An assessment of export activities at generalimex company

HCMC UNIVERSITY OF FOREIGN LANGUAGES AND INFORMATION TECHNOLOGY DEPARMENT OF INTERNATIONAL BUSINESS ADMINISTRATION GRADUATION PAPER TOPIC: AN ASSESSMENT OF EXPORT ACTIVITIES AT GENERALIMEX COMPANY Student's name : NGUYEN NHU HAO Class : KDOt - 04 Advisor : NGUYEN THANH LAN, MBA I ~ I JULY 2005 ACKNOWLEDGEMENT On completing this graduation paper, I have received invaluable help and encourages from my professor, my family as well as my friends First of all, I would like to express my deep gratitude to my advisor, Mr Nguyen Thanh Lan My paper would not be finished without his constructive comments, spiritual encouragement and invaluable guidance Besides, I am especially grateful to my all professors III the Department of International Business Administration of HUFLIT University for the knowledge that I have been taught during the last four years I would like to express my sincere thanks for Mr Nguyen Minh Due, the manager of im-export department II of Generalimex Co for his assistance in providing me with necessary materials and important custom documents Finally, I am indebted to my friends for their encouragement and valuable materials for me during the preparation of this paper ADVISOR'S ASSESSMENT Nguyen Nhu Hao is an ambitious, enthusiastic and diligent student She is capable of studying independently and scientifically and she is also capable of combining theoretical and practical issues efficiently During the process of doing this research, she has always proved to be creative, well-organized and qualified enough for the duty delegated by the school Although at the outset of her research, she's got some problems with her academic English, gradually, this has been improved She has been sparing no endeavors to fulfill her work at her peak of efficiency As a result, she has made some progress and I hope that she will be able to make further progress in the future All in all, Nguyen Nhu Hao is a capable student of doing academic research Hochiminh city, 30 June, 2005 Nguyen 11 ABSTRACT Today, im-export trading becomes an important industry in national economy Countries participate in international trade can gain many valuable benefits that make their economy stronger However, the exporters should carefully take into account many decisions before they take part in international business activities This research aims at analyzing and evaluating the exporting activities III Generalimex Co and consists of four chapters The first part is relating to the establishment of Generalimex with four main phases: the foundation and consolidation, the development, the renovation and the phase from 1996"up to now; and then it deals with the organization structure of company The second part of the study is about an overview of Vietnam exporting activities and Generalimex's activities from 2002 to 2004; this chapter is mainly concerned with the im-export turnover, market structure and the structure of im-exported goods of company The basic knowledge on the international trade is given as the third part of the paper which provides some issues about making arrangements for foreign trade and signing foreign contracts in Generalimex Co This chapter will discuss the main issue, how Generalimex has arranged for their exports, how they have negotiated their contracts and finally, how they have performed their contracts The last part of the paper presents the performance of an export contract III Generalimex with some major steps like obtaining an export license, arranging exported goods, arranging vessel or dealing with carriers, delivery, payment procedures and setting claims All above-mentioned steps are very important and necessary for Generalimex to follow when they perform export contracts Let be further understood about export activities in Generalimex by carefully regarding this paper III , LIST OF TABLES AND FIGURES Page Table 1: Export turnover of Vietnam from 1991 to 2004 Table 2: Vietnam's export market 10 Table 3: Export turnover in the first quarter of 2005 10 Table 4: 1m-export turnover of Generalimex from 2002 to 2004 13 Table 5: The growth rate ofim-export turnover of Generalimex from 2002 to 2004 14 Table 6: Export market structure of Generalimex from 2002 to 2004 15 Table 7: The structure of exported goods in Generalimex 20 Table 8: Import market structure of Generalimex from 2002 to 2004 21 Table 9: The structure of imported goods in Generalimex 24 Figure 1: Generalimex's organization diagram Figure 2: Organization of im-export department II Figure 3: Vietnam's export turnover from 1991 to 2004 , : Figure 4: 1m-export turnover of Generalimex from 2002 to 2004 14 Figure 5: The growth rate ofim-export turnover 14 Figure 6: Export market structure of Generalimex 16 Figure 7: Asia maket 17 Figure 8: America market 18 Figure 9: ED market 18 Figure 10: Australia market 19 Figure 11: Exports structure 20 Figure 12: 22 Figure 13: 23 Figure 14: 23 Figure 15: Imports structure 