Rationale of the study
Over the past decade, Vietnam's wood processing sector has experienced significant growth, with approximately 2,562 enterprises engaged in the production of interior and exterior furniture as well as wooden handicrafts for both domestic consumption and export This thriving industry provides employment for nearly 170,000 individuals, showcasing the importance of wood products in the Vietnamese market.
120 countries through more than 1,000 direct and indirect exporters The turnover of wood-products exports grows by 30-35% in recent years, from US$219 million in
From 2000 to 2011, the timber industry's value increased from US$2 billion to US$3.9 billion, with a target of reaching US$7 billion by 2020 through a sustained annual growth rate of 35% The wood processing sector has emerged as one of Vietnam's top five export commodities, alongside textiles, crude oil, footwear, and seafood As a result, Vietnam has overtaken Indonesia and Thailand to become a leading furniture exporter in Southeast Asia.
The growth of the wood processing sector has led to a rising demand for raw wood materials, including both natural and engineered options like Medium Density Fiberboard (MDF) and Particle Board (PB) In Vietnam, imports of MDF surged from approximately 200,000 m³ in 2007 to 450,000 m³ by 2011.
2011, there were six local MDF manufacturers with a total capacity of 250,000 M3 MDF, only meet 35% of domestic demand
From its inception in 2008 until 2011, Greenwood's MDF products experienced strong sales driven by their superior quality and an efficient distribution system A significant factor contributing to this success was the insufficient domestic supply of high-quality MDF to meet the growing demand.
In the past 2-3 years, the MDF manufacturing industry has seen significant growth, with five new large manufacturers launching in 2012 alone, contributing a total capacity of 614,000 M3 This surge has increased the domestic MDF capacity to 864,000 M3, surpassing the total demand of 2011 by over 150,000 M3 Notably, one manufacturer boasts an impressive capacity of 300,000 M3 per year, which is five times greater than that of Greenwood Furthermore, additional MDF plants are expected to commence production in the next few years, presenting a substantial challenge for Greenwood amid intensified competition from both domestic and imported MDF products.
Based on the findings, developing a competitive strategy for Greenwood is essential for guiding the company's direction over the next five years, from 2012 to 2017 This strategic plan aims to ensure sustainable growth and effective business development during this period.
Problem statement
Since 2012, domestic MDF manufacturers have faced intense competition, leading to a supply surplus that surpasses demand, while imports remain steady Greenwood has struggled to retain customers amid falling MDF prices, which negatively impact profitability The company is uncertain about how to effectively compete and ensure sustainable growth, lacking a long-term strategy essential for guiding its activities in a competitive market.
Research Objectives
The objective of the research is to analyze overall the current market and condition for MDF industry in Viet Nam
It is also to analyze Greenwood’s business performance in this industry.
Finally, the research aims to develop a business strategy for Greenwood in order to compete with competitors, and become one of the leading companies in the MDF industry in Vietnam.
Research Methods
This is an applied research Qualitative & quantitative research methods are combined to conduct the research.
The research was primarily conducted using desk research and qualitative methods, supplemented by data gathered through quantitative research techniques.
The qualitative research used here is individual in-depth interview method In the quantitative research, a survey method is used to collect data by questionnaire
Figure 1: Framework of the research
The current performance analysis of the industry and company employs strategic management processes, primarily through SWOT analysis This begins with a thorough examination of the company's vision, mission, and goals, followed by an analysis of both external and internal environments to pinpoint the strategic situation of the company.
PEST Porter’s Five-Forces Expert Interview Customer Survey
PLACING STRATEGIC ACTIONS AND SELECTION OF THE STRATEGY
Porter's Value Chain Customer Survey
Literature review Strategy formulation process
CONCLUSIONS AND RECOMMENDATIONS facing Strategies are developed for the company and evaluated to choose the most suitable one for recommendation Figure 6 illustrates the framework of the research.
The research has to clarify the following information, which is useful to analyze.
The MDF industry is shaped by several critical factors as outlined by experts, including the threat of new entrants, which can disrupt market stability; the presence of substitutes that challenge MDF's market share; the bargaining power of buyers, which influences pricing and quality demands; the bargaining power of suppliers, impacting production costs and material availability; and the intense rivalry among existing firms, which drives innovation and competitive strategies Understanding these dynamics is essential for stakeholders aiming to navigate and succeed in the MDF market.
