development is to be achieved. However, considered limitations in the availability of resources, these activities can be prioritized according to the needs and expectations of the actors in the value chain. An assessment of the perspectives of domestic stakeholders reveals two areas which have a particular impact on a further increase in crafts export growth: Activities at the production and raw material levels preparing the ground for larger crafts exports Activities relating to capacity building of exporters and improving access to international markets.
Both areas are closely interlinked. Issues at both levels need to be addressed for further sector growth. Activities need to be coordinated. While MARD is concerned with the responsibility for production and raw material, MOT and VIETRADE are in charge of direct export promotion activities. At the production and raw material levels, stakeholders have identified an increase in problems relating to the availability of raw material (particularly for bamboo, rattan, wood) and an increase in prices for raw material to be the major threats for the industry. Without improvements on sustainable plantation and exploitation programs, even a decline of the industry might be possible. As the need to address these problems has already been realized earlier, a number of development programs intervene in these areas, particularly at provincial level. Other programs lack progress and their implementation needs to be fostered. The mobilization of raw material resources is not a genuine responsibility for export promotion, but there is a need for trade promotion organizations to monitor the raw material situation and stress the importance of improved raw material supply for trade promotion. Trade promotion institutions should play an active intra-institutional advocacy role. There are also possibilities to cooperate with exporters on integrated raw material/production systems in the provinces. There are exporters who are prepared to invest in reliable raw material supply and regional production facilities in different provinces. At export promotion level, the N1 priority that was indicated by Vietnamese crafts exporters in a stakeholder workshop is an improved access to information, e.g. on international market structures and key players, market entry requirements (fumigation, transport pallets, product norms, certification standards), accessories suppliers, production technologies etc. 43
National Sector Export Strategy Arts and Crafts Vietnam The priorities no. 2 and 3 expressed by crafts exporters are assistance on developing new product designs and well-designed international trade fair participation programs. The low level of product innovation and the dependency on foreign design inputs are the major weaknesses of the industry, severely limiting development possibilities. Vietnam needs a recognized international crafts design school or stand-alone Product Design Center in order to be able to compete in the long run. Trade fair participation programs have a high potential for direct export promotion, targeting a main marketing channel for arts and crafts. A program is needed to allow aspiring exporters to work on new markets and play a more active role Export companies also need to cooperate and pool their information and resources to benefit the industry. An association is needed for actively supporting the interests of the industry and for effective cooperation with the Vietnamese government. An international assessment of stakeholder perspectives undertaken at major sector related trade fairs in the EU and US provided insights such as: Consumption patterns are changing. Cheap and simple mass products no longer hold much potential for trade promotion even on mainstream markets. Markets require more sophisticated, fashionable, diversified products. There will be increasing pressure on supply chains to deliver better qualities at lower prices. The concentration of buying power is rising quickly in the crafts market. A fact from which Vietnam has so far been particularly benefiting. But the requirements on distribution logistics, short delivery times etc. are rising. There are possibilities for Public-Private-Partnership (PPP) projects with Vietnams large clients, which would allow stakeholders to join forces, for instance for raw material supply projects, and to linking these international buyers even more to Vietnam. Their presence and activity plays a crucial role for further export growth, and it is essential that the ties with these buyers be identified. There is little information available about supply possibilities in Vietnam. Importers much more regularly visit other Asian countries where they can, for instance, combine supplier meetings with trade fair visits. An important internationally recognized crafts trade fair is lacking in Vietnam. Importers report about having difficulties to identify suitable Vietnamese exporters and provide the feedback that Vietnam would need a much more intensive export promotion for crafts. Vietnam has a reputation for being a reliable supplier, but new product ideas or styles can 44
National Sector Export Strategy Arts and Crafts Vietnam hardly be found. Vietnam does not respond to the need of continuous innovation with an own identity and product development. Vietnamese products seen at trade fairs are not new and attractive for buyers. The presentation of Vietnamese exporters at international trade fairs is outperformed by the appearance of their competitors, who have large, well-organized national booths and information counters.
In summary, in the future, importers will need to have well-organized Vietnamese exporters, which are able to respond quickly to the needs of the international market, underline the importance of product design and development and demonstrate the potential and need for intensified export promotion.
8
8.1
Resource Mobilization
Long-term Strategic Priorities
Based on the above weighting of stakeholders perspectives, resource mobilization is recommended at two levels. With regard to long-term strategic priorities, programs to enhance the effective co-operation between craft-related agencies, ensure sustainable raw material supply, and build strong capacity in the country in service areas are needed: Creation of a National Craft Steering Committee
