arts and crafts export strategy - final[1]

7/31/2019 Arts and Crafts Export Strategy - Final[1]

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NATIONAL SECTOR EXPORT STRATEGY

Arts and Crafts

Vietnam


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National Sector Export Strategy Arts and Crafts Vietnam

Prepared by: VIETRADE/ITC

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Table of Content

Page

Preamble 3

1 Introduction 4

1.1 Rationale 4

1.2 Approach 5

2 The Sectors Current Status 6

2.1 Product Groups 6

2.2 The Sectors Current Value Chain 10

2.3 Assessment of Arts & Crafts Export Performance 1999-2004 13

2.4 Performance against Critical Success Factors 17

2.5 International Competitiveness 21

3 Framework Conditions 22

3.1 Government Sector Policy 22

3.2 Institutions 25

3.3 Trade Support Network 27

3.4 Financial Support Funds 30

3.5 Export Services 31

4 SWOT Analysis of the Sector 32

5 Vision and the Sectors Future Value chain 33

5.1 The Vision 33

5.2 The Sectors Future Value Chain 35

6 The Way Forward 37

6.1 The Development Perspective 37

6.2 The Competitiveness Perspective 38

7 Weighting of the Stakeholder Perspectives 43

8 Resource Mobilization 45

8.1 Long-term Strategic Priorities 45

8.2 Short-term Action Plan for VIETRADE 47

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Preamble

The present Sector Export Strategy, which was prepared within a VIETRADE/ITC Interna-

tional 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 sec-

ondary information and have validated key findings made at stakeholder workshops at differ-

ent sub-sector levels. This included discussions with key importers from the EU and US mar-

kets.

The strategy is not meant to be a comprehensive study of the vast arts and crafts sector, but fo-

cuses on an assessment of the most important critical success factors for export growth, pro-

viding recommendations on how to best exploit Vietnams potential in order to contribute toemployment creation and poverty alleviation.

Depending on the definition of arts and crafts, diverging data on the arts and crafts export vol-

ume 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 to-

taled 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 Introduction

1.1 Rationale

Vietnams arts and crafts sector has existed for a long time already, but the impressive growthwhich 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 consid-

erably contributed to the overall Vietnamese socio-economy development.

The arts & crafts sector has an enormous impact on the countrys social and economic devel-

opment, especially in terms of poverty reduction and rural development: Raising income in ru-

ral 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 andother 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 ce-

ramics 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 an-

nual average export growth rate, a feasible strategy is needed to enhance sector competitive-

ness, 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 promotethe artisan craft sector, trying to achieve a target for the industry to create jobs for 4.5 million

people.

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1.2 Approach

The arts and crafts sector export strategy aims at developing a framework to meet the objec-

tives 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 perfor-mance, export competitiveness, critical success factors, related government policies and strate-

gies and the sectors support network, the strategy sets out a long-term vision and proposes ac-

tions 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 link-

ages. In the arts and crafts sector, the value chain can be described as a set of connected rawmaterial 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 strat-

egy 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 re-

lated products; and (3) Human capital development that includes the development of hu-

man 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.

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2 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 Coopera-

tion 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 North-

ern 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, Viet-

nam 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

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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 Naiand 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 partic-

ular importance for rural incomes. But the previously abundant raw material is getting increas-

ingly 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 theVietnamese 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.

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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 sub-

group 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. Theexporters in this field face many difficulties to open up new markets and compete with ma-

chine-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. Handker-

chiefs 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 import-

ed.

The other group is composed of ethnic minorities living in the mountainous regions using tra-

ditional 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 mar-

kets 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 ful-

filled.

Metal

Gifts and decorative articles made of metal include items like statuettes, ornaments, bells,

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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 orothers, 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, al-

though it looks back to a long history of thousands of years. The materials used for paper mak-

ing 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 mak-

ing.

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 pre-

serve the traditional heritage but also to develop new ranges of products. Recently, the Viet-

nam Handicraft Research and Promotion Center (HRPC) has studied various traditional tech-

niques, developed a group of 50 producers in Hoa Binh and started exporting to Japan. A Ko-

rean company has also invested into this business in Vietnam as a 100% foreign-owned com-

pany 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, hu-

man 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 im-

ages, traditional animal figures, architectural pillars, staircases, etc. Various designs can be ap-

plied 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 mas-

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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, cas-

tanets), 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 prod-

ucts 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 produc-

ers 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

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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. Vietnamesesilk 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 processorspurchase materials from collectors or provincial wholesalers. They

are different from material producers/collectors/wholesalers as they are more involved in pro-cessing 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 con-

nect 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 outproduct collection, production supervision and finishing activities.