- Customer requirements & needs for the MDF product
- Customer perception about Greenwood’s MDF product compared to competitors in the markets
1.4.3 Data collection method & research tools
Secondary data on PEST factors, the wood processing sector, and the MDF industry, along with insights on Greenwood's competitors and customers, has been collected through desk research from business journals, the internet, and various sources Additionally, information regarding the company's operations has been sourced from Greenwood's financial statements, brochures, and website This comprehensive data provides a broad understanding of the external macro-environment and micro-environment factors that influence Greenwood's business, facilitating an analysis of the micro-environments impacting its operations.
Primary data is gathered through qualitative research methods, specifically through in-depth interviews with experts, as well as leaders and managers from the Wood Processing Sector The interview questions, detailed in Appendix 4, aim to capture expert insights regarding the factors that influence the company's strengths within the industry.
Primary data is gathered through a quantitative customer survey aimed at understanding customer needs, behaviors, and expectations regarding the MDF product This survey also assesses customer perceptions of Greenwood's MDF product in comparison to competitors, helping to identify the market positions of both Greenwood and its rivals.
The data collected is consolidated in the company a whole scenario, which will be used to suggest alternatives and action plans for the company.
- Individual in-depth interview: 15 persons interviewed in 1-2 hours/person They are existing customers’ CEOs, managers.
- Customer survey: The questionnaire was distributed to 60 existing customer’s managers (CEO and the managers) They represent more than 50% of Greenwood’s total existing customers.
Data is processed primary by simple calculation via excel program.
Scope and limitations of the study
This study examines the business activities of Greenwood from its inception, concentrating on the domestic MDF market and imported MDF sources, while not extensively exploring the international MDF market.
Structure of the study
This chapter outlines the research introduction, detailing the rationale, problem statement, objectives, methodology, scope, limitations, and the overall structure of the study.
This chapter presents a comprehensive literature review on key concepts such as strategy, business strategy, competitive advantage, and competitive strategy It explores strategic management and the strategy formulation process, incorporating essential models for external analysis, including PEST and Porter’s Five Forces, as well as internal analysis through Porter’s Value Chain theory The discussion also covers strategy formulation, strategic choice, and strategy implementation, laying the groundwork for the subsequent analysis in the following chapters.
This chapter analyzes both the internal and external environments of the company in order to understand the firm’s own capabilities, customers and business environment
The external analysis encompasses PEST analysis, industry analysis, and customer analysis, focusing on key environmental factors such as political, economic, social, and technological conditions Utilizing PEST analysis theory, these elements are thoroughly examined, while Porter’s Five Forces Model is employed for a comprehensive industry analysis This dual approach effectively identifies the company's opportunities and threats within the market landscape.
The internal analysis focuses on evaluating a company's value activities that contribute to its competitive advantages, utilizing Michael E Porter's value chain theory This approach examines both primary and support activities, including infrastructure, human resource management, marketing and sales, and service activities, to identify the firm's strengths and weaknesses By assessing these elements, the analysis aims to clarify the company's current competitive position and determine the critical success factors that define Greenwood's strategic capability.
Chapter 4 Research Results & Findings (Developing business strategy for Greenwood).
This chapter outlines the anticipated outcomes of the study aimed at formulating strategic actions derived from prior analyses It reviews Greenwood's mission, vision, and goals, employing SWOT analysis to align strategic actions with the company's resources and market demands Ultimately, a comprehensive business strategy and actionable steps are selected for implementation.
This chapter encompasses the conclusions and practical recommendations on the implementation of the selected business strategy for Greenwood Corporation.
Strategy & Business strategy
According to the Traditional Approach there are some definitions of strategy
Harvard's Alfred Chandler (1962) defined strategy as the process of establishing the fundamental long-term goals and objectives of an organization, alongside selecting the appropriate courses of action and allocating resources essential for achieving these goals.
- James B Quinn of Dartmouth College (1980) defined strategy as "the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole"
Mintzberg (1987) defines strategy as a multifaceted concept encompassing "plan, ploy, pattern, position, and perspective." As a plan, it guides leaders in establishing the organization's direction through predetermined actions As a ploy, it involves engaging in direct competition, utilizing tactics and schemes to gain an advantage The pattern aspect emphasizes the importance of consistent actions, while the position aspect encourages organizations to assess their competitive environment and either navigate or eliminate threats Finally, as perspective, strategy embodies the organization's strategic intent.
Any firm can consider three level of strategy: corporate strategy, business or competitive strategy, and functional strategy
Corporate strategy focuses on determining the overall direction of a company, addressing three critical issues: (1) the approach to growth, stability, or retrenchment (directional strategy); (2) the selection of industries or markets for competition through products and business units (portfolio strategy); and (3) the management of activities, resource allocation, and capability development across various product lines and business units.
