Negotiation in international business group assignment procurement and supply chain contracts 33

Types of steel produced by Baosteel Group...15 Figure 2.1.. Location: Baosteel Tower, 370 Pudian Road, Pudong New District, Strategic objective: To build itself into the most globallyco

UNIVERSITY OF FINANCE – MARKETING

FACULTY OF COMMERCE

- -NEGOTIATION IN INTERNATIONAL BUSINESS

GROUP ASSIGNMENT PROCUREMENT AND SUPPLY CHAIN CONTRACTS

Lecturer: Ph.D Nguyễn Thị Thùy Giang

First of all, group 7 would like to express our sincere gratitude to Ms Nguyễn Thị Thùy Giang, the lecturer of the International Business Negotiation course, for imparting knowledge and guiding us in

completing this project

In carrying out our work, we have researched materials and updated information on the procurement contract for steel used in

manufacturing car bodies for Vinfast and negotiated with Baosteel Corporation However, there may be shortcomings due to time

constraints and our limited expertise Therefore, we sincerely hope to receive your feedback and comments so that we can improve this report further

Group 7 expresses our heartfelt thanks!

Ho Chi Minh City, November 8, 2024

The Authors

INSTRUCTOR COMMENTS

Ho Chi Minh City, November 8, 2024

Instructor

TASK ASSIGNMENT AND COMPLETION SCHEDULE

Percentage

of completion

Nguyễn Vũ Gia Hân

- Prepare chapter III content on Word

MỤC LỤC

ACKNOWLEDGMENTS 1

INSTRUCTOR COMMENTS 2

TASK ASSIGNMENT AND COMPLETION SCHEDULE 3

MỤC LỤC 4

DANH MỤC HÌNH 7

DANH MỤC BẢNG 8

CHAPTER I PROVIDE A DETAILED OVERVIEW OF STRATEGY 9 1.1 Procurement Contracts & Supply Chain Contracts 9

1.2 The General Situation 9

1.2.1 Vinfast 9

1.2.2 Baosteel 10

1.2.3 Reasons To Choose 12

1.2.4 Product Lines 14

1.3 Overall Objectives & Detailed Objectives: 15

1.3.1 Overall Objectives: 15

1.3.2 Detailed Objectives: 16

CHAPTER II IDENTIFY THE KEY INTERESTS & BATNA, ZOPA, POWER AND HOW THEY REACH MUTUALLY AGREEMENTS .17 2.1 Identify key interests 17

