a study of export demand for coffee the case of intimex vietnam jsc

By statistical methods, I draw the conclusion about the dependent variables as follow On the hypothesis of significant relationship, it was found out that the key factors affecting coffe

Nguyen Gia Phuc– Clinton 0

A study of Export Demand for Coffee: The

Case of Intimex Vietnam JSC

Name : Nguyen GiaPhuc English Name : Clinton

Date of Birth : 25/09/1963

Hanoi – 2013

ACKNOWLEDGMENTS

I would like to thank Dr Eduardo T Bagtang and the International

center Education of Thai Nguyen University, Southern Luzon State

University for guiding me throughout this research and for providing

me with the opportunity to conduct this research and for helping me to

carry out the necessary revisions to this dissertation

I would also like to express my deep gratefulness to Vietnam

Intimex Company for providing me with useful and necessary

information for doing this research, to my wife, my son and daughter,

my colleagues for encouraging, inspiring me when I conduct this

research, giving necessary feedbacks for making this dissertation

successful

Finally, I would like to thank all my classmates for giving me

constant support and encouragement as well as helping me with needed

materials and reference

Nguyen Gia Phuc– Clinton ii

APPROVAL SHEET x

CHAPTER I: THE PROBLEM AND ITS BACKGROUND 11

1.1 Background of the study 14

1.2 Statement of the problem 18

1.3 Objectives of the study 18

1.4 Hypotheses of the study 20

1.5 Significance of the study 20

1.6 Scope and Limitations of the Study 20

1.7 Location of the study 21

CHAPTER II: REVIEW OF RELATED LITERATURE AND RELATED STUDIES 23

2.1 Coffee Production in Vietnam 23

2.1.1 Coffee Export into USA‘s market 26

2.1.2 Vietnam coffee export: Lesson learnt 29

2.1.3 Vietnam coffee industry at present 31

2.2 Future of Vietnam Coffee Export 36

2.2.1 Quality Improvement for Vietnam coffee 37

2.2.2 Production cost reduction 37

2.2.3 Variety and product shifting, production adjustment to the market demands 38

2.2.4 Coffee consumption promotion in the domestic market as well as to great potential countries 39

2.2.5 Reorganization of production and export structure in a better scientific, modern, effective and steady way 39

2.3 Major Market For Coffee Exports 40

2.3.1 Problems Encountered in Doing Business in the US 41

2.3.2 Countries Considered by Vietnam as Competitors 42

2.4 Company Analysis: The Intimex JSC Vietnam 43

2.4.1 Features 43

2.4.2 Organizing structure 45

2.4.3 Management 46

2.4.4 Achievements of Intimex Vietnam 50

2.5 Other Related Studies 51

2.6 Conceptual Framework 61

CHAPTER III: METHODOLOGY 64

Methods and Procedures 64

3.1 Research Design and Methodology 64

3.2 Respondents of the Study 64

3.3 Data Gathering Tools 65

3.4 Treatment of Data 67

CHAPTER IV: RESULT AND DISCUSSION 69

4.1 The Current Status of the Coffee Exporting Companies of Vietnam 69

4.2 Qualitative Data Analysis 89

4.2.1 Existing competitors and market structure of coffee export 89

4.2.2 Product Quality 91

4.2.3 Coffee drinking trends in the American 92

4.3 Test of Significant Relationship 94

4.3.1 Hypothesis testing 100

4.3.2 Individual partial coefficient test 102

4.3.3 Testing overall significance of the multiple regressions 105

Nguyen Gia Phuc– Clinton iv

4.3.4 Testing the drop variable in the regression model 1064.3.5 Errors in the model 108

CHAPTER V: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 116

5.1 Summary of Findings 1165.2 Conclusions 1195.3 Recommendations 120

BIBLIOGRAPHY

APPENDICES

ABSTRACT

Following the trend of globalization, especially after Vietnam joins the WTO, in order to enter the international playing field, Vietnam has determined that it needs to boost exports In terms of agricultural products, the export of coffee is one of the first priorities With that business orientation, enterprises specializing in processing and exporting coffee are looking for strategy to penetrate international markets One of the leading enterprises pursuing this direction is the Vietnam Intimex Joint Stock Corporation (Intimex) With its export turnover reaching an annual average of nearly

$300 million, Intimex is the leading enterprises in Vietnam of which product lines have been certified by many associations of coffee in the world, namely 4C, UtzKappeh, Organic coffee

For several years, the United States (U.S) has become one of the biggest importers

of coffee products The Intimex‘s export value of coffee to this market accounts for

US Dollar 200 million in 2009

With a view to maintaining its dominant status in this field and increasing its market shares in the U.S, Intimex always place much importance to the marketing activities, having the good marketing mix will bring efficiency to the company‘s export business

Given the above-mentioned rationale, I have decided to choose the topic: A study

of export demand for coffee: The case of Intimex Vietnam JSC

After collecting data from both primary sources by utilizing questionnaires, interviews and secondary sources: articles, published documents, books and online articles, regression analysis models were utilized to find out the factors affecting coffee import demand of the US By statistical approaches, the dissertation points out

Nguyen Gia Phuc– Clinton vi

different qualitative and quantitative factors that have influence on the coffee import demand These factors are:

 Quantitative data: commodity price, coffee beverage price index,

price of the biggest substitute, and coffee market share

In data analysis, E-view program was used to deal with figures from secondary sources By statistical methods, I draw the conclusion about the dependent variables

as follow

On the hypothesis of significant relationship, it was found out that the key factors affecting coffee import demand are commodity price, price of the biggest substitute (tea) and coffee market share of Vietnam in the US market The commodity beverage price index of the U.S as one of the four has no significant impact on the dependent variable

The model of regression analysis has been checked for errors: multi-co linearity, heteroskedasticity and autocorrelation In general, after conducting

a set of statistical treatments, the model proves to be quite reliable and can explain the dependent variable based on independent variables

After data analysis using regression models, results are drawn and conclusions are made Based on those results and conclusions, I have point out the recommendations

to improve current situation of coffee export to the US markets in Chapter 5 These conclusions are based on findings from the data analysis and qualitative data assessment

LIST OF FIGURES

Figure 1: Organizational Chart of Intimex Vietnam 17

Figure 3: Coffee productivity, area, and output in province Daklak in period 2006– 2012 (%) 25

Figure 4: Vietnam coffee export market share 2st half of 2013 26

Figure 5: Amount and value of coffee export into USA‘s market for period 2006– 2012 27

Figure 2: Conceptual Paradigm 63

Figure 6: Data collection and process 66

Figure 7: Coffee market shares 80

Figure 8: World's export value of coffee 90

Figure 9: Heteroskedasticity graph 111

Nguyen Gia Phuc– Clinton viii

LIST OF TABLES

Table 1: Vietnam Coffee export to the world 36

Table 2: List of respondents 70

Table 3: No of Companies with Coffee as Major Export 71

Table 4: Coffee Export destinations 72

Table 5: Type of Coffee being exported to USA 72

Table 6: Possible problems when doing business in the US for Vietnam coffee enterprises 73

Table 7: Opportunities for Vietnam coffee exporters 74

Table 8: Solutions posed by respondents 75

Table 9: US Import Policies That Affected the Coffee Export Business of Intimex Vietnam JSC to US 76

Table 10: Factors that affected the market share of Vietnam Coffee Export 77

Table 11: Vietnam Government Interventions to Help Coffee Industry 78

Table 12: Countries Considered as Competitors in Coffee Export 79

Table 13: Marketing Strategies Adopted and Found to be Effective as Identified by Intimex Vietnam JSC 81

Table 14: Product Policies Adopted and Found to be Effective by Intimex Vietnam JSC as Marketing Strategy 82

Table 15: Distributor chain Policies Adopted and Found to be Effective as Marketing Strategy as Identified by Intimex Vietnam JSC 83

Table 16: Price Policies Adopted and Found to be Effective as Identified by Intimex Vietnam JSC 84

Table 17: Advertisement Policies Adopted and Found to be Effective as 85

Table 18: Challenges experienced by Intimex 86

Table 19: Measures and Strategies Recommended by Intimex Vietnam JSC to

Increase Volume of coffee Export to the US 88Table 23: Analysis of Covariance 100

Nguyen Gia Phuc– Clinton x

Gia Phuc in partial fulfillment of the requirements for the degree of Doctor in

Business Administration, has been examined and recommended for acceptance and approval for FINAL ORAL EXAMINATION

Adviser July 25, 2013 Date

CHAPTER I: THE PROBLEM AND ITS BACKGROUND Introduction

Founded in 1979, Intimex Vietnam JSC has operated for 32 years with many ups and downs along with the economy of Vietnam Until now, the company has got remarkable achievements during the operation and development process, Intimex has affirmed its position in the domestic and international market, to become one of the leading companies in import and export, supermarket business and manufacturing sectors of Vietnam (Intimex Company Profile, 2010)

The success was recognized by the State, in 1986 the Government decided to put Intimex into one of the largest corporations of the Ministry of Domestic Trade, Intimex has been as important as the big corporations for many years in the industry and in 1988 the company has been honored by the State with the third class Labor medal (Intimex Business History, 2010)

A relatively new activity for beginning period, has been thoroughly exploited by Intimex was sales of foreign currency for staff and oversea students, ( called spot export) in order to take advantage of markets and products and that were legalized by the States, Intimex implemented the strategy and the results were very encouraging The creative application of this policy increased the Company's foreign currency funds a lot

In the early 90s, the subsidy economic mechanism was eliminated, Intimex and other businesses throughout the country are confident to get into the market economy State regulatory mechanism was the open but social upheaval was really complicated, the economic policies of the Party and State are in the testing phase that was a time series of companies protected by subsidy system failed to operate to generate income

Nguyen Gia Phuc– Clinton 12

Unemployment rose and there was a production surplus Intimex was also one of the units enjoying the advantages of the mechanism of the subsidy system, so it was also inevitably affected by this storm surge The company had to face lots of disadvantages now

Facing this difficult, company leaders, trade unions and staff tried their best to overcome, the measures were set out in line with new situations, and the quota was initially formed Open regulations facilitate companies to promote creativeness in doing business Thanks to the positive measures, the company has survived and developed until now