Business strategy encompasses the actions and plans that management implements to leverage a company's resources and unique capabilities, aiming to achieve a competitive edge in its industry According to Michael E Porter (1985), this strategic approach is essential for outperforming rivals in the market.
Competitive strategy involves identifying and securing a favorable position within an industry, which is the primary setting for competition Its goal is to create a profitable and sustainable advantage against the various forces that shape industry competition.
He proposed three generic strategies company can pursuit to outperform its competitors in the market:
The cost leadership strategy focuses on designing, producing, and marketing a comparable product more efficiently and at a lower cost than competitors Targeting the mass market, this approach enables companies to maintain a low-cost structure, allowing them to offer competitive pricing As a result, businesses can thrive even in highly competitive environments while still achieving reasonable profits.
A differentiation strategy focuses on providing unique and superior value to customers through exceptional product quality, distinctive features, or enhanced after-sales services By offering a unique product, companies can justify charging higher prices, making differentiation a viable approach for achieving above-average profits.
- Focus strategy: focus strategy can be cost focus or differentiation focus This strategy focuses to serve only specific needs of a market segment
Functional strategy represents the foundational level of strategic planning, essential for aligning with the overarching business strategy It is developed by specific functional areas to achieve corporate and business objectives, focusing on maximizing resource utilization effectively.
Competitive advantage
In the Book Competitive Advantage, Michael E Porter (1985) said: “Competitive advantage is at heart of a firm’s performance in competitive markets”:
Competitive advantage is rooted in the value a firm delivers to its customers, which can manifest as lower prices for similar benefits or unique offerings that justify a higher price In today's market, the significance of competitive advantage is paramount, as companies globally encounter slower growth and intensified competition, with rivals no longer believing that there is enough market share for everyone.
Competitive advantage is fundamentally rooted in value creation, where the value of a product (V) to consumers, the competitive price (P), and production costs (C) interact to determine profitability A company's profit is calculated as P-C, while consumer benefit is represented by V-P When comparing two similar products at the same price (P1=P2), product 1 holds a competitive advantage if its value (V1) exceeds that of product 2 (V2).
Figure 2: Value to customer and producer
(Source: Hill and Jones, 1998) 2.2.2 Generic building blocks of competitive advantage
Many factors contribute to competitive advantage of a company But in general, they can be classified into four generic categories:
Efficiency is defined as the ratio of a company's output to its input A more efficient company can generate greater outputs from the same input or maintain output levels while utilizing fewer inputs This heightened efficiency enables companies to achieve a low-cost competitive advantage.
High product quality significantly enhances a company's competitive advantage by fostering positive customer perceptions and increasing preference, allowing for premium pricing Additionally, superior quality is linked to greater efficiency and a lower defective rate, which minimizes the time and labor costs associated with rectifying substandard products Together, these factors contribute to a higher profit margin for the company.
Innovation is the introduction of new methods or products that can manifest in various forms, including process improvements, product design, management systems, organizational structures, or business practices It serves as a crucial element for gaining a competitive advantage, enabling companies to differentiate their offerings from competitors This uniqueness not only enhances a company's market position but also allows it to command higher prices for its products.
To remain competitive, companies must prioritize customer responsiveness by identifying and meeting customer needs effectively Tailoring product features to align with market demands is essential for success Additionally, minimizing response time—the duration it takes to deliver products to customers—is critical for enhancing customer satisfaction and overall competitiveness.
Strategy formulation process
The strategy formulation process involves managers selecting a cohesive set of strategies for an enterprise, which can be divided into five key steps, starting with the selection of the organization's vision, mission, and goals.
(2)- External environment analysis to identify company’s opportunities and threats; (3)- Internal analysis to identify company’s strengths and weaknesses;
(4)-Strategy formulation & strategic action choice;
The strategic management process begins with the evaluation and selection of an organization's vision, mission, and key objectives, which serve as the foundation for future strategy formulation and implementation.
A vision is a fundamental concept that defines an organization's purpose and serves as a constant guide for employees It clarifies the direction the enterprise should take, articulating what the organization stands for and its reason for existence, ultimately leading to the establishment of its mission.
The mission of an organization defines its purpose, aspirations, and goals, outlining the benefits it provides and the actions it should take For instance, an airline's mission is centered on delivering convenient and safe flights to its customers.
Organizations set major goals to achieve in the long or medium term, with profit maximization often being a primary focus Other objectives may include capturing the largest market share within two years or achieving an annual sales growth of 17% It is essential for these goals to be specific and measurable within a defined timeframe.