2.2 Zopa 19

2.3 Batna 23

2.4 Power balance 25

2.5 How they reach mutually agreements 26

CHAPTER III ANALYSIS OF THE STEPS IN THE NEGOTIATION PROCESS 28

3.1 Stage 1: Pre-Negotiation 28

3.1.1 Step 1: Preparation 28

3.1.1.2 Set our limits 29

3.1.1.3 Build an agenda 29

3.1.1.4 Clarify the relationship 29

3.1.2 Step 2: Building the relationship 30

3.1.2.1 No focus on business 30

3.1.2.2 Partners get to know each other 30

3.1.2.3 Social and Interpersonal Exchange 30

3.1.2.4 Duration and Importance Vary by Culture 30

3.1.2.5 Framework for Building Trust 30

3.1.3 Step 3: Exchanging information/ First offer 31

3.2 Stage 2: Face to face 31

3.2.1 Step 4: Persuasion 31

3.2.2 Step 5: Concessions 32

3.3 Stage 3: Post negotiation 33

3.3.1 Step 6: Agreement 33

CHAPTER IV EXAMINE THE CULTURE 34

4.1 Power Distance 34

4.2 Individualism 34

4.3 Motivation towards Achievement and Success 34

4.4 Uncertainty Avoidance 35

4.5 Long-term Orientation 35

4.6 Indulgence 35

CHAPTER V STRATEGY AND TACTICS IN NEGOTIATION 36

5.1 Strategy: 36

5.1.1 Definition 36

5.1.2 Appropriate negotiation strategy based on the cultural dimensions 37

5.2 Tactics 38

CHAPTER VI KEY SKILLS 41

6.1 SHOULD DO 41

6.2 SHOULDN'T DO 42

REFERENCES 43

APPENDIX: PURCHASE CONTRACT 44

DANH MỤC HÌNH

Figure 1.2 Developments in the situation of iron and steel imports from

China to Vietnam from 2022 to present 13

Figure 1.3 China is the leading steel importer of Vietnam 14

Figure 1.4 Types of steel produced by Baosteel Group 15

Figure 2.1 HRC FOB steel price developments in the market 20

Figure 2.2 HRC steel price developments in the Chinese market 21

Figure 4.1 Hofstede culture comparison chart between China and Vietnam 34

Figure 5.1 Negotiation strategy model 36

Figure 5.2 Long-term Orientation Index between China and Vietnam37 Figure 5.3 Motivation towards A&S and Uncertainly Avoidance Index between China and Vietnam 38

Figure 5.4 Individualism Index between China and Vietnam 38

DANH MỤC BẢNG

Table 1.1 Distinguish between procurement contracts and supply chaincontracts 9Table 2.1 Interests of 2 corporations Vinfast and Baosteel 19Table 2.2 Comparison of 2 companies in the alternative plan forBaosteel Group 24Table 2.3 Power Balance between Vinfast and Baosteel 26

CHAPTER I PROVIDE A DETAILED OVERVIEW OF STRATEGY 1.1 Procurement Contracts & Supply Chain Contracts

Criteria Procurement Contracts Supply Chain Contracts

Definiti

on

Contracts for the purchase ofgoods/services between thebuyer and the supplier

Contracts managing theentire supply chain from

distribution

Scope

Focused on specificpurchasing transactions

Covers multiple parties andactivities within the supplychain

Table 1.1 Distinguish between procurement contracts and supply

1.2 The General Situation

1.2.1 Vinfast

VINFAST stands for Vietnam - Style - Safety - Innovation - Pioneer and

aspires to be the brand for Vietnamese cars

Founded in 2017 by Mr Pham Nhat Vuong, Chairman of Vingroup,

Vietnam’s largest private conglomerate

Mission: To bring "Made in Vietnam" electric vehicles to the global

market and promote the transition to clean energy

Main Products: VinFast produces electric cars, electric motorbikes,

and related services, such as charging stations and electric vehiclemaintenance

Market: The company has expanded to markets in countries like the

U.S., Canada, and Europe, with a strong ambition to grow globally

Notable Achievement

 Listing on Nasdaq (2023): Becoming one of the first Vietnamesecompanies to list on the Nasdaq stock exchange in the US,marking a key step in global expansion

 ASEAN NCAP Safety Awards (2024): Winning 5/6 top safetyawards for the VF 8 SUV, including "Best Overall" and "Best ChildOccupant Protection"

 In Q1 2024, VinFast sold nearly 10,000 electric cars globally, up444% from the previous year

Location: Baosteel Tower, 370 Pudian Road, Pudong New District,

 Strategic objective: To build itself into the most globallycompetitive iron and steel enterprise and a listed company withthe greatest investment value

Industry Position:

Global Ranking:

 2nd globally in crude steel production.

 1st in automotive sheet output and silicon steel output among all

global listed steel companies

One of the global steel enterprises with the most complete carbon steelproducts

Fi gure 1.1 List of 10 largest steel suppliers in the world

Notable Awards and Recognition :

China Quality Award (2013):

 Recognized for commitment to quality management and productinnovation; first Chinese steel company to earn this accolade

World Steel Association Steelie Award (2020):

 Honored for achievements in sustainability and innovative greensteel production techniques

Global Innovative Enterprise Award (2021):

 Recognized for advancements in high-performance steel productsand R&D efforts in eco-friendly materials

Fortune Global 500 (2010-2023):

 Consistently ranked among the top 500 global companies,demonstrating financial strength and global impact