25 Figure 16: Performing an export contract in Generalimex 63 lV f I TABLE OF CONTENTS Page Acknowledgement i Advisor's assessment ii Abstract ; iii Tables and figures : iv CHAPTERl GENERALIMEX'S PROFILE 1.1 General overview of Generalimex's business activities 1.1.1 The phase of foundation and consolidation (1981-1985) 1.1.2 The phase of development (1986-1990) 1.1.3 The phase of renovation (1991-1996) 1.1.4 The phase from 1996 up to now 1.2 Corporate functions 1.2.1 Corporate organization 1.2.2 General comments on the organization CHAPTER EXPORTING ACTIVITIES 2.1 An overview of Vietnam exporting activities 2.2 Generalimex's business activities from 2002 t02004 13 2.2.1 1m-export turnover 13 2.2.2 Export market structure 15 2.2.3 The structure of exported goods 20 2.2.4 Import market structure 2.2.5 The structure of imported goods _ ~ 21 24 CHAPTER NEGOTIATING AND PERFORMING FOREIGN CONTRACTS 3.1 Making arrangements for foreign trade 26 3.1.1 Market research 27 3.1.2 Setting sales proj ects , 29 3.2 Negotiating a foreign contract 3.2.1 Commodity 30 ~ 32 3.2.2 Quality 33 3.2.3 Quantity 35 3.2.4 Price 36 3.2.5 Payment ; 38 3.2.5.1 Methods of payment 39 3.2.5.2 Time of payment 49 3.2.5.3 Place of payment 52 3.2.6 Delivery 53 3.2 6.1 Date of delivery 53 3.2.6.2 Place of delivery 54 3.2.6.3 Modes of transportation 55 3.2.6.4 Risks, title and insurance : 3.2.6.5 Terms of trade 55 56 CHAPTER PERFORMING AN EXPORTING CONTRACT INGENERALIMEX 4.1 Obtaining an export license 63 4.2 Arranging exported goods 64 4.2.1 Requirement for L/C 64 4.2.2 Quality and quantity inspection at the processing establishments and 65 enterprise 65 4.2.3 Packaging and marking 66 4.2.4 Quality and quantity inspection by authorized inspectors 66 4.3 Arranging vessel or dealing with carriers ; 67 4.4 Delivery 67 4.5 Payment procedures 68 4.6 Setting claims 68 Conclusion and suggestions 69 INTRODUCTION It is obvious that no countries can independently develop without any economic and business relationships with other countries Each country owns different sources of lands, climate, natural resources and the likes Thus, they are only in favour of developing some specific sectors of economy David Ricardo, an American economist (1772-1823) stated that "Even if one country was most efficient in the production of two products, it must be relatively more efficient in the production and export of that good in exchange for the importation of the other goods" (Czinkota, Ronkainen & Moffet 2003 p.35) The appearance of international business is accompanied by that of the government or the period of slave holding International business relationship is more and more widened because not only the commodity, the currency relationship is more and more complicated but also that relationship brings benefits to countries participate For developed countries: widening international business relationship helps them expand economy strength such as: - Looking for new markets to solve the surplus crises situation - Searching new favorable investment markets for the purpose of high profit and lower production costs due to the use of cheap labor price and natural resources in developing countries For developing countries: widening international business relationship is profitable in absorbing capital, new advanced technology which makes labor productivity increased and helps them implement economy industrialization and modernization process In the case of Vietnam, exporting IS the very industry which concerns the Vietnamese government most because investing in this business field will brings them the following major benefits: Firstly, thanks to export promotion, source of foreign currency in land increased, which pushes the capabilities of importation of advanced machinery, technology equipments up Secondly, this will certainly ameliorate suitably the balance of payment and therefore, will insure the high speed of economy growth Next, exporting will facilitate Vietnam in absorbing advanced technology level as well as business experience from many other developed countries Finally, this will no doubt solve the problem of unemployment attributable to the development of export industry and make the quantity as well as quality of export products mcrease For any enterprises, the benefits of exporting are very obvious: markets are more extensive, thus, they have a wider choice of buyers; comparatives in producing certain ranges of products in their countries have enabled them to gain much more profits For the case of Vietnamese exporters, international trade gives them golden opportunity to take advantages of their comparative agricultural products, of their low pay workforce, of their skillful handicrafts and the likes However, risks of doing business abroad may be encountered at any time if traders fail to be aware of the differences or discrepancies in languages, in systems of laws, in business customs, practices and cultures Such factors will easily result in loss of profits, loss of