In the following years, the company continued to perfect the by-the-piece mechanism for departments that have taken initiative in creating a dynamic business, breaking the deadlock and stagnation The company's activities were close with the market and brought about certain results, maintaining the company's development, ensuring the lives of employees, while many other state enterprises went bankruptcy

or made losses

Entering the new millennium, besides the basic advantages, the company faced many difficulties and challenges The world economy faces new recession cyclones Integration process poses new issues to businesses, especially trading companies: to exist or not in the context of cumbersome structural apparatus, inappropriate labor and wage policy with market economies, outdated and seriously degraded infrastructure, working capital losses in the mechanism transition process In that context, what to do

to bring the company through tough times and create the competitiveness in the

market and integrate into the international economy? This is a difficult problem that companies have to find an optimal solution The 5-year business strategy (2001-2005) was born in this situation and has demonstrated the validity through remarkable results In particular, the export performance of the Company continues to rise: exports turn-over has soared admirably A rapid rise in exports has contributed to enlarge rapidly the scope of the company

Over the past few years, Intimex had the boom in import and export business, especially exports turn-over In 1999, Intimex‘s export turnover was USD 23 million and in 2007, it reached USD 227 million (Intimex Company Profile, 2010) The company's exports accounts for 70% of the total import and export with mainly agricultural products, especially coffee and pepper For many consecutive years, Intimex was number two on coffee exports and was the best pepper exporter in the country Thanks to Intimex‘s export activities, Vietnam's strong traditional commodities such as coffee, pepper, agricultural and aquatic products have affirmed its position in the world's largest market The company has been very proud

of the results

To achieve such great success, Intimex concentrated on developing export, export growth was the company‘s first priority Intimex actively enhance the value of goods processing of exported products, production development by investing in a number of manufacturing and processing factories of agricultural products such as: Clean pepper processing plant in Binh Duong, cassava starch production plant in Nghe An, the aquatic plant in Thanh Hoa These projects are and will help ensure high-quality and stable supply of goods for domestic market and export Besides, Intimex always focused on improving export business to raise the prestige in the domestic and international market

Nguyen Gia Phuc– Clinton 14

Besides business, Intimex also focuses on market development The company has been doing business with more than 100 countries and is continuing to looking for new customers It also actively participates in business promoting activities and trade fairs

Intimex pays special attention to human factors The staff of the company has continuously improved their knowledge and raise qualifications as well as professional abilities The achievements of Intimex today were the contribution of the Board of Directors and Company‘s employees

With these achievements, the company has received numerous awards by State agencies and organizations, namely Vietnam Gold Star Award in 2005, the title of the most satisfying supermarket in 2008, golden Cup for supermarket brand in 2009, Top

500 enterprises in Vietnam in 2008, 2009 and 2010 Especially in 2009, to commemorate the 30th anniversary, the company was honored by the State with the Second Class Labor Medal (Intimex Company Profile, 2010)

Since 2009, the Company began operating paradigm from state-owned enterprises into a joint stock companies In the early days of operation under the new model, there were difficulties to be solved, obstacles and many challenges that Intimex had to overcome, but in the context of new opportunities and challenges, the company will continue to utilize its available and potential strength to further confirm its leading position in the field of import-export and domestic business and to promote production That is the goal orientation of Intimex Corporation Vietnam today

1.1 Background of the study

Coffee was introduced to Vietnam in 1857 by the French and slowly grew as producer of coffee in Asia The height of coffee production occurred in the early 20th

century as small scale production shifted towards plantations The first instant coffee plant, Coronel Coffee Plant, was established in Biên Hòa, Đồng Nai Province in 1969, with a production capacity of 80 tons per year

The Vietnam War disrupted production of coffee in the Buôn Ma Thuột region, the plateau on which the industry was centered Although seldom involved in conflict, the area was a crossroads between North and South and was largely depopulated After the North Vietnamese victory the industry, like most agriculture, was collectivized, limiting private enterprise and resulting in low production

Following ―Đổi mới‖ reforms in 1986, privately-owned enterprise was once again permitted, resulting in a surge of growth in the industry Cooperation between growers, producers and government resulted in branding finished coffees and exporting products for retail It was during this time that many new companies involved in coffee production were established, including Đắk Lắk-based Trung Nguyên in 1996 and Highlands Coffee in 1998 Both of these continued on to establish major brands distributed through a widespread network of coffee shops By the late 1990s, Vietnam had become the world's #2 coffee producer after Brazil, but production was largely focused on poor-quality Robusta beans—considered inferior

to Arabica due to their bitterness—for export as a commodity (Vietnam Coffee Annual Report, 2010) Recent government initiatives have sought to improve the quality of coffee exports, including more widespread planting of Arabica beans, the development of mixed-bean coffees, and specialty coffee such as kopi luwak (Vietnamese: cà phê chồn, "weasel coffee")

Nguyen Gia Phuc– Clinton 16

By 2000, coffee production had grown to 900,000 tons per year Price decreases, however, led annual production to drop to around 600,000 tons/year in 2003 In 2009, Reuters reported Vietnamese coffee exports at "an estimated 1.13 million tons" for the previous year, stating that coffee was second only to rice in value of agro-products exported from Vietnam (GSO, 2010)

Vietnam is the second largest producer after Brazil, accounting for 14.3 per cent

of the world market share (World Bank, 2010) The quality of the beans, however, has typically limited their marketability Robusta coffee accounts for 97 per cent of Vietnam's total output, with 1.17 million tons exported in 2009, a value of USD 1.7 billion (GSO, 2010) Arabica production is expected to rise owing to the expansion of growing areas Other types of coffee grown in Vietnam include Chari (Excelsa) and Catimor