1.2.3 Reasons To Choose

Leading steel exporter to Vietnam

It is expected that in the first 6 months of the year, Vietnam will importmore than 8.2 million tons of steel, equivalent to more than 5.9 billionUSD, a sharp increase of 48% in volume and 25% in value over the sameperiod last year The import price in June reached 727 USD/ton, down17% compared to June 2023

Figure 1.2 Developments in the situation of iron and steel imports

from China to Vietnam from 2022 to present

In terms of import markets, our country imported the most iron andsteel from China with 5.7 million tons in the first 6 months of the year,equivalent to a turnover of more than 366 million USD, a sharp increase

of 86% in volume and 59% in value compared to the same period in

2023 Import prices also recorded a decrease of 14% over the sameperiod, reaching more than 641 USD/ton

Figure 1.3 China is the leading steel importer of Vietnam

In the first 6 months of the year, Vietnam's iron and steel importsincreased to a record

Ranking second among the steel suppliers to Vietnam is Japan with878,851 tons of iron and steel, equivalent to more than 878 millionUSD, down 2% in volume but up sharply by 24% in value compared tothe same period in 2023 The average import price reached 1,000USD/ton, a sharp increase of 27% over the previous year

 The Vietnam-China Free Trade Agreement helps reduce

import costs

 Geographical proximity, lowering transportation costs and

delivery time

 Baosteel is China’s top steel producer, supplying high-quality

steel for automotive production

1.2.4 Product Lines

Figure 1.4 Types of steel produced by Baosteel Group

VinFast's Import Choice => Product Chosen: CR Steel Sheet

Reason for Choice: Baosteel's HRC Steel Sheet is ideal for carmanufacturing Its smooth surface and high durability make it suitablefor producing car bodies

1.3 Overall Objectives & Detailed Objectives:

1.3.1 Overall Objectives:

VinFast:

1 Ensure stable supply: Find a reliable partner to supply

high-quality steel, ensuring a stable source for growing productionneeds

2 Enhance product quality: Utilize steel from Baosteel to improve

overall quality of vehicles and increase internationalcompetitiveness

3 Optimize costs: Achieve competitive pricing and favorable

payment terms to reduce production costs and increase profitmargins

4 Build long-term partnership: Establish a sustainable

partnership with Baosteel to jointly expand market presence

Baosteel:

1 Expand market: Penetrate the Vietnamese market, especially in

the rapidly growing automotive sector

2 Increase revenue and profit: Capitalize on VinFast's demand for

steel to boost sales and business efficiency

3 Strengthen global position: Become a leading steel supplier for

major car manufacturers, enhancing brand reputation globally

4 Diversify product range: Develop specialized steel products to

meet the high technical demands of the automotive industry

1.3.2 Detailed Objectives:

Short-term:

 VinFast:

1 Successfully negotiate contract terms, including price,

quantity, and delivery timeline

2 Complete import procedures to ensure timely steel supply

2 Organize production and deliver goods on schedule,

ensuring product quality

3 Establish strong working relationships with VinFast's

relevant departments

Long-term:

 VinFast:

1 Expand the scale of cooperation and increase steel import

volumes from Baosteel

2 Collaborate with Baosteel to develop new steel types

suitable for electric and new energy vehicles

3 Build an efficient supply chain management system to

minimize risks

 Baosteel:

1 Become the long-term strategic steel supplier for VinFast.

2 Invest in research and development projects in Vietnam to

meet market needs

3 Expand distribution networks in Vietnam, increasing

competitiveness

CHAPTER II IDENTIFY THE KEY INTERESTS & BATNA, ZOPA, POWER AND HOW THEY REACH MUTUALLY AGREEMENTS 2.1 Identify key interests

Baosteel has the capacity toproduce more than 45 milliontons of steel per year With thecontinuous increase inproduction, Baosteel alwaysensures to provide enoughquantity according to ordersfor partners and anuninterrupted supply chain

Input material testing:

Imported steel will bethoroughly tested fortechnical parameters such

as hardness, tensilestrength, and chemicalcomposition to ensure it

requirements

Baosteel's hot-rolled steel forautomobile structure has highstrength, good formability andweldability, high dimensionalaccuracy and surface quality