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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 ma-

chines 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 spe-

cial skills or equipment, product finishing, production of pre-fabricated frames for weavers,

ceramics requiring modern technologies), with a workforce of several hundred or even thou-

sands 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 ex-

porters gain more and more importance.

A recent survey counted a total number of1.120 craft exportersin 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. Somein-

ternational buyers have their own agents and representative offices in Vietnam to source hand-

icraft articles. Some of them are large and well-known international brand names.These for-

eign 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 state-

owned 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 col-

lectors and sometimes by private traders in the craft villages.

Shops differentiate themselves by the quality of craft products. Some of them specialize in

1

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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 devel-

op new products as a strategy to compete against other shops. Many shops also target local res-

idents 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, charter-

ing vessels, inland transportation etc. Competition between forwarding and shipping compa-

nies 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 spe-

cific 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 36,400 396,250

12% 24% 988%

Price from stakeholders (VND) & mark-up rate

Producer Collector Local trader Exporter Foreign re-tailers

Sea-grass carpet

38 x 55 cm

3,700 5,200 6,100 6,832 33,285

40% 17%(*) 12% 387%

2.3 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. Items Year (in 1,000 US$)

1999 2000 2001 2002 2003 20042Source: Survey in Ninh Binh province in January 2006

3 Source: GSO, Vietnam

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1 Bamboo, rattan, rush, leaf 62,200 78,647 93,857 107,921 136,092 171,018

HS 60/120,210,'6504,'940/150,380 26% 19% 15% 26% 26%2 Ceramics 83,078 108,393 117,082 123,480 135,860 148,655

HS '6913','6914' 30% 8% 5% 10% 9%3 Lacquer ware 22,473 36,219 34,043 50,996 59,612 89,673

HS '7113','9601','9602' 61% -6% 50% 17% 50%4 Embroidery 32,591 50,463 54,735 52,673 60,615 65,374

HS: '6302','5810' 55% 8% -4% 15% 8%5 Wood crafts ( HS: 44 /1400, 1900, 116,080 80,960 85,402 69,488 58,997 54,901

2000, 2010, 2090,2110, 2190) -30% 5% -19% -15% -7%6 Others 15,207 13,869 9,192 5,344 5,069 3,477

HS:'57' -9% -34% -42% -5% -31% Total 331,629 368,551 394,311 409,902 456,245 533,098

11% 7% 4% 11% 17%

A different picture of the export volume of arts and crafts emerges if the internationally ap-plied 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 Year (in 1,000 US$) Total

(5 years)1999 2000 2001 2002 2003

1 Wood crafts 152,152 157,527 213,703 209,711 384,140 1,117,233

2 Textile 113,460 126,766 141,021 168,970 162,862 713,080

3 Ceramic 67,414 108,393 116,715 120,002 132,829 545,353

4 Bamboo/rattan/rush/leaf 62,499 78,730 95,878 113,379 142,673 493,158

5 Metal arts 2,723 1,020 4,850 8,836 19,029 36,459

6 Stone arts, born, horn, glass 3,901 1,140 2,378 5,893 9,453 22,764

7 Embroidery & Lace 1,066 69 824 2,765 974 5,697

8 Porcelain & China 153 244 776 524 1,692 3,389

9 Work of art 1,414 619 322 119 176 2,649

10 Handmade paper - - 368 26 977 1,371

11 Others 61,631 77,312 85,364 90,401 97,411 412,120

Total 466,413 551,820 662,200 720,625 952,215 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

4 Source: Export Potential Assessment of Arts and Crafts in Vietnam, Vietnam Handicraft Research and Pro-motion Center

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volume.

Textile products are also excluded in the GSO statistics, but part of it (such as cotton tow-

els and handkerchiefs) are produced in well-known larger handicraft villages (but the UN-

ESCO 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 ex-

ports statistics, but excluded in the UNESCO statistics, which consider them as an industri-

al product.