Chief Executive Officer Board

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Figure 1: Organizational Chart of Intimex Vietnam

Nguyen Gia Phuc– Clinton 18

INTIMEX Company is one of the leading coffee export enterprises in the country besides other commodities The company has got many important achievements that have been recognized by the state organizations such as Ministry of Industry and Commerce, Ministry of Agriculture and Rural Development

In 2006, the company received the title of ―The company with excellent achievements‖ Award held by International Economic Cooperation Committee and 53 other organizations

INTIMEX Company is one of the leading coffee export enterprises in the country besides other commodities The company has got many important achievements that have been recognized by the state organizations such as Ministry of Industry and Commerce, Ministry of Agriculture and Rural Development

In 2006, the company received the title of ―The company with excellent achievements‖ Award held by International Economic Cooperation Committee and 53 other organizations

1.2 Statement of the problem

The coffee-exporting Vietnam companies are relatively small and medium in size These companies particularly INTIMEX aim to expand their market share in coffee in the United States of America (USA) In order to this, the companies must understand the playing field they have to do business into This study therefore aimed to determine the measures and strategies to increase the volume of coffee export to the USA

1.3 Objectives of the study

1 To determine the current status of the companies in terms of?

a Major business of the company

b Major market for coffee exports

c Types of coffee exported to the US

e Expansion of coffee export to the US

2 To determine the problems encountered in doing business in the US

3 To identify possible solutions to the problems encountered in doing business in the

9 To identify the challenges experienced by Intimex Vietnam in exporting coffee?

10 What Measure and strategies can INTIMEX Vietnam JSC propose to increase volume of coffee export to the US?

Nguyen Gia Phuc– Clinton 20

11 To establish if there is a correlation of the coffee price in the USA, commodity beverage price index of the US, tea price in the US, with the market share of Vietnam

in the US with the coffee export to the US?

1.4 Hypotheses of the study

- Coffee export turnover is affected by different factors including:

Qualitative data: existing competitors, product quality, coffee drink habit and

taste

Quantitative data: commodity price, coffee beverage price index, price of the

biggest substitute, and coffee market share

1.5 Significance of the study

This study has practical implications to coffee exporting companies to increase their export performance as well as turnover The study will figure out what are the key factors affecting export performance in general and in coffee industry in particular The figures are up to date and reflect the real happening so they should be

a reliable source for companies who want to do well in American market

Besides, this study also investigates the characteristics of American coffee market and the big companies in the industry Moreover, it also points out the weaknesses of Vietnamese coffee exporting firms that lead to their poor performance of failures over the past few years As a result, the study can help the companies to understand well about where and who they are doing business to in American coffee market It also helps them avoid some wrong activities that will cause failures

1.6 Scope and Limitations of the Study

The study investigates current situations of coffee exporting in Vietnam It also points out the personalities of American market and key players in coffee industry INTIMEX Vietnam is the chosen company who has been exporting coffee to American market over the years

Because of the nature of this study, the results and findings will be mainly based

on data from various secondary sources The secondary data was taken from industry reports, books, academic papers, periodicals, editorials, articles, databases, studies different authors, and websites related to the coffee industry The data of coffee export shows trends in coffee industry However, the data might not make a good forecast of future in such a fluctuating world business environment

This study shows an in-depth analysis of coffee export to American market However, the other markets like EU and Asia have not been given enough consideration US are the biggest and most potential market for Vietnam‘s coffee export It is the biggest coffee importer of the world in general and of Vietnam in particular This is the reason why the study aims mainly at US market and compare with other markets

1.7 Location of the study

This study was carried out in Vietnam, with questionnaires distributed to 20 coffee export firms in Hanoi and Ho Chi Minh City The primary data from questionnaires was collected via email was used to discuss qualitative data which shows the factors affecting coffee import of the US from Vietnam Also, interviews with managers of Intimex Company Headquarter (96 Trần Hưng Đạo Street – Hoan Kiem District, Hanoi) were used to collect organization‘s perspective and attitude as well as their approaches to coffee export in the future

Nguyen Gia Phuc– Clinton 22

Secondary data was collected from books academic papers, periodicals, editorials, articles, databases, studies different authors from National Library (31 Tràng Thi Street, Hoan Kiem District, Hanoi) and World Bank (8th Floor, 63 Ly Thai To Street,

Hanoi, Vietnam)

CHAPTER II: REVIEW OF RELATED LITERATURE AND

RELATED STUDIES

This chapter presents the literature and studies relative to the export demand for coffee of Vietnam and the experience of Intimex JSC, Vietnam in exporting coffee

The Companies in Vietnam Exporting Coffee

2.1 Coffee Production in Vietnam

The total coffee area of Vietnam reached 400,000 hectares in year 2000, and about 500,000 hectares in year 2006, accounting for 4.14% of total area for all kinds of cultivation plants Vietnam has acquired world‘s second place on coffee export, after Brazil, and world‘s first place on production of Robusta coffee with market share 25% Nguyen (2013) in its article published in gain.fast.usda.gov elaborated on Vietnam‘s coffee growing areas continues to expand despite of GOV‘s goal to maintain area at 500,000 ha Coffee prices remain high and provide a strong incentive for farmers to plant additional area According to the Ministry of Agriculture and Rural Development (MARD) and statistics from Provincial Departments of Agriculture and Rural Development, coffee area increased by 8 percent to 616,000 ha in 2012 from 571,000 ha in 2011 Actual coffee area likely exceeds GOV official estimates Post revises its estimates coffee production for MY2012/13 to about 25 million bags, or 1.49 MMT of green coffee, about a 4 percent drop from the previous MY due to unseasonal rains during the blossoming period This upward revision of Post‘s previous estimate for MY 2012/13 (VN2056) is due to the pace of green bean exports during the first seven months of the MY Through the first seven months of MY2012/13 Vietnam reported a 3 percent increase in green