It is widely used in variousautomobile and spare partsmanufacturers to producevarious types of automobilestructural parts => Meet theexport standards and quality

of automobile grade steel

Product quality: Baosteel

can ensure that their steelmeets international standards

The testing standard is ISO4995:2014

such as ISO 9001 or qualitymanagement certificates,ensuring control andminimizing the risk ofsubstandard products

Warehouse

capacity

Baosteel is required toensure warehouse capacity

to be able to store andsupply any quantity ofproducts that Vinfastrequires

Baosteel's warehouse has alarge capacity with an annualreceiving capacity of 15.3million tons (Mt) The storagecapacity of the warehouse isabout 2.16 million tons Thewarehouse is equipped withmodern technology to manageand control goods It canensure to provide enoughquantity of goods for eachorder that Vinfast makes

Pricing

VinFast aims to procuresteel from Baosteel at aprice range of USD 475-520per metric ton and stabilizeprices in the long term tosupport efficient productionplanning Through bulkorders or long-termcommitments, VinFast canrequest favorable volume

establishing long-termcontracts that provide stable

trustworthy and sustainablerelationships BaoSteel hasproposed selling prices ofUSD 494-540/ton depending

on market fluctuations

discounts, optimizing costsand maintaining itscompetitive advantage inthe market.

Supply chain

Logistic cost: Try to keep

the logistic cost as low aspossible and reserve theright to propose a shippingcompany if the partner doesnot provide a competitiveprice

Time: Use any port that is

most convenient tominimize shipping time

Priority is given to usingports near Baosteel'sfactories in China to ensurefast and safe shipping

Docs (potential risk):

Document transfer should

be proposed to avoid loss

Authorization

Baosteel has a plan to build abridge between companies inthe supply chain andcommunicate the link betweenproduction demand and rawmaterial supply This canreduce the market uncertaintyfaced by companies in thesupply chain, and affect theproduction, inventorymanagement, processing, anddistribution of upstreamsuppliers In the supply chainenvironment, planningcooperation needs to beshared, accurate and timely toimprove efficiency and reducethe overall cost of the supplychain

Logistic cost: Find aforwarder or logistics unit tonegotiate the best price tominimize logistics costs

Time: Use the inland port

closest to the manufacturing

plant to minimizetransportation time

Docs (potential risk): There

needs to be a solution tocontrol and minimize risks

Delivery times must be asshort as possible

Ability to deliver: Baosteel has

a network of large steel millsspread across China, mainlyconcentrated in developedindustrial areas forconvenient production,

"negotiation zone"

 Condition 1: A ZOPA can only exist when there is some overlap between each party's expectations regarding an

 Condition 2: If negotiating parties cannot reach a ZOPA, they are in a negative bargaining zone.

Zopa price

Figure 2.1 HRC FOB steel price developments in the market

It was observed that from January 2024, HRC prices were generallyquite volatile and showed a continuous downward trend untilSeptember 2024.Due to excess supply and weak demand

Figure 2.2 HRC steel price developments in the Chinese market

However, some industry experts predict that Chinese steel prices,including HRC, may recover primarily due to supply tightening startingfrom Q4 2024 This is because the Chinese government has restrictedthe licensing of coal-powered steel mills in 2024 to promoteenvironmental protection and reduce supply

 Therefor, Price Baosteel needs: 494 USD/MTS (Baosteel’s lowest target) - 540 USD/MTS (Baosteel’s highest target)

VinFast considered the prices of hot-rolled coil (HRC) from the Chinesemarket, global markets, and within Vietnam They then factored intransportation costs and other expenses Additionally, in their aim tobuild a supply chain in collaboration with Baosteel, VinFast proposed apricing range that aligns with their strategic interests:

Therefor, Price Vinfast needs: 475 USD/MTS (Vinfast’s highest target)-520 USD/MTS (Vinfast’s lowest target)

⇨ The feasible agreement zone lies at the price range of 494 USD/MTS - 520 USD/MTS.  This is the price range Vinfast needs to

focus on negotiating.