External analysis involves assessing key external factors that impact a company, aiming to identify current and future threats and opportunities This process utilizes PEST analysis and Porter’s Five Forces Model to evaluate environmental influences and conduct industry analysis, including insights into competitors and customers.
Figure 3: PEST & Porter’s Five-force Model
Opportunities are trends or events that, with the right response, can significantly boost sales and profits, while threats represent trends or events that could lead to a notable decline in these figures without strategic action Conducting an external analysis is essential to identify these opportunities and threats effectively.
PEST Analysis is a strategic tool used to evaluate the external macro-environmental factors that can influence current and future business operations The acronym PEST represents Political, Economic, Social, and Technological factors, all of which can significantly affect a firm's performance in both the short and long term.
Political factors encompass various elements such as the type and stability of the government, the legal system, administrative procedures, and the rule of law Additionally, they involve the level of bureaucracy, the prevalence of corruption, regulatory frameworks, and social or employment legislation Furthermore, government policies aimed at supporting specific industries and the potential for political change are also critical components that can influence the business environment.
- Economic factors consist of business cycle GDP growth, inflation, trade deficit, interest rates, economic policies, unemployment, labour supply, labour cost, globalization and likely economic change
- Socio-cultural factors include population growth, education, employment pattern, attitudes to work likely social-cultural change
- Technological factors include impact of emerging technology, impact of internet and reduced communication costs, impact of technology transfer and likely technological change
Secondary data on PEST factors is gathered from business and industry journals, internet web sites, and other sources via desk research method
Identifying political, economic, social, and technological factors enables strategists to understand market trends and changes When combined with micro-environmental factors, these PEST elements can be categorized as opportunities and threats in the subsequent SWOT Analysis presented in Chapter 4.
The five-force model, introduced by Porter in 1980, highlights the significant influence of five key elements on a company's performance These elements include the threat of new entrants, the rivalry among existing firms, the threats posed by substitute products, and the bargaining power of both buyers and suppliers.
The threat of new entrants in an industry poses significant challenges to established corporations, as these newcomers often bring additional capacity, a strong desire for market share, and considerable resources The level of this threat largely hinges on the entry barriers present within the industry, which are obstacles that hinder new competitors from entering the market Key entry barriers include economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, and government regulations.
In competitive markets, firms are interdependent, meaning that one company's actions can significantly influence its rivals, often leading to retaliatory measures According to Porter (1980), intense rivalry arises from various structural factors, including the number of competing firms, the industry's growth rate, fixed or storage costs, product characteristics, switching costs, and exit barriers.
Figure 4: The Five Competitive Forces that Determine Industry Profitability
The threat of substitute products poses a significant challenge to industries, as these alternatives can fulfill the same needs despite appearing different When switching costs are low for consumers, substitute products can exert considerable influence, potentially capping the prices that firms within the industry can profitably charge.
The bargaining power of buyers significantly influences a firm's profitability by enabling them to negotiate lower prices, demand higher quality, and leverage competition among suppliers Buyers or groups of buyers wield considerable power when certain conditions are met, impacting the overall dynamics of the industry.
• The services it purchases from the sector represent a significant fraction of the buyer’s costs or purchases
• It is concentrated or purchases large volume relative to sellers’ sales
• The services it purchases from the sector are standard or undifferentiated
• It faces few switching cost
• Buyers pose a credible threat of backward integration
• The sector’s service is unimportant to the quality of the buyers’ products or services
• The buyer has full information
Company Introduction
Greenwood Corporation, established in April 2008 in Dong Phu District, Binh Phuoc Province, Vietnam, began with an initial investment of 180 billion VND The company focuses on producing Medium Density Fiberboard (MDF) and commenced construction of its factory on a 24-hectare site in October 2008 After 10 months of construction, the factory successfully launched its first MDF product in August.
In 2009, Greenwood emerged as one of Vietnam's largest MDF producers, boasting an annual production capacity of 60,000 m3 Plans are in place to significantly expand this capacity to 300,000 m3 per year in the future.
PEST Analysis (External Analysis)
The Communist Party government is dedicated to implementing market-oriented reforms, with detailed economic policies expected to be addressed at the 2011 National Congress This one-party system generally promotes political stability, fostering an environment for consistent economic strategies.
Vietnam's legal system increasingly aligns with international practices, focusing on the management and protection of labor rights As a member of the WTO, Vietnam's legislation will continually adapt to meet global legal standards.
The Vietnamese Government has enacted several economic laws, including the Law of Foreign Investment, Business Law, and Law of Private Business, to promote economic liberalization and support the private sector These initiatives have created a favorable business environment in Vietnam.