Nguyen Gia Phuc– Clinton 24

coffee exports over the same period of the last MY Given this strong export pace, Post also revises the MY2012/13 export estimate upwards to 23.8 million bags, or 1.43 MMT GBE While exports-to-date are outpacing last MY, Post estimates that exports for the remaining months of MY2012/13 will trend lower than last MY, leading to a 3 percent year-to-year decline in MY2012/13 total coffee exports Farm-gate and export prices have remained relatively stable through the last two MYs and continue to create a strong incentive for farmers to expand area and replace aging trees Post‘s initial forecast of MY2013/14 production is 22.9 million bags, or 1.37 MMT of green coffee, about an 8 percent drop from the previous MY This decline in production is attributed to drought conditions in the central highlands, the main coffee growing area in Vietnam, which prevailed for most of the first three months of 2013 Precipitation picked up rapidly during April 2013, limiting the adverse effect of the drought However, Post believes the drought affected crop will limit Vietnam‘s export potential in MY2013/14 Post‘s initial total export forecast for MY2013/14 is 21.3 million bags, or 1.28 MMT GBE, a 10.5 percent drop from the previous MY Strong domestic consumption of coffee continues, Post‘s initial forecast of MY 2013/14 domestic consumption is 2 million bags, or 120 thousand metric tons (TMT) GBE, up

10 percent from the previous MY The first quarter of 2013 saw the arrival of Starbucks to Vietnam with their first store opening in District 1 of Ho Chi Minh City

In the report of Vietnam Ministry of Agriculture and Rural Development it revealed that among Vietnam‘s provinces having areas for coffee cultivation, province Daklak has played important role, accounted for more than 50% total area for coffee production in Vietnam Coffee production in Daklak has been conducted by householders, began largely from year 1990 and get further growth currently Many householders of coffee production in the past were

workers of coffee state farms, and they began coffee cultivation after the state farm dissolved and granted the ground for them with the fixed interest to pay via coffee product In recent years, coffee production in province

Practice of coffee production in province Daklak has showed that householders of coffee production have received not much technical support Majority householders have not received services for farming promotion, in particular, ratio of householders that do not receive services for farming promotion

is 100% over rich householders, 95.2% over householders with middle income, and 94.7% over poor householders Meanwhile, the banks have quite good operations on loan support to farm householders, including the poor

Nguyen Gia Phuc– Clinton 26

householders The poor householders of village Cujut at average in 2006 got the

loan of USD 2 thousand with term 13 months

2.1.1 Coffee Export into USA’s market

Vietnam began coffee export, largely coffee Robusta, into USA market since

1994 and reach export value VND 32 million in the initial year In year 2000,

export value had increased sharply to USD 112.749 million Years 2001, 2002 and

2003 had suffered the reduction, and year 2006 got restoration and reached USD

204,108 million; hold the sixth place among countries of coffee export into USA The

sharp increase caused by the fact that Vietnam had begun from ―zero‖ level after the

two countries reached the agreement on relation normalization, and

currently Vietnam has reached high rank among countries exporting coffee into

USA In addition, Vietnam has exported largely the coffee Robusta with

lower prices than other countries gain Typically, Vietnam coffee prices are at level of

1/2 prices level for countries of Latin America

Source: Government Statistics Office

Figure 3: Vietnam coffee export market share 2st half of 2013

2006 2007 2008 2009 2010 2011 2012

Source: Vietnam State Department for Statistic

Figure 4: Amount and value of coffee export into USA’s market for period

2006–2012

Amid export operations into USA‘s market, Vietnam companies largely have exported the products in raw forms and via mediate agencies Majority Vietnam companies sell their products to USA‘s companies or other foreign companies, and then the companies re- process the products and export into USA's market

At present, Vietnam companies face following difficulties when to export into USA's market and other large markets:

First, majority Vietnam companies have not enough attention to build and advertise the trade marks Second, foreign companies have gained the market power and capacity to press on purchase prices in domestic market Third, because there is not identity of processed coffee, so foreign companies have purchased only Vietnam coffee in raw form with cheap prices

Nguyen Gia Phuc– Clinton 28

Many say that up to current moment, there is very few, or almost no Vietnam company that export directly into USA's market Main form of export is using mediate agencies and raw products without process Company Trung Nguyen is exception case among the domestic companies that got investigation within the region The company is the first one that has built the trade mark, opened the website and exported the roast and grind coffee into many prestige global markets Amid process of USA's market penetration, the company has used the deals with foreigner counterparts