Zopa payment:

As a supplier, Baosteel prioritizes a higher advance payment to mitigatefinancial risks and ensure stable cash flow before delivery Thisapproach allows the company to partially cover production,transportation costs, and manage delivery risks Therefore, Baosteel'spreferred payment terms range from:

50% TT advance

50% TT after delivery to 100% TT advance

(Baosteel’s Worst Case) (Baosteel’s Desired Time of

shipment)

As the buyer, Vinfast wants to reduce the risk of goods not meetingrequirements or being delivered late Therefore, Vinfast’s preferredpayment terms from

30%TT advance 70% TT advance

70% TT after delivery to 30% TT after delivery

(Vinfast’s Desired Payment) (Vinfast’s Worst Case)

 The feasible agreement ranges from 50% TT advance, 50% TT after delivery to 70% TT advance, 30% TT after delivery.

Zopa time of shipment

Baosteel aims to assess production and delivery capabilities For large

or complex orders, Baosteel needs time to plan and adjust theproduction process to ensure high product quality, help allocateresources effectively and a longer time frame provides Baosteel withthe flexibility to deal with potential risks in the supply chain, such asmaterial shortages or transportation disruptions, so their desired

delivery timeline from 7 (Baosteel’s Worst Case) to 30 (Baosteel’s Desired Time of shipment) days after signing the contract.

A short and accurate delivery timeline is crucial for VinFast to maintaincontinuous production and avoid material shortages, ensuresuninterrupted manufacturing, and shortens the time it takes to bringproducts to market Therefore, the time of shipment Vinfast needs from

5 (Vinfast’s Desired Time of Shipment) to 14 (Vinfast’s Worst Case) days after signing the contract.

⇨ The feasible agreement range is between 7 and 14 days after signing the contract.

2.3 Batna

- BATNA means Best Alternative to Negotiated Agreement, Batna isthe best alternative option

- 3 steps to choose Batna

+ Step 1: Devising a list of actions that we might possibly take

Devising a list of actions that we might possibly take if wefail to reach any mutual beneficial agreement including:

 Offer to buy a large quantity of ordered steel inexchange for a discount

 Offer a deferred payment method

 Find other competitive partners

+ Step 2: Filter the list

Option 1: Propose buying a large quantity of steel ordered inexchange for a discount From 10,000 tons or more, therewill be a 5% discount However, larger volumes require morestorage space, which is costly for us to rent warehouses inthe short term

 This BATNA is not feasible.

Option 2: Propose a deferred payment method: The pricethat Baosteel proposed to us is higher than expected Withthe payment by T/T deferred payment with 50% of theinvoice value Vinfast will have more time to arrange financewithout the pressure of paying in full immediately and canuse Baosteel's products or services to implement projects,thereby generating revenue and profit before paying in full

 This BATNA is feasible

Option 3: VinFast can look to other steel suppliers such asHBIS Group, Posco , but this may increase costs due tohaving to set up a new supply chain

HBIS Group (Hebei

Iron and Steel Group)

POSCO (Pohang Iron and Steel

Company)

Market

positio

n

As one of the largest

steel producers in China

and the world, HBIS has

facilities and a wide

range of steel products,

from hot-rolled coil to

Supply With a large capacity Also has good supply capacity but

y

and wide distribution

network, HBIS has

stable and flexible

supply capacity to meet

customer needs

may have difficulty supplyinglarge quantities in a short timedue to high quality requirements

Prices

and

costs

competitive prices due

to large production scale

and lower production

costs in China With

prices ranging from

500-548 USD/Ton for HRC

steel

Usually has a higher price due toquality and strong brand Pricesrange from 550- 600 USD/Ton forHRC steel

Table 2.2 Comparison of 2 companies in the alternative plan for

 HBIS Group is also a Chinese corporation, which willsave time learning about the culture and negotiationstyle

 Will meet orders consistently

 Have more competitive prices