Vietnamese government has promoted progress in simplifying administrative procedures and laws, to create better conditions for enterprises
Profit before Tax (VND Mil.) 9 23
The wood processing for export sector is poised to become a key player in future export markets, receiving significant support and protection from the government through various policies aimed at fostering its growth and development.
The government is actively supporting wood processing manufacturers by eliminating the wood import license, reducing the import tax rate to 0%, and lowering the VAT to 5% for raw wood sourced from natural forests.
The Fund of Supporting and Developing, a national financial organization, aims to provide loans, credit guarantees, and interest rate support for export projects, specifically focusing on the wood processing and export sectors.
-The indicator of the Prime Minister No 19/2004/CT-Ttg dated 01/06/2004 has setting out some solutions for developing wood processing sectors and wood products exporting
- Policy of bonus for export turnover
-The Government has made trade adjustment policies under the international common law and regulation, especially the problems related to commercial transactions such as seafood procedures, competition policy, etc
The policy promoting investment in provinces with abundant labor resources has created a favorable political and legal environment, significantly benefiting the wood processing and export manufacturing sectors.
Between 2000 and 2010, Vietnam experienced an impressive average GDP growth of 7.22% annually, significantly reducing the official poverty rate from 58% in 1993 to 20% in 2004 This economic boom has played a crucial role in lifting many Vietnamese citizens out of poverty Additionally, foreign direct investment (FDI) surged to US$6.7 billion in 2007, with 25% allocated to fixed capital formation, as reported by UNCTAD.
WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition
The industrial sector's contribution to real GDP has steadily increased, rising from 39.5% in 2003 to 41.4% in 2011 Notably, the wood processing industry has emerged as one of the top five contributors to GDP, with wood product exports reaching USD 3.9 million in 2011, representing 2.9% of GDP Vietnam is recognized as one of the top 20 largest furniture exporters globally and the largest in Southeast Asia, highlighting its significant revenue from furniture exports.
Vietnam's wood industry, along with other economic sectors, has been adversely affected by rising inflation rates, which were recorded at 6.7% in 2009, 9.2% in 2010, and a significant 18.7% in 2011 This high inflation generally harms the majority of society, with the exception of borrowers, who benefit as they repay loans with money that holds less value in the future due to inflation.
In recent years, Vietnam has consistently faced a trade deficit, with imports surpassing exports The trade deficit figures were notable, reaching US$17 billion in 2008, US$12.8 billion in 2009, US$12.4 billion in 2010, and US$9.5 billion in 2011 However, the Ministry of Trade reported that wood product exports in 2011 amounted to US$3.9 billion, reflecting a 14.4% year-on-year increase, making it one of the top five industries contributing to the country's GDP.
However, Vietnam imported about US$1.3 billion of the wood material in 2011 Negative trade deficit of Vietnam leads to depreciate of VND vs USD This is an advantage for exporters
At present, Vietnam has population of 86,93 million people (estimated) rank 13 th in the world 65% of the population is young people and 77.3% of the people is in the working age
Vietnamese labor is recognized for its intelligence, creativity, and ability to quickly adapt to modern techniques and technologies from abroad; however, there is a notable lack of professionalism Between 2001 and 2008, over 10 million individuals received training, representing approximately 25 percent of the nearly 45 million people in the working-age population classified as "trained labor."
Labor source in Vietnam are considers abundant and cheaper than other countries in the region This is an advantage for wood processing manufacturers which use lot of human resource
According to BMI forecasts, between 2009 and 2016, Vietnam’s population will increase by 10% Urbanization will continue to be a long-term growth driver The
UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s
The rapid urbanization of Vietnam's population, coupled with the significant rise in high-rise apartments, has led to an increasing demand for modern, eco-friendly furniture made from engineered boards like MDF, rather than traditional natural wood.
Vietnam has approximately 85 million people, translating to around 17 million households Each household requires about 1 cubic meter of wood for essential furniture, including a table, two beds, and two cabinets, leading to a total demand of 1.7 million cubic meters of wood every decade This figure does not account for additional requirements from offices, hotels, and industrial sectors, nor does it consider the effects of population growth and evolving design trends Consequently, the demand for MDF in Vietnam is projected to increase significantly in the future.
Engineered wood production has a rich history, originating in the late 19th and early 20th centuries, with significant advancements in large-scale MDF production emerging in the 1980s.