Streamlining the flow of policies and information between central and local levels is an important area to be attended to. In order to enhance inter-agency coordination, it is suggested that a Craft Steering Committee both at the central and the provincial level be created. The proposed committee will not execute projects but rather function as a coordinative and advisory body to the Government and related agencies. In order to ensure its coordinating capacity it is proposed that the council be directly subordinated under the Government, while the secretariat be attached to key ministries. Core members of the National Craft Steering Committee should be (1) Ministry of Trade (2) Ministry of Agriculture and Rural Development (3) Ministry of Industry and (4) Ministry of Culture and Information, Ministry of Planning and Investment, Ministry of Finance, Ministry of Labor, Invalids and Social Affair and Ministry of Science and Technology. Funding sources: From the Government budget. Programs to initiate plantation and sustainable exploitation and processing of raw material (Responsibility: Ministry of Agriculture and Rural Development) o Survey on the current situation of materials for handicraft production, especially for rattan, bamboo, clay, wood, stone and silk to evaluate the real source/inventory and 45
National Sector Export Strategy Arts and Crafts Vietnam its distribution and define the actual area available for handicraft production Develop plans and strategies for the plantation and exploitation programs for local raw materials. This should include the allocation of adequate resources, including human and financial Study on agricultural extension to improve the quality of sea-grass (sedge) Credit schemes and Private-Public Partnership with large exporters and large buyers to create material sources Plantation or exploitation programs at provincial level, linking between material supply areas with craft producing areas on contract basic Assistance to exporters in running integrated raw material supply chains Support to raw material suppliers to invest in processing equipment and advanced (environmental-friendly) treatment technique. Establish proper standards or a grading system of raw materials as the quality of final products substantially relies on raw material quality Encourage foreign investment in the field of material processing (wood, bamboo, sea-grass, textile dyeing) in order to have technologies transferred.
o o o o o o o
Funding sources: (1) From the Government / decision 132; (2) from 5 million ha program; (3) from budget for NTFP development; (4) ODA project; (5) INGO projects; (6) Private-Public Partnership projects. Setting up of a Product Development and Design Center ensuring regular training of skilled designers for arts and crafts (Responsibility: VIETRADE/Ministry of Trade) o Specialized in the arts and crafts sector (can be a part of the National Center for Product Design and Development where other sectors are involved) o Support the Industrial Arts College in training designers for the arts and crafts sectors and linking designers to exporters in form of an internship program o Employ national designers to work in the craft sector (they should be encouraged and rewarded) in partnership with national specialists / foreign designers who know market trends to develop highly marketable products. o Training of skilled designers for arts and crafts o Showroom for featured products of the exporters o Organization of a national design contest.
Funding sources: National Fund for Trade Promotion, Exporters, International donors (often through volunteer experts programs). Vocational training (Responsibility: Ministry of Labor, Invalid and Social Affairs / Vocational Training Department) o Offer skills training for wood workers and other sub-sectors basing on the actual needs from the exporters o Offer skills training for finishing, especially for surface finishing like lacquering, painting, carving, gilding o Offer intensive training on techniques that are still not well-developed in Vietnam to 46
National Sector Export Strategy Arts and Crafts Vietnam develop new range of products like metal casting, gilding for jewelry products, paper quilting, gobelin, etc. Organizing village to village programs to co-operate with the craft villages in other countries.
Funding: (1) From the government / decision 132; (2) from the exporters and trainees; (3) from international donor projects; Export credit facility for small and medium rural businesses (Responsibility: Ministry of Finance and the State Bank of Vietnam) o Putting arts and crafts sector on the priority list o Consider low rate of collateral o Consider low interest rate for loans o Creating a flexible time for short-term credit o Consider contract and L/C as collateral.
Funding sources: No funding requested, policy only. Developing a well-recognized international crafts trade fair (Responsibility: Vietnam Handicraft Exporters Association and VIETRADE) Provide technical assistance and marketing support to an existing trade fair o Create an efficient package of airlines, hotels, ground transportation, vacation spots, etc. to attract buyers o Survey among foreign buyers to identify the best date at which the event should take place, to find out about other regional shows they attend or would like to attend during the time of their stay. o Promote the show in the trade press, commercial representatives, through mailings to importers and international association o Create an advisory board including leading Vietnamese exporters and exhibitors o Train exhibitors on improving stand design and decoration Organize inward buyers missions. o Funding sources: (1) National Trade Promotion Fund; (2) Exporters/ Exhibitors; (3) Other sponsors. 8.2 Short-term Action Plan for VIETRADE
For a short-term action plan of VIETRADE, it is suggested to address the immediate needs of companies and run a 2-year integrated capacity building program for crafts exporters. Formation of a Handicrafts Exporters Association The aim should be to create, within the next 6 months, a Handicrafts Exporters Association, 47