On aspect of export markets, Trung Nguyen Company has reached the major markets such as USA, EU, Malaysia, Japan, Indonesia, and Singapore USA is greatest market (accounting for 25%) Total export for 2006 reached 130,000 to 150,000 ton, revenue about USD 420,000 Company Trung Nguyen export on prices FOB, transport by sea, ships defined by clients Export to be on FOB, so import taxes to USA‘s market to be shouldered by company-purchaser Major export products by Trung Nguyen Company into USA's market include the kinds of flour coffee processed from coffee Arabica and Robusta packed in paper boxes or cans Company Trung Nguyen has faced following major difficulties amid immediate export into USA's market: Differences in culture of coffee consumption: Company Trung Nguyen want to present its trade mark, the style on coffee consumption and its culture, but its features are different from the trade mark, the style on coffee consumption of the great foreign companies holding dominating position in USA‘s market such as Company Starbucks that Americans have accustomed to Vietnam com-munity in USA as major client for Company Trung Nguyen and it in the initial stage is limited by size Development for new products: Americans have not still accustomed to Trung Nguyen Company‘s

products, so Trung Nguyen must study and develop the new products in accordance with consumption preference in USA Finance: To ensure the future development, in conditions of limited financial own resources, Trung Nguyen must rely on the resources from counterparts (agencies, providers, and other units) in USA and in accordance with this fact, it must come

up with the trouble incidents stemming from USA‘s regulations and accountancy operations Personal: Trung Nguyen still lack the experience cadres having capacity to operate successful business abroad, experts with excellent foreign language knowledge and experts with good legal knowledge about the foreign countries

2.1.2 Vietnam coffee export: Lesson learnt

Vietnam is blamed for flooding the world market with low quality Robusta coffee, fuelling overproduction and being responsible for plummeting prices on the international coffee markets And, unfortunately, the present worldwide overproduction of around 800,000 tons matches well with the production of Vietnam

It appears that the villain on the production side has been found - and is being slaughtered by the traditional coffee countries Admittedly, the coffee quality of Vietnam is not up to scratch: a high amount of foreign matter is being claimed by international buyers as well as exceedingly high moisture content of beans However,

is it not a little too easy to put all the blame for the low prices on Vietnam while neglecting the widespread internal political problems in other coffee producing countries in South America and Africa that make coffee production more difficult and expensive? Vietnam succeeded in boosting coffee production at times of high prices

in a way that other countries can only dream of This success has been due to

Nguyen Gia Phuc– Clinton 30

favorable policies as well as to the farmers who have had the determination to improve their lives through the production of a cash crop

Even national coffee institutions and ministries did not expect such a huge production as that experienced in 2000/1 The internal structure of Vietnam had not been able to monitor the quick expansion and policy makers had to accept that coffee has been planted in areas which have not been designated for coffee production Furthermore, compared to 10 years ago, the price situation has changed dramatically and coffee prices in marginal areas of the central highlands in Daklak are not paying farmers their production costs In reaction to this, 10,000 hectares of Robusta plantations have been cleared already and replaced with other crops Farmers have reacted quickly to the situation they were facing The result of the quick adoption is a decline of total Vietnamese coffee production from 900,000 tons in 2000/1 to an estimated amount of 600,000 tons in 2002/3

What are the lessons learnt? And what is the plan for the future development of the Vietnamese coffee sector? Vietnam clearly sees that the only way out of the present price dilemma is integration into the international coffee community Vietnam joined the International Coffee Organization (ICO) which sets out the quality standards that producer countries should meet In addition, Vietnam joined the Association of Coffee Producing Countries (ACPC) and ratified decisions on holding back low quality coffee to ultimately boost prices and improve coffee quality At a national level, Vietnam pursues the way of "Quality not Quantity" Robusta plantations in marginal areas are continuously replaced by other crops such as cashew, cocoa or subsistence crops In suitable areas, i.e high altitudes, the government promotes the careful and slow expansion of Arabica plantations and

washing stations The ultimate goal for 2010 is to have a stable production at 600,000 tons, consisting of 70% Robusta and 30% Arabica

Vietnam should not be underestimated and assumed to be a "low quality" producer of coffee Quality improvement measures will be taken up at the same speed

as coffee cultivation 10 years ago As long as labor costs remain low and coffee processing knows how and technology continues to improve, Vietnam has a bright future However, it is also important to mention that Vietnam coffee will not be able

to reach the qualities of Kenya, Columbia or other traditional high grown coffees The international coffee sector is being reshaped at the moment and it is likely that farmers attempting to grow coffee in marginal areas all over the world will be forced to give

up their plantations This painful situation will have to be faced by farmers in Vietnam as elsewhere

Coffee farmers on less favorable land will need support to find new ways of production Let us hope that coffee farmers in other producing countries have the same flexibility as Vietnamese farmers to adapt to new situations!