contracts and even loss of business relationship between and among partners in international trade Exporters may take some risks such as buyers fail to make payment or delay payment Quality of goods may deteriorate because of long route of transportation Goods may be damaged or lost or missing in transit Freight charges will increase and therefore, prices quoted to buyers will be higher After-sales services are not easily executed because of the long distance Complaints and claims by buyers may arise any time due to fewer understandings and different business cultures between parties to a contract In view of the above-mentioned risks, an exporter is advised to hilVe deep knowledge of international trade as well as to attain necessary experience in dealing with different partners in different markets Prepared by: Nguyen Nhu Hao Graduation paper originals and the number of copies will depend on the buyer's requirement As above discussion, only clean B/L can clear payment at the bank 4.5 Payment procedures After the goods have been delivered, Generalimex will make out all the necessary documents as agreed in the contract and send them to the paying bank for payment The normal time for documents preparation is from 05 to 07 days, especially if the goods are dispatched to Japan, this will last for 07-10 days If the bank finds no discrepancies in the documents presented, payment will be made 4.6 Settling claims (if any) Once, the goods have been delivered to a buyer, if there are any claims lodged by a buyer, which proves to be reasonable, the exporter must settle them without any delay to the buyer's satisfaction in order to maintain long-term business relationship with their partners Generalimex's policy is very flexible and its purpose is to satisfy the customers, not to gain profits Their common solutions to claims are: (i) Sending replacements new goods for the damaged ones (ii) Reduction of price for wrongly delivered or damaged goods (iii) Repairing damaged goods (iv) Offering compensation for short-shipped, lost or missing goods Page 68 Prepared by: Nguyen Nhu Hao Graduation paper CONCLUSION AND SUGGESTIONS In conclusion, we can find that although Generalimex has gained some success in exporting business, they are now having some major problems As discussion in chapter 2, we can find that the export turnover of this firm from 2002 to 2004 has been declining from 21,729,570 to 14,450,000 US dollars The reason, for me, is due to two major factors Firstly, it is the change of policy by Vietnamese Government who has encouraged the private economic sectors to join the exporting business The monopolized position of state economic sector has now been abolished State-owned firms like Generalimex no longer dominate the domestic market, which leads to a downturn in export turnovers of these companies The second factor lies in Generalimex themselves The new situation demands this firm to have a more flexible, dynamic management team as well as a more qualified workforce Still, this firm has not been in good response to such change in economic environment The stagnancy in this firm's working practice, originated from the bureaucratic subsidized productivity economy, has brought and effectiveness extremely negative in Generalimex's influence business to the activities In particular, the followings issues should be taken into account Market research and setting sales targets This firm should better perceive their products in terms of sales seasons, ability in collecting goods from local manufacturers as well as the stage at which their products are so as to set more reasonable export prices to their partners Market research has not been done in a more professional manner, in terms of political, legal, trading systems and currency, credit regulations and the fluctuation of the commodity markets in their partners' countries in order to set up more precise sales targets The research of their partners, the matter of human being, has not been done in a scientific way therefore, some unnecessary risks still exist Page 69 Graduation paper Prepared by: Nguyen Nhu Hao In order to facilitate the process of setting sales targets, all costs, charges, fees, and expenses must be more precisely computed In particular, overhead costs, collection costs, freight charges, customs fees, forwarding fees, taxes and other expenses must be accurately calculated Market analysis and pricing After having enough information about a target market, about a partner, this firm should analyze such information in a scientific way in order to price their products reasonably The goal of prices should also be defined expressly For example, such price is for which purpose: market penetration or profit earning or else The structure of pricing should be set up so that it can help the firm to determine plausible prices for their buyers Delivery terms should always be put into account when setting prices because different terms of delivery will make prices vary accordingly