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Vietnam protests highlight risks of global sourcing
    June 17,2014



In the past 10 years or so, Vietnam has grown in importance for the U.S. furniture industry for some obvious reasons. For one, labor there has been among the least expensive in Asia — or anywhere in the world for that matter. Secondly, it’s managed to avoid costly duties the U.S. government has placed on major categories such as bedroom. Third, it has managed to attract major investments from the same Taiwan, Chinaese companies that were subject to those duties in China in the first place.

 

All this combined has helped Vietnam grow to the No. 2 spot on Furniture/Today’s list of U.S. furniture import countries with $2.2 billion in shipments in 2013, up 11% from 2012. While still a fraction of the $11.5 billion in U.S. furniture imports from China, this is double Canada’s $1.1 billion in shipments and more than 3.5 times the $600.7 million in shipments from Indonesia, the next-largest Asian importer on the list.

 

Perhaps this explains the level of industry interest in the recent protests in Vietnam over the positioning of a Chinese oil rig in the South China Sea. The issue affected not only the furniture industry, but scores of other industries in China, from footwear to apparel and electronics, whose factories were shut down and in some cases damaged by unruly Vietnamese protesters.

 

Fortunately, the protests were brief and many factories weren’t shut down for more than a few days. As a result, many in the industry don’t expect shipment delays beyond a week or two.

 

But the situation was indeed eye-opening for many who source there. Up to this point, most factory shutdowns in Vietnam have been caused by short-lived strikes. Or factories have to adjust their production schedules around periods of peak energy demand. Few in the industry recall having seen any scenario like this, much less one that has erupted so quickly.

 

This gives some a reason to pause for reflection. Will tensions between these or other countries cause further disruption in the supply chain? What will be the next issue and when will it occur? These are questions few can answer or predict. Still, they could have some thinking twice about the risks of global sourcing, particularly given the rise of labor costs in Asia.

 

Already, some have turned to Mexico, which also saw an 11% increase in shipments to the U.S. last year, to $964.7 million, according to Furniture/Today research. According to a story in the May 31 New York Times, American trade with Mexico has grown nearly 30% since 2010 alone. With labor costs that have become competitive with China, Mexico obviously presents an alluring logistical advantage. Goods can cross the border in a matter of days, or an afternoon, as opposed to spending a month on the water. The same is true for raw materials — from oak and poplar to pine and cherry — shipped from the U.S., which many Mexican wood furniture plants use in their finished product.

 

Mexico won’t replace Vietnam or China anytime soon as a furniture resource. In some ways, it’s still a developing country, whose expertise falls short of some of the design and production capabilities in either country. But like states in the U.S. that compete for plant locations, Mexico will likely only increase its own capabilities. That’s something both China and Vietnam should remember as they deal with their political differences.

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