It is assumed that the real volume of crafts exports lies between the two figures. As an im-

portant part of the handicraft production is not accounted for by the GSO figures, it is recom-

mended 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 lacquerware, 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, contem-

porary 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 ex-

ports 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 pe-

riod 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 Japan 109,355 122,850 137,837 133,118 150,945 654,106

2 France 43,089 59,703 71,483 79,773 96,943 350,990

3 Germany 38,081 58,791 67,385 67,512 95,698 327,466

4 United Kingdom 35,586 49,502 62,518 73,339 83,021 303,966

5 Taiwan 57,470 53,829 65,309 48,998 42,945 268,551

6 United State 6,507 14,870 24,293 50,444 124,252 220,366

7 Korea, Republic of 18,535 23,589 25,349 29,999 33,182 130,653

8 Netherlands 20,316 23,493 22,955 27,238 39,989 133,991

9 Italy 11,695 13,265 16,371 22,789 36,735 100,856

10 Australia 8,018 9,793 13,706 21,965 34,812 88,295

11 Belgium 9,822 12,607 18,064 16,842 22,412 79,748

12 Spain 6,932 10,016 12,378 13,376 29,904 72,605

13 Singapore 15,297 7,464 8,845 8,722 6,940 47,268

14 Canada 3,875 4,860 6,607 9,567 12,632 37,540

15 China 7,077 5,289 4,334 4,221 3,205 24,125

16 Other 74,758 81,899 104,766 112,723 138,599 512,745

Total 466,413 551,820 662,200 720,625 952,215 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

Leading developing country

suppliers to the EU in 2004

Candles 30.1% China (27.8%), Thailand (0.7%), India (0.3%), Indonesia

(0.2%), South Africa (0.2%)

Wood ware 54.4% 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 flow- 70.0% China (67.1%), Thailand (1.5%), Philippines (0.5%) India

5 Source: Export Potential Assessment of Arts and Crafts in Vietnam, Vietnam Handicraft Research and Pro-motion Center6 Source: CBI, Eurostat, 2005

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ers & fruits (0.4%), Sri Lanka (0.2%), South Africa (0.1%)

Ceramics 50.7% China (30.6%), Vietnam (11.0%), Malaysia (2.1%), Thailand

(2.1%), Mexico (0.6%), Tunisia (0.5%), Philippines (0.5%), In-

dia (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 signifi-

cantly. Vietnam started to import bamboo from China, an estimated 50% of rattan is im-

ported 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 Viet-

namese 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.

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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 produc-

tion 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, sea-

sonal 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 Chi-

nese 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 facili-

ties, 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 relation-

ship 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 report-

ing bigger problems.

Ability to supply larger quantities

Vietnam has developed a crafts export capacity that is able to supply large international re-

tail chains and importers with the quantities needed.

Speed is a major critical success factor. China is still ahead in terms of organization andthe abilities of fast delivery.

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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 neces-

sary to establish a fair distribution system where the distributors act as business develop-

ment service (BDS) providers.

Product design and innovation

An estimated 90% of Vietnams production is based on customer specification. Little prod-

uct 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 limit-

ed, 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 inter-

national importers.

Access to Financing

Although financing facilities for enterprises in rural areas and for the poor ex-

ists, 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 pro-

cessing 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 essen-

tial 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

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international market structures.

Entrepreneurial skills

Vietnams private arts and crafts sector is still a very young industry with many companieshaving 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 in-

dustry in Vietnam. However, as the existing supporting industries are rather poorly devel-

oped, 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, USA 7 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 ex-

porters

Poor roads infrastructure

Corporate Social Responsibility Standards

The ability to meet Corporate Social Responsibility Standards (CSR) is an increasingly im-

portant 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, Thai-

land, Philippines, Indonesia, and India.

2.5 International Competitiveness

7Workshop in Binh Dinh, organized by MPDF-IFC.

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Based on the explained critical success factors, Viet-

nams relative competitiveness with regard to these

countries is summarized as follows:

In general, Vietnam is highly competitive, due to itscapacity to supply large quantities, its labor costs,

which are even lower than in China, and the wide

array of raw materials available. This mix of high

production capacity/low production costs/availabili-

ty of raw materials together with the obvious reputa-

tion of Vietnamese companies for being reliable

suppliers, has led to the strong growth which the

sector has seen during the past few years. As a re-

sult, Vietnam has taken over market shares fromother 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 in-

creasingly 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 com-

petitors 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.