Arrangements for signing contracts - First offers should be made in a clear and concise way to avoid possible misunderstandings and disputes - Terms of delivery, terms of sales should be selected to suit customers' practice, to be for mutual interests - Prices are the first priority for customers, therefore when quoting prices, the firm should absolutely follow the goals Contract performance Arrangements for delivery In order to arrange the goods III conformity in quality and quantity with contracts, more qualified staff should be sent to the establishment to supervise the process of manufacturing, weighing, Page 70 packaging, marking there Graduation paper Prepared by: Nguyen Nhu Hao Instructions and supervisions from a distance will not be possible for this firm to assure the quality and quantity for their customers Dealing with freight forwarders and carriers More experienced and qualified staff should be delegated to deal with freight forwarders and carrier, any where necessary, naming vessel or booking space This is very crucial because mistakes in this step will make it impossible for the firm to get payment from banks Payment - More flexible methods of payment should be applied, not only LlC because LlC can bring good security but for long established relationship Documentary Collection is also considered because LlC brings more complicated, timeconsuming procedures, s well as higher fees - More qualified staff should be delegated to deal with shipping documents because any marginal mistakes will cost money and time (e.g.: amendment and extension of LlC fees, charged by banks) Personnel More efforts and money should be invested in staff training so as to improve their knowledge, expertise and techniques in foreign trade field The fact indicates that poor knowledge in exporting has resulted in loss of money and loss of customers Knowledge of English is essential for both the management and the staff Negotiation and communication skills are of equal importance Training in language for people of this firm will avoid unnecessary tangible and intangible loss Allocation of responsibilities, duties to each staff or each team should be more precisely and concretely so that they can perform their jobs more efficiently Page 71 Graduation paper Prepared by: Nguyen Nhu Hao Products for export Prices of agricultural products are very volatile due to factors such as changing in weather, seasons, and political issues The firm should closely catch up with the most up-to-date information in commodity markets so as to timely adjust the prices rationally To facilitate the process of product collection and manufacturing, some more investments should be made in more modem production lines and packaging machinery Such facilities should be placed on-the-spot, i.e in the local processing establishments The lines of products for export should be more diversified in order to attract more customers as well as to increase export sales Long term investment in farmers so that the firm can maintain more stable source of goods for export For example, Generalimex can offer credit to farmers so that they can produce certain products for this firm Counter-trade contracts should be signed with growers, where Generalimex can supply them with fertilizers, facilities in return for coffee This will mean that the output for the firm imports will be improved This research certainly contains intentional mistakes and shortcomings due to my limitation of experience of and time I look forward to receive all constructive comments and suggestions as well All are welcomed and highly appreciated Thanks Page 72 REFERENCES Busto, C ICC guide to Documentary Credit operations ICC Publishing S.A (Paris), 1994 Czibnkota, Ronkainen & Moffett International business, theory and practice HUFLIT,2003 Doan Thi Hong Van Foreign Trade techniques (Vietnamese version) Statistics Publishing House, 2002 ICC 2000 Incoterms 2000 ICC Publishing S.A (Paris) Mohr, B The language o/international trade in English Prentice Hall Regents, Englewood Cliffs, NJ 07632, 1990 Pinnelis, J.R.1994 Exporting and the export contract Prodex Vu Huu Tuu 2002 Foreign Trade techniques (Vietnamese version) Education Publishing House C:\iJBA\RBOX\R_030225\HCMC2502.SWI 09:20:06 FIRST COPY *** UAK 1177: Date and Time (YYMMDDHHMM) (451: acceptance/rejection :O}} {1 :F21VBAAiJNVXAX U9246223026} 0302250747} FIN MESSAGE/Session/OSN Output Message Type Input Time/MIR Received from FOl 9246 223026} 700 Issue of a Documentary Credit 1553 030224LUMIUS3NAXXX4376308856 LUMIUS3NAXXX BANK LEUMI USA NEW YORK, NY Output Date/Time 030225 0751 Priority/Delivery/Obsol Normal} : N1005280 {3:{108:NI0052806}} /Testkey : ' /Sequence \l'uJ- = - of Total l/l ~/Form of Documentarj Credit : IRREVOCABLE /Documentarj Credit Number : 0110052806 :/Date of Issue : 030224 J/Dace and Place of Expiry 0304 2lVIET~A.i"l /J\pplicanc : ~.? 3Rf,ur1~~D SONS eNC 265 POST AVENUE WESTBURY, Wi 11590 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