National Sector Export Strategy Arts and Crafts Vietnam which will be able to run a Vietnam Craft Information Center and to work with VIETRADE on implementing a Product Design and Development Initiative and Technical Training and Trade Fair Participation programs: The Vietnam Handicraft Exporters Association (VHEA) addresses capacity building issues of the 1.200 existing exporters. Their knowledge will be increased, and they will be assisted in improving their performance. As many exporters have grown quickly in the past few years, there is a need to improve their technical and organizational skills. An increased efficiency of the exporters will lead to higher export growth. While waiting for the new association to be set up and operational, a working group of exporters in form of a club will be organized and work both on a regular and an ad hoc basis. At first, the group will set up the Vietnam Craft Information Center, which will become part of the association when the latter is officially established. The Technical Training, Product Development and Design Initiative and Trade Fair Participation Programs are also concerned with building the capacity of exporters and making them more competitive. However, they can also be used as tools to broaden the sectors product range, strengthening poorly developed sub-sectors and improving direct market access.
Funding sources: (1) From National Trade Promotion Fund; (2) VIE61/94; (3) HRPC (4) Exporters
Vietnam Craft Information Center (VCIC) Activities: Funding for 2 years: 300,000 US$ from the National Trade Promotion Fund; VIE61/94
Collection and Distribution of Market Information, provision of market intelligence Technology research and advice Export Academy Training (marketing skills, E-commerce, market research, company management,
Mobilization of the association Equipment and Library Awareness creation Market prospecting missions Japan, EU, US: Visits of main international trade fairs, collection of information about product ranges, market trends and contact details of leading importers, development of an international importer database
Online discussion forum for stimulating effective networking between companies Administering of a grant program for improving access to private sector service providers One-stop shop for importers Research and development of action plans on improving the raw material situation Development ers. of Public-Private Partnership
Study tours on production and finishing technologies used by Vietnams main Asian competitors
projects with Vietnams main international buyLegal body:
Assistance in developing a sustainable business model for the VCIC Development of a grant program for increasing
48
Should belong to the Handicraft Exporters sociation
As
exporters access to services, provision of funds for training Cost share schemes with exporters and service providers
Working with a network of private sector service providers
Aim:
Creation of a self-sustainable organization based on membership and service fees
Technical Training Program Activities: Processing and treatment training Bamboo treatment technique (to be free of mould and insects) Wood drying and wood treatment /preservation (to be free of crack, deform and insects) Sea-grass, water-hyacinth treatment to keep the natural color (green) and to be free of mould and insects Funding for 2 years: 100,000 US$ from the government/decision 13, from exporters and trainees, international donor projects including VIE61/94.
Textile (silk, cotton, hemp yarn) and natural material dyeing techniques to get durable and stable color
Legal body: To be run by VCIC and VHEA Mid-term provision of training courses on cost recovery basis Product Development and Design Initiative Activities: Funding for 2 years: 200,000 US$ Aim:
Capacity building of Vietnamese designers in cooperation with the Industrial Arts College or other local partner and international design experts
Training of 30 local designers and 2 lecturers by international consultants Building up of sustainable information systems allowing for trend forecasts etc. Internship program for designers in export companies Training of local designers in business models for free-lance designers
Linking trained Vietnamese designers to exporters in form of an internship program Expose Vietnamese designers to market trends Train Vietnamese designers on business models for freelance work.
Legal body: Run by VIETRADE Partnership with Industrial Arts College Coordination with the Handicrafts Exporters Association Aim:
49
Promote the emergence of independent Vietnamese craft design advice service provision structures
Shall be the first step for establishing a Product Design and Development Center
Incubator for Stimulating International Trade Fair Participations Activities: Grants program for joint international trade fair participations for export companies targeting new markets Combination with exporter training Provision of external marketing support for first trade fair participations Continuous participation of companies in international trade fairs for 2-3 years Implemented in cooperation with a private sector trade fair agency. Legal body: Project run by VIETRADE Coordination with VHEA on the use of trade fair subsidies and selection of participants Aim: Enable exporters to develop new markets Initiate sustainable trade fair participations Shall allow for continuous expansion of national Vietnamese trade fair participation booths and permanent integration of further companies. Funding for 2 years: 450.000 US$
Selection of 3-5 groups of 5-10 companies with the intention to participate regularly in an international trade fair Selection of 3-5 trade fairs Support of trade fair participation costs for 2 successive participations in the same trade fair (based on a 50% cost share model)
Organization of joint Vietnamese trade fair participation booths with a private sector trade fair organizer being able to develop a sustainable business model
Integrated approach consisting of trade fair participation, training of the exporters and promotion on target markets in cooperation with international consultants Can be linked up with trade fair participation programs of the Swiss organization SIPPO for trade fair participations in the EU.
50