3 Framework Conditions

21

Overview on selected

critical success factors

Raw Material Availability +/-

Skilled Labor Force + Product Range -

Production Costs ++

Product quality +

Quantities deliverable +

Reliability +

Product design/innovation --

Trade promotion framework -

Entrepreneurial skills +/-

Infrastructure +/-

CSR standards +


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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 materialsupply and land to investment incentives and trade promotion:

Regulation Agency

Decision No. 132/2000/QD/TTg dated November 24, 2000 on a Number ofPolicies to Encourage the Development of Rural Trades

Prime Minister

Decision No. 132/2001/QD-TTg dated September 7, 2001 on Financial Mecha-nisms for the Implementation of the Programs on Developing Rural TrafficRoads, Infrastructure for Aquaculture and Infrastructure in Rural Craft Villages

Prime Minister

Circular No.79/2001/TT-BTC dated 28 September, 2001 giving guidance on Fi-nancial Mechanisms for the Implementation of the Programs on Developing Ru-

ral Traffic Roads, Infrastructure for Aquaculture and Infrastructure in RuralCraft Villages

Ministry of Finance

Circular 84/2002/TT-BTC dated 26 September, 2002 giving guidance on finan-cial incentives to encourage the development of craft industries

Ministry of Finance

Official letter No.670/BNN TCBC dated 26 March, 2003 giving guidance ontraining and development of rural craft industries

Ministry of Agricultureand Rural Development

Decision No. 124/2003/QD-TTg of June 17 2003, approving cultural preserva-tion and development for minority groups in Vietnam to fully utilize traditionalcrafts

Ministry of Culture and In-formation (MOCI)

Decree No.134/2004/ND-CP dated 9 June 2004 on encouragement of rural in-dustries

Government

Circular No.65/2004/TTLT/BTC-BLDTBXH dated 02 July 2004 giving guid-ance on subsidy for training on crafts in rural areas.

Ministry of Finance andMinistry of Labour, Invalid

and Social AffairsDecision No.184/2004/QD-TTg dated 22 October 2004 on using States devel-opment credit to upgrade infrastructure in craft villages from 2006-2010

Prime Minister

Circular No.03/2005/TT-BCN dated 23 June 2005 giving guidance on encour-agement of rural craft industries

Ministry of Industry

Decision No.910 Q/BNN-CB dated 31 March, 2006 on the plan to develop ru-ral craft industry to 2010

Ministry of Agricultureand Rural Development

Decree 66/2006/ND-CP dated 7 July 2006 on the development of rural craft in-dustry

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, es-

pecially the traditional trades, in order to meet the domestic consumption and export de-

mand, 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 lo-

calities 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 elabora-

tion 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 en-

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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 al-lowed 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 is-

sued 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 ex-

empted 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 develop-

ment 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 giv-

en 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 regula-

tion of the government.

The Ministries, branches and the Peoples Committees of different levels shall create con-

ditions 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 organiza-

tions 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 applica-

tion 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 envi-

ronment pollution cased by the rural trades.

Regarding labor, priority shall be given to the training and use of laborers who are mem-

bers 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 ex-

empt from various taxes on trade handing-down activities; craftsmen, cooperatives, organi-zations 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 train-

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ing for the rural craft establishments; each district may set up a center to train trades, par-

ticularly 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 in-vestment preferences under the Governments Decree No. 51/1999/ND-CP of July 8, 1999 de-

tailing 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 promo-

tion:

Issue Regulation Agency

Investment

Promotion

Decision No.3/1998/QH10 of May 20, 1998, The Law on Domestic In-vestment Promotion (amended)

National Assem-bly

Decree No.68/1998/ND-CP dated 3 September, 1998 giving guidance onimplementation of Ordinance on Natural Resources taxation

Government

Decree No. 51/1999/ND-CP of July 8, 1999 Detailing the Implementa-tion of Law No. 03/1998/QH10 on Domestic Investment Promotion(amended)

Ministry of Plan-ning & Invest-ment

Circular No 02/1999/TT-BKH dated 24 September, 1999 Instructing pro-cedures 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 im-plementation of tax exemption and deduction for the objects of these in-vestment incentives in compliance with the Decree No 51/1999/ND-CPdated 8/7/1999 of the Government.

Ministry of Fi-nance

Decree 164/2003/ND-CP dated 22 December, 2003 on exemption and re-duction of corporate income tax

Government

Decree No.106/2004/ND-CP dated 01 April 2004 on development in-vestment credit of the State

Government

Decision No.71/2005/QD-TTg dated 5 April, 2005 on mechanism ofmanagement and operation of loan from National Fund for Job Creation.