2.1.3 Vietnam coffee industry at present

When you think of major coffee countries, odds are that Vietnam does not jump to your mind Yet in recent years, Vietnam has shot up through the world's coffee exporting ranks, now second only to Brazil in tons of coffee exported nationally This rapid rise from utter anonymity in the coffee-producing world to its current exporting prowess has put the country at the center of a global economic controversy, as countries from Colombia to Tanzania blame Vietnam for contributing to the swell of coffee supply and plummeting prices No small fact, considering that coffee is the world's second-most widely traded commodity, second only to petroleum, according

to Techno Serve

Nguyen Gia Phuc– Clinton 32

Vietnam's recent ascent in the coffee-growing world is not its first foray in the trade Before the Vietnam War, it was a "major exporter," according to Scott Wilson

of the Washington Post French colonists introduced coffee to the country's central highlands region late in the 19th Century, and this proved to be a fertile are for growing coffee Between the many years of war on its soil and the Communist government has ruled since, Vietnamese coffee exporting prowess became a thing of the past until the early 1980s, when it quietly reentered the global coffee market Unlike Eastern Europe and the former Soviet Union, there has been no dramatic collapse of Communist rule in Vietnam Instead, its Communist government has taken baby-steps toward economic liberalization, described as a "somewhat Communist

interpretation of its capitalist market economy" by Henry Kamm in Dragon Ascending In step with the Soviet Union's perestroika, Vietnam's government permitted doimoi, the name for controlled measures of economic reform in the late

1980s When the United States normalized diplomatic relations with Vietnam in 1995, the U.S had already lifted trade sanctions with the country National coffee production had been growing steadily by the mid-1990s, but now the stage was set for

an agricultural gold rush With global coffee prices at alluringly high levels, increasing amounts of growth space in the highlands was devoted to coffee shrubs, where they had thrived decades before

ever-Vietnam's coffee output nearly tripled in four years, rising from 3,938 60 Kg bags

of coffee exported in 1995 to 11,264 60 Kg bags in 1999, according to CoffeeResearch.org

Nearly all coffee grown in Vietnam is of the Robusta variety, one of the two principal species of coffee grown in the world, the other being Arabica CoffeeResearch.org estimates that Robusta consists of less than one-fourth of the

world's coffee production, and describes it as ―more robust as the Arabica plants, but produces an inferior tasting beverage with a higher caffeine content." Coffee connoisseurs tend to agree with this assessment of Robusta as a standalone coffee, although allotting that is has its place in certain blends, especially in espresso

While by no means the only source of the global market flood, Vietnam has played a major role in the increase of global coffee supply, and the markets have taken notice Prices of Robusta coffee have plummeted in the 21st century - trading at U.S $.054 per pound on the New York market in January 2000, Robusta's value had fallen nearly in half by March 2001, down to U.S $.031 per pound, according to CoffeeResearch.org By May 2001, the International Coffee Association held a conference dedicated in part to addressing "the critical situation of the present world coffee market."

This "critical situation" has had a wide range of repercussions Wilson's article describes a scenario in which many Colombian coffee growers have switched to the more lucrative but less licit coca plant, unable any longer to turn a profit from growing coffee The blunt reality of market forces has threatened to make coffee growing an unprofitable venture all over Latin America "Increasing numbers of coffee growers are losing money because revenues aren't covering their production costs, and the situation is clearly not sustainable," said Peter A Reiling, President and CEO of Techno Serve, a Connecticut-based charity that works with developing countries

It is not only Vietnam's economic rivals in the global market that have been impacted - Vietnam finds itself reeling from the repercussions of its hyper inflated coffee output A press release from the Vietnamese Embassy to the U.S says that in just over two years, the country's coffee export prices had fallen 57 percent in the

Nguyen Gia Phuc– Clinton 34

world market, and estimates that Vietnam's farmers have lost a collective total of VND 15 billion from the decline in coffee and rice prices

In order to address this issue, the Vietnamese government has purchased and stockpiled domestically grown coffee Also, in August 2001, Vietnam signed the International Coffee Agreement at the United Nations headquarters in New York City Even the Vietnamese government seems willing to concede that the nation's coffee export, generally speaking, is of a lower grade than that of other countries The aforementioned Vietnam Embassy press release admits that "for many years now, Viet Nam has paid more attention to increasing the quantity of farm products when it needed to pay more attention to their quality and world market demand." Another Embassy article explains that the "wanton expansion of coffee plantations in Central Highlands Tay Nguyen with little regard for soil ecology resulted in coffee plant diseases and a low-quality bean that drove export prices down." In a speech given to the International Coffee Association, Doan Trieu Nhan, Chairman of the Vietnam Coffee-Cocoa Association, described a state plan to diversify the country's Robusta-saturated coffee growth and output, growing more Arabica in the northern region of the country

It is thus agreed upon domestically and internationally that Vietnam needs to attract the attention of premium coffee lovers One of Vietnam's domestic offerings,

"weasel coffee," has the potential to appeal to the palates of high-end drinkers the world over Kay Johnson describes the colorful history of this drink in the Straits Times Weasel coffee was originally made from coffee beans that had been eaten and excreted by weasels, enhancing the taste of the beans A chain of coffee shops in Vietnam specializes in weasel coffee, although these days the beans never see a weasel's insides, rather going through a synthetic process intended to simulate the

effects of a journey through the weasel's digestive tract Apparently, it is as good as the real thing While the owner of this chain has contemplated an international expansion of his business, citing possible franchises in Japan and New York City, the chain remains exclusively in Vietnam