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NATIONAL SECTOR EXPORT STRATEGY

Arts and Crafts Vietnam

National Sector Export Strategy Arts and Crafts Vietnam

Prepared by: VIETRADE/ITC

National Sector Export Strategy Arts and Crafts Vietnam

National Sector Export Strategy Arts and Crafts Vietnam

National Sector Export Strategy Arts and Crafts Vietnam

National Sector Export Strategy Arts and Crafts Vietnam

The Sectors Current Status

Assessment of Arts & Crafts Export Performance 1999-2004

Items 1999 2000

Year (in 1,000 US$) 2001 2002 2003 2004

National Sector Export Strategy Arts and Crafts Vietnam

62,200 83,078 22,473 32,591 116,080 15,207 331,629

National Sector Export Strategy Arts and Crafts Vietnam

Leading developing country suppliers to the EU in 2004

China (67.1%), Thailand (1.5%), Philippines (0.5%) India

National Sector Export Strategy Arts and Crafts Vietnam

ers & fruits Ceramics 50.7%

Performance against Critical Success Factors

Workshop in Binh Dinh, organized by MPDF-IFC.

Overview on selected critical success factors Raw Material Availability +/-

Plans projects, systems and policies related to non-agricultural sector promotion

Leads regional governments on the

National Sector Export Strategy Arts and Crafts Vietnam

Ministry of Planning and Investment (MPI)

Ministry of Industry (MOI)

Ministry of Culture and Information (MOCI)

Ministry of Trade (MOT)

National Sector Export Strategy Arts and Crafts Vietnam

Ministry of Health (MOH)

Vietnam Trade Center in New York

Internation al Relations Dept.

Enterprise Promotion and Support Dept.

Information & Market Research Dept.

VIETRAD E Rep. Offices HCMC

National Sector Export Strategy Arts and Crafts Vietnam

SWOT Analysis of the Sector

National Sector Export Strategy Arts and Crafts Vietnam

Vision and the Sectors Future Value Chain

National Sector Export Strategy Arts and Crafts Vietnam

Directly importing retailers

Exporters Household producers on village level (1.35 mio. in 2,017 villages)

Raw material collectors, traders

Raw material suppliers

National Sector Export Strategy Arts and Crafts Vietnam

The Way Forward

National Sector Export Strategy Arts and Crafts Vietnam

The Competitiveness Perspective

National Sector Export Strategy Arts and Crafts Vietnam

National Sector Export Strategy Arts and Crafts Vietnam

Capacity development Promote design innovation and product development

VIETRADE Foreign designers from co-operation programs, e.g. from JICA

Industrial Art College

Capacity development Building capacity of crafts sector specialists

10 -20 crafts sector specialists trained

Capacity development Vocational training of workers

Capacity development Broaden the product range of exportable goods

3 new export product categories (season articles, garden articles, tableware/dining)

Ministry of Agriculture and Rural

All bridges to the craft

National Sector Export Strategy Arts and Crafts Vietnam