Industry analysis (External Analysis)
3.3.1 Vietnam Wood Processing Sector Overview
Vietnam's wood and forestry products processing sector has experienced significant growth, effectively meeting domestic demands while greatly contributing to export revenue and fostering the development of material forests Wood products have emerged as a key export commodity, playing a vital role in the country's export growth As a result, Vietnam has positioned itself as the largest exporter of wood products in Southeast Asia, surpassing Malaysia, Indonesia, and Thailand.
Vietnam’s furniture exports have increased about ten times from US$385 million in
2001 to over US$3.9bn in 2011
Figure 10: Vietnam wood processing sector export turnover (2001-2011)
Vietnam-made wooden furniture is now available in 120 countries and territories, and the United States, Japan and the European Union remain the three largest importers
The number of Vietnamese wood processing company develops rapidly, including various types In 2005, Vietnam has more than 1,500 wood processing companies
By 2008, the total number of enterprises increased to 2,562, including over 1,300 small carpenter's shops with a processing capacity ranging from 15 to 200 m³ per year Additionally, there are 1,200 larger enterprises capable of processing up to 2 million m³ annually, with 450 of these manufacturers actively engaged in exporting.
The wood processing industry consists of three types of companies: state-owned, private, and foreign-invested However, their distribution is not uniform across regions Out of more than 2,562 wood processing enterprises, only 14% are located in the North, 6% in the North Central region, while a significant 80% are concentrated in the Central Coast and Southern regions.
Vietnam wood processing sector export turnover (2001-2011)
Medium-density fibreboard (MDF) is an engineered wood product created by breaking down hardwood or softwood residuals into wood fibers, which are then combined with wax and a resin binder This mixture is formed into panels through the application of high temperature and pressure, making MDF a popular choice in the furniture industry.
Figure 11: MDF Industry value chain
Forest and plantation owners in Vietnam play a crucial role in supplying wood material for MDF mills This diverse group includes private individuals, large private companies, state-owned enterprises, and institution-owned companies, all contributing to the sustainable forestry industry.
- Chemicals: companies that manufacture Chemicals material used for MDF production i.e URE, Formalin…
Downstream, the second group is the MDF Manufacturer
The third group is made up of further processing companies machining, laminating, panting… the MDF Board to customer needs and wholesalers stocking and distributing MDF products for further users
The fourth group encompasses companies that utilize MDF to create finished wood-based products, such as doors, windows, and furniture, commonly referred to as industrial end-users Additionally, this group includes businesses that manufacture semi-finished products like moldings and panels.
The fifth group of actors in the distribution chain consists of two sub-groups: retailers, such as IKEA, who sell directly to consumers, and builders' merchants, which provide comprehensive solutions for end-users The sixth group encompasses the end-users or consumers themselves.
The final actor group is the agents Agents are found in various sections of the value chain and act as facilitators or relation exchangers between a supplier and a customer
The main material for MDF production includes:
- Many types of wood: branches, tops, small trees
- Urea Formaldehyde Glue (UF) The main material for UF production is Formalin and Urea
Wood constitutes the majority of the cost in Medium Density Fiberboard (MDF) production, with approximately 1.2 to 1.4 tons of timber needed for every cubic meter of MDF For a plant with an annual capacity of 60,000 cubic meters, this translates to around 800,000 tons of wood consumed each year, or about 300 tons daily This significant wood usage necessitates that MDF manufacturers secure a stable supply of raw materials and ideally position their facilities close to these resources to minimize transportation expenses.
There are now two main MDF production technologies:
The Continuous Press System represents cutting-edge technology in MDF production, offering stable product quality, high capacity, and reduced material waste Despite its advantages, this system necessitates significant investment and involves complex machinery Leading suppliers of this advanced technology include Dieffenbacher from Germany and Metso from Sweden.
The multiple or single press system is a cost-effective technology that utilizes simple machinery, but it has a limited capacity and tends to produce more material waste Numerous companies in China provide this type of system, with Greenwood being one of the users of this technology.
The first MDF plant in Vietnam, MDF Viet Trung, was established in Nghe An in 1999 By 2009, five additional plants had commenced operations, bringing the total to six MDF plants by 2012, which collectively had an annual production capacity of 271,000 m³.
WoodGlue/ResinEnegy/ElectricityLabour and overheads
In 2012, the addition of six new MDF plants in Vietnam increased the total production capacity to 945,000 m³ per year, which is 3.5 times greater than the capacity prior to this expansion.