Vietnam exported 600,000 tons of coffee in the first half of the 2010-2011 crop, earning US$1.1 billion According to the Vietnam Coffee and Cocoa Association (Vicofa), coffee export turnover is likely to exceed US$2 billion thanks to a sharp increase in coffee prices on foreign markets Vicofa Chairman Luong Van Tu said that a number of businesses and foreign representative offices had bought a huge volume of coffee, much higher than expected Since Vietnam‘s admission to the World Trade Organization (WTO), foreign businesses have raised the bulk purchase

of coffee by 16-50 percent The Ministry of Industry and Trade (MoIT) asked State management agencies to strictly monitor the purchase and the export of farm produce

by foreign businesses and representative offices in Vietnam

The resilience of Robusta coffee prices may not last for long, Commerzbank warned, after Vietnam, the top producer of the variety, revealed that its exports had been far greater than the market had thought Robusta prices showed little immediate negative reaction to official data showing that Vietnam‘s coffee exports soared 22% this month, compared with a year ago, with shipments revised upwards for January and February too London‘s best-traded May Robusta contract gained 1.5% to $2,608

a ton in morning trade However, the resilience in Robusta – the cheaper coffee variety – was down to the high price of Arabica – the New York-traded bean which is generally considered of better quality – and which would not forever provide support, Commerzbank said

Nguyen Gia Phuc– Clinton 36

Table 1: Vietnam Coffee export to the world

2.2 Future of Vietnam Coffee Export

Although the current market situation is rather difficult for coffee producers

and Vietnam is now facing many difficulties, coffee development programs are still

carried out We find it necessary to work out an adjustment for both short-term and

long-term periods This adjustment should be on the basis of different market

researches The key contents of the adjustment should focus on:

- Quality Improvement

- Production cost reduction

- Variety and product shifting, production adjustment to the market demands

- Vietnam coffee consumption promotion both in domestic market and to

great potential countries

- Reorganization of production and export structure in a better scientific,

effective, modern and steady way

2.2.1 Quality Improvement for Vietnam coffee

We firstly need to complete the set of Vietnam Coffee Standards in accordance with the International Standards, market demands and in order to protect the interests

of Vietnam coffee industry A set of coffee standards started to be set up in 1983, and

in 1987 it is approved and issued by the State with Coffee Terminologies and Definitions, Export Coffee Technology Standards, and standards on packaging, labeling, storing, transporting By now there have been some amendments and supplements but it is still necessary that we take completion steps before it can be issued officially and can be referred to in every coffee contracts

- The technique of coffee harvesting, drying, processing and storing etc should also be improved Vietnam Government is now considering to approved a project on processing of the whole Vietnam coffee industry and it is planned to be carried out within the next 2 years

- It is necessary to do researches to transfer advanced technologies to farmers with GAP and GMP methods; as well as research on preventing mound formation, especially Ochratoxin A

- Programs on organic coffee, gourmet coffee and specialty coffee should be taken into account as well

2.2.2 Production cost reduction

This is the key factor to boost the competitiveness of Vietnam coffee Thus we should work out the investment at the most suitable level which bringing about the most economic effectiveness

Nguyen Gia Phuc– Clinton 38

One of the ways to reduce production cost is replacing the current varieties with ones of better growing strength, higher resistant to pests and diseases, and higher yield

Another method is recalculating for a most appropriate amount of fertilizer and water to be used And it is necessary to work out the most suitable productivity for the highest economic effectiveness (rather than highest productivity)

2.2.3 Variety and product shifting, production adjustment to the market

demands

This will make a big change to coffee industry In the last few years, Vietnam coffee growers expand their coffee plantations in a spontaneous way without complying with Government‘s guidelines and plans Robusta coffee is grown everywhere possible, from hillsides to hilltops And Robusta is chosen since they find Arabica coffee growing need more seedlings but not as resistant to diseases, so require more investment, more cares and more complicated processing method That‘s the reason for the un-diversification of Vietnam coffee product

In order to cope with market changes both in the long-term and short-term, Vietnam coffee industry has carried out studies for the adjustments on area, production, and Robusta- Arabica proportion structure to the whole industry All the new plantations outside the planned area with unsuitable soil and hydrographic conditions and with weak growing, low productivity will be erased Robusta plantations in places better suitable for Arabica will be replaced by Arabica It is still encouraged to develop Arabica coffee in suitable places as middle lands and mountainous areas in the North

Therefore, in the next few years Vietnam will have around 300,000 to 400,000 ha under Robusta coffee and around 100,000 ha under Arabica The total

production will then be around 600,000 tons, i.e 10 million bags, in which 7,5 million bags of Robusta and 2,5 million of Arabica The remaining cultivation land in coffee areas will be used for pepper, fruit trees etc depend on conditions of each area

During such adjustment we need also take much care of high value products as organic coffee, specialty coffee and gourmet coffee etc As regard to our traditional export coffee, Vietnam has long been exporting solely green coffee So we should make some adjustments to produce more of other value added products as soluble coffee and roasted coffee etc

2.2.4 Coffee consumption promotion in the domestic market as well as to great

potential countries

Vietnam has a population of approximately 70 million people and the per head consumption capacity is merely of 0.2 to 0.3 kg/head/year With a promotion program conformable to the normal income of the people, Vietnam

is managing to achieve the average capacity of 1 kg/head/year In the next few years, with the total population increases to 100 million people, the total domestic consumption is estimated at 100.000 tons The remaining 500.000 tons of Vietnam annual production will be for exports With this strategy, Vietnam is striving to contribute to harmonize the coffee supply-demand balance

2.2.5 Reorganization of production and export structure in a better scientific,

modern, effective and steady way

Being a not-very-long comer to the world coffee industry, with actually over 15 years after entering into the production of coffee, Vietnam should still have so many things to do and to learn One of them is to find out how to establish a good management structure as well as what are the main functions of a Coffee Board and