Prime Minister

Decision No.108/2006/QD-TTg on the establishment of the Vietnam De-velopment Bank

Prime Minister

Export

Promotion

Decision No. 195/1999/QD-TTg dated September 27, 1999 on Establish-ment of Export Support Funds

Prime Minister

Decision No.02/2001/QD-TTg dated 2 January, 2001 on Policies to sup-port investment from Development Assistance Fund toward export pro-cessing projects


Decision No.133/2001 dated 10 September 2001 on promoting the Regu-lation on export support credit

Prime Minister

Circular No.76/2001/TT-BTC dated 25 September 2001 giving guidanceon the Regulation on export support credit

Ministry of Fi-nance

Decision No.279/2005/QD-TTg dated 03 November 2005 Promulgatingthe Regulation on elaboration and implementation of the 2006-2010 na-tional trade promotion program

Prime Minister

SME

Promotion

Decree No. 02/2000/ND-CP of February 3, 2000 on Business Registra-tion


Decree No. 90/2001/ND-CP of November 23, 2001 on Support for De-velopment of Small and Medium Enterprises


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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.

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 en-

terprise promotion, including craft en-

terprises, led by the Dept. for SME Pro-

motion.

The Dept. for SME Promotion mainly

supports small-and medium-sized en-

terprises through investment, credit,

production, marketing, strengthening

of competitiveness, export promotion,

information, consulting services, and

human resource development.

Technological instructions, machinery

protection and training will be done inthe 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 Indus-

try.

Small and craft industry promotion

and management.

Development of industrial zones.

Providing industrial extension funds

for SME

Ministry of

Culture andInformation

(MOCI)

Assists in daily promotion of fine art

and craft products led by the Depart-ment of Fine Arts from the viewpoint of

preserving traditional values and the

promotion of artistic values.

Introduction of traditional craft indus-

try Promotion of craft industry and histor-

ical research on craft villages

Publishing.

Hosting of exhibitions and workshops

Ministry of

Trade (MOT)

Promotes craft exports as a major ex-

port item.

VIETRADE is under the MOT for pro-

moting export activities.

Export support, publishing.

Supervision and promotion of interac-

tion with overseas trade promotion in-

stitutions.

Hosting of exhibitions and trade fairs.

Ministry of

Science and

Technology

(MOST)

Implements technology improvement,

research and projects related to the craft

industry.

Implementation of projects for im-

provement of the working environ-

ment in craft villages and support for

research on production technology.

Ministry of

Labor, Invalid

and Social

Affaires

(MOLISA)

Implements craftsmanship trainings as

part of craft industry promotion and

poverty reduction.

The General Department of Vocational

Training will manage craft technology

training in vocational schools.

There are few vocational schools spe-

cializing in craft technology training.

Craft training in vocational schools

under the management of other min-

istries and PCs is usually supplemen-

tary.

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Ministry of trade

VIETRADEVietnam TradeCenter in Dubai

International

RelationsDept.

Administration Dept.

EnterprisePromotion

and SupportDept.

Information& MarketResearch

Dept.

E-Commerce

Dept.

VIETRADE Rep.OfficesHCMC

Vietnam TradeCenter in New York


Ministry of

Health (MOH)

Has no particular role in craft promo-

tion, but is responsible for health of

workers and measures against occupa-

tional diseases and on hygiene manage-

ment.

Research on health improvement for

craft enterprises or craft village work-

ers 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 establish-

ment of the Trade Promotion Agency (VI-

ETRADE) directly under the control of the Min-istry of Trade. VIETRADE was authorized to un-

dertake the same functions and activities

as other national trade promotion organi-

zations throughout the world and plays the guid-

ing role on

trade pro-

motion.

Currently, in terms of organizational structure, VIETRADE has five departments, a representa-

tive 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 devel-

opment 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 authori-

ties.

Further on, in 15 provinces and municipalities directly subordinated to the central Govern-

ment, Trade Promotion Offices/Centers report to the provincial Trade Departments. These of-fices/centers have vertical links with VIETRADE.

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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 thatwas 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 or-

ganizes trade missions for craft exporters to foreign markets (e.g. Hong Kong, Japan, Ger-

many) 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 inter-

net. VCCI has also offered marketing services (SME directory preparation and introduc-

tion, e-commerce of craft items), training (mainly business courses by university profes-

sors and managers), information provision, consulting services (management plan and fi-nancial analysis) and research.