Table 2: List of MDF factories operating in 2012
(Source: Consolidated data from Desk Research)
Figure 13: Capacity of MDF Manufacturers in Vietnam 2012
(Source: Consolidated data from Desk Research)
From 2013 to 2015, nine new factories are expected to commence operations across Vietnam, adding a capacity of 880,000 m³ annually By 2014-2015, the total domestic MDF production capacity is projected to reach 1,831,000 m³ per year, doubling the output of 2012 and nearly increasing sevenfold compared to 2011 This surge in factory numbers throughout the North, Central, and South regions will not only lead to a significant increase in supply but also intensify competition, posing challenges for MDF manufacturers in Vietnam's market.
Table 3: List of MDF factories operating in 2014 (forecast)
(Source: Consolidated data from Desk Research)
In 2011 Vietnam imported about 450,000 m3 MDF mainly from Thailand, Malaysia, Indonesia, China, and New Zealand
Figure 14: The import volume of MDF of Vietnam from 2001-2011
In forecast, demand for MDF import in 2012 will fell sharply due to new production plants in the country released products on the market
3.3.2.4 Supply/Demand MDF of Vietnam
Vietnam's fiber board consumption stands at approximately 0.5 m³ per 1,000 people, significantly lower than other countries such as China (8 m³), Malaysia (10 m³), South Korea (40 m³), Brazil (5 m³), the United States (31 m³), Germany (20 m³), and India (0.1 m³) Given this disparity, it is anticipated that the demand for MDF in Vietnam will rise in the coming years.
- Demand for MDF in 2011-2013 increased by 10% each year
- Demand for MDF in 2014-2020 increased by 15% each year
- The new factory just operates 70% in maximum of design capacity in the first year
Table 4: Vietnam MDF production/demand estimation from 2012-2017
(Source: Consolidated data from Desk Research)
It’s expected that by 2020, demand for MDF in Vietnam is nearly 2.5 million m3
It’s expected that from 2013 onwards, the capacity of MDF factories will exceed domestic demand about 200.000M3 per year and increase significantly in the coming years
Figure 15: Domestic MDF Demand/Suply from 2011 to 2017 (estimate)
(Source: Consolidated data from Desk Research)
MDF Domestic Production Capacity Year MDF Domestic Demand
3.3.2.5 Overview of International MDF Market
The total capacity of the MDF factories in all over the world in 2009 reached 72.9 million m3
It is expected that by the end of 2012, the total MDF capacity in all over the world will reach 85 million M3, of which China accounted for 46% and Europe accounted for 26.5%
According to Wood Based Panels International, the current total global supply of MDF has exceeded the total demand
Table 5: MDF Capacity by regions/Country in 2009
Regions/Country Annual Capacity (m3) % of total
(Source: Wood Based Panels International)
China remains the world's largest supplier of MDF, with an annual production capacity of 41.52 million m³ The country sells approximately 38.84 million m³, surpassing domestic consumption by around 3 million m³ This surplus has contributed to a recent plateau in the expansion of China's MDF production capacity.
The MDF manufacturers in Europe and the United States face high production cost and strong currencies so that they are not expanding the capacity much
Customer analysis (External analysis)
Customers in MDF Industry are mostly Furniture companies
Findings from the customer survey:
A survey has been conducted know customers’ needs on the product and customers’ perception on Greenwood and its existing competitors’ product The survey results are shown in findings as follows:
- Most of customers (82%) are in general satisfied with MDF product supplied by existing MDF Manufacturer
- Most of customers (73%) don’t care about Technology and Machinery of MDF Manufacturer when they choose MDF product
- Most of customers (72%) consider that the Price is not the most important factor when they choose a MDF supplier
- Customers consider the level of key important factors affecting their supplier choice among Quality, Price, Delivery, Customer Service and Brand Nam as follows: 1- Quality (most important), 2-Delivery, 3-Price
Figure 18: Key important factors of customers when choosing MDF supplier
(Source: customer survey) Note: one is not important and five is very important
A significant 40% of customers believe that the surface quality is the most important factor when assessing MDF products, while 20-25% prioritize density and color as key quality indicators.
Figure 19: Most concerned factor relating quality of MDF product
- Customers assess Greenwood’s Product Quality, Delivery and Customer Service is better than those of other competitors
Figure 20: MDF Quality and Delivery Service Assessment
Results of the customer survey are shown in appendix 6
Greenwood’s Value Chain Analysis (Internal analysis)
Greenwood utilizes approximately 10,000 tons of chemicals and nearly 100,000 tons of wood materials annually to manufacture 60,000 cubic meters of finished products This substantial volume of materials necessitates a long-term strategy for ensuring a steady supply of raw materials.