Vietnam Cooperative Alliance (VCA): The Vietnam Cooperative Alliance is a Non-Gov-

ernmental 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 co-

operatives in the areas of small handicraft industry, transport, trade, service and construc-

tion. VCA offers consultation services, other services on legal issues, technology, informa-

tion, 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 Com-

merce Sections abroad, which collect market information to support the strategy develop-

ment 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 Sec-

tions of foreign countries and foreign representative offices in Vietnam conduct some ac-

tivities in the trade promotion field.

Department for SME promotion of the Ministry of Planning and Investment: The De-

partment for SME Promotion mainly supports small and medium-sized enterprises through

investment, credit, production, marketing, strengthening of competitiveness, export promo-

tion, information, consulting services and human resource development. Technological in-

structions, 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 andHCMC.

28
http://www.vnemart.com/http://www.vnemart.com/


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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 concep-

tual 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 differ-

ent levels nationwide, leading to less efficient support activities on the one hand and jeopardiz-

ing 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 Assis-

tance Fund to support interest rates for handicraft exporters after investment (borrows from

commercial banks) and provides credit guarantees for investment projects. After WTO ac-

cession, 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 cred-

its 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% ofexpenses for hiring domestic and foreign experts to advise on export development and de-

signing models and products to raise the quality of goods and services. They will be also

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supported by 50% of expenses for being trained in Vietnam or other countries for improve-

ment 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 thedevelopment of rural industries in term of technology innovation, product development,

trade promotion etc.

Funds from programs and projects: The Ministry of Agriculture and Rural Develop-

ment is going to launch a project named One village, One product, which will be imple-

mented 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), Vina-

control (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 specifica-

tions for their products that have been established in the main markets to protect consumershealth, 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

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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 for-

eign companies). There are hundreds of shipping companies and forwarding agencies in Viet-

nam, 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 Cam-

bodia. 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 freightin Vietnam is much more expensive than in China, which is one of the key problems that re-

duce the competitiveness of the Vietnamese arts and crafts sector.

4 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 Weaknesses

Broad range of raw materials

Skilled labor force

Labor costs which are 25-30% lower than in

China

Diversified craft villages with a rich and diversi-

fied 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 al-

ready sourcing from Vietnam and having buying

offices or agents in Vietnam.

Favorable government support policy with a

broad network of institutions and organizations

involved.

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

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 re-

search institutions whose research achievements

and inventions could lead to be unused

Low sector organization level. Lack of a Nation-

al Handicraft Association

Lack of market information on export trends, op-

portunities, regulations, customers and prices

Underdeveloped support industries such as paint,

raw material processing, etc

High freight costs associated with both air and

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sea shipment

Opportunities Threats

The governments open market policy.

Vietnam is on the way to join the WTO and

fully integrate into the world economy

Vietnams image as a leading supply loca-

tion for the world market

Stable world market demand for home ac-

cessories and gift articles

Product groups such as seasonal and garden

articles, glass, metal, paper ware

Increasing flow of tourists provides market

for products

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 bas-

ketware

Fierce competition in the world market. Com-

petitors countries like China, Thailand and India

produce cheap and good quality

Rapid industrialization and urbanization maylead to reduce labor force in craft sector and in-

crease 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.

5 2 Vision and the Sectors Future Value Chain

5.1 The Vision

Vietnams strengths include the availability of a broad range of diverse raw materials, a well-

developed 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 em-

ployed 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:

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To ensure a long-term sustainable raw material supply, in order to increase the indus-

trys international competitiveness.

To develop the entrepreneurial skills of crafts exporters and help them upgrade into better

organized, sophisticated Trading Companies which undertake comprehensive internation-al 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 Pro-

motion activities and broadening the product range.

To have a more Organized Handicraft Sector, with strong cooperation between compa-

nies 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 develop-

ment 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 effective-

ly and in larger numbers. Vietnams supply potential will be broadened.

By pursuing an ambitious long-term strategy, the dependency on foreign brand names and in-

termediate 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 indus-

try 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 lo-

cation to recognized international craft trademarks. The national part of the value will thus be

extended

5.2 The Sectors Future Value Chain

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Raw material suppliers

Raw material collectors, traders

Exporters(1,120 companies

arts and crafts export strategy - final[1]

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