For chemical, Greenwood can buy from many suppliers in Vietnam or import relatively easy
Due to the inability of any single supplier to fulfill the entire wood material demand of the factory, it is necessary for the factory to source from multiple vendors and invest in its own forests or plantations to ensure a steady supply for ongoing operations Each hectare of plantation yields approximately 140-160 tons of wood, and Greenwood utilizes around 700 hectares annually Once the plantations are fully exploited, they will be replanted for future use, with a typical exploitation period of about five years post-planting.
Currently, the company's plantations supply only 10% of the required demand, leading to challenges in sourcing raw materials Despite the Greenwood factory's proximity to dense forests and rubber plantations, competition from numerous MDF and wood processing factories in Binh Duong and Dong Nai drives up raw material prices This scarcity of materials not only impacts production costs but also disrupts the continuous operation of the plant In contrast, factories in the central region benefit from abundant raw materials and less competition, resulting in lower production costs and a significant advantage in the market.
So wood materials is a disadvantage of Greenwood compared to the factories in Central Region
Greenwood boasts a strong technical team and excels in production and quality management by adhering to standards such as ISO 9001:2008, along with methodologies like 5S, Lean, and Kaizen This commitment to effective organizational and production management gives Greenwood a competitive edge over its rivals.
Greenwood's production technology relies on semi-automatic machinery from China, which is prone to instability and malfunctions, negatively impacting yield and quality Additionally, this Chinese machinery consumes more raw materials compared to the more efficient European machinery used by competitors European machinery boasts higher automation levels, requiring fewer operational workers and thereby reducing labor costs Consequently, Greenwood lacks a competitive edge in technology and production lines when compared to those utilizing European machinery.
Greenwood MDF excels in production quality compared to its competitors, attributed to superior organization and management practices However, it faces higher production costs due to the adoption of European technology.
Greenwood produces around 60,000 cubic meters of products annually, translating to approximately 40,000 tons With a dedicated fleet of 10 specialized trucks and two strategically located warehouses—one in Binh Phuoc and another in Ho Chi Minh City—Greenwood efficiently meets customer delivery needs within 1-2 days This rapid service caters to both small and large orders, as the warehouses are situated near major consumption areas like Binh Duong, Ho Chi Minh City, and Dong Nai In contrast, competitors lack their own transportation teams, often relying on outsourcing or only having large trucks for big orders, which limits their ability to deliver smaller quantities Additionally, competitors in the Central region face high shipping costs and extended delivery times, often exceeding a week, further highlighting Greenwood's significant competitive advantage in the market.
Greenwood boasts a highly skilled sales and marketing team based in Ho Chi Minh City, with all employees receiving training from esteemed institutions like PACE Customer feedback on their marketing and sales efforts has been overwhelmingly positive, highlighting the effectiveness of their direct marketing approach The company's marketing strategy is built around the Four Ps, ensuring a comprehensive and effective mix for their promotional activities.
Greenwood's MDF product meets stringent quality standards from Europe and the United States, positioning it as one of the top options in the market Despite its high quality, the differences between Greenwood's MDF and those of competitors are minimal.
Greenwood's MDF is positioned as a premium product with a listing price that exceeds that of its competitors To maintain competitiveness, a flexible discount policy is available, ensuring that the net selling price remains comparable to the leading rival, without falling below it Consequently, Greenwood does not hold a price advantage over its competitors.
Greenwood employs two distribution channels: direct sales to large wood processing companies and indirect sales through a network of retail agents in southern Vietnam By selling directly, Greenwood delivers goods straight to buyers' warehouses, while its retail agents cater to smaller customers without requiring extensive storage or transportation resources This efficient delivery system gives Greenwood a competitive edge in the MDF market.
Greenwood primarily utilizes personal sales as their main promotional method, where sales representatives directly engage with potential and existing customers The company actively participates in annual specialized exhibitions like Vietwood and Vietbuild to showcase their products Additionally, Greenwood enhances its visibility by publishing PR content in specialized journals such as Viet Wood and by installing advertising boards at select retailer warehouses.
This is a strong point of Greenwood over other competitors
Greenwood offers strong sales and warranty policies, ensuring customer peace of mind during purchases Their dedicated Sales and Marketing department effectively addresses customer complaints, resolving issues quickly and satisfactorily within just two days This efficient service is a key strength that sets Greenwood apart from its competitors.
Greenwood collaborates with multiple reliable suppliers for chemical materials, ensuring that it does not rely on a single source However, its purchasing volume is relatively low, which limits its negotiating power with these suppliers.
Greenwood collaborates with over five wood suppliers and has formed joint ventures with two of them to ensure a steady supply of high-quality materials at competitive prices By purchasing nearly all of their output, Greenwood holds a strong position in the market, although this does not provide a distinct advantage over competitors.