Strategy for exporting Vietnamese natural rubber to Chinese market in the period of 2010 - 2020

Vietnamese natural rubber production and export situation in recent years : .... Contribution of natural rubber export to social economy 2.1.3 Evaluate factors affecting on the productio

STRATEGY FOR EXPORTING VIETNAMESE NATURAL RUBBER TO CHINESE MARKET

IN THE PERIOD OF 2010 - 2020

IN THE PERIOD OF 2010 - 2020

CAPSTONE PROJECT REPORT

Group No.: 3

Class: GaMBA01.C03

TABLE OF CONTENTS

FOREWORD

PREAMBLE

GENERAL INTRODUCTION

CHAPTER 1: THEORETICAL BASIS

1.1 Benefits of strategic management

1.1.1.1 Some definitions of strategic management

1.1.1.2 Tasks of strategic management

1.1.1.3 Benefits of strategic management

1.2 Theoretical models highly applied in new market analysis and market penetration

1.1.2.1 Five forces model of M Porter

1.1.2.2 SWOT matrix

1.1.2.3 Competitive Profile matrix

1.3 Theoretical models about marketing management in rubber industry and technical barriers to trade in rubber market, business culture issues, logistics issues and supplying chain

1.1.3.1 4P marketing model

1.1.3.2 Technical barriers to trade

1.1.3.3 Business culture issues

1.1.3.4 Logistics issues and supplying chain

CHAPTER 2 : REAL SITUATION ANALYSIS

2.1 Vietnamese natural rubber production and export situation in recent years :

2.1.1 Natural rubber production situation of Vietnam

2.1.1.1 Area

2.1.1.2 Cultivation technology - Engineering

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2.1.1.3 Productivity and production yield

2.1.1.4 Production cost

2.1.1.5 Financial scale and capacity of enterprises in the sector

2.1.1.6 Preliminary treated natural rubber production structure

2.1.1.7 The management of natural rubber quality

2.1.2 Natural rubber export situation of our country in recent years

2.1.2.1 Yield and export turnover

2.1.2.2 Structure of export markets

2.1.2.3 The structure of export products

2.1.2.4 Export prices

2.1.2.5 Trade conditions

2.1.2.6 Competitive capacity

2.1.2.7 Contribution of natural rubber export to social economy 2.1.3 Evaluate factors affecting on the production and export of Vietnamese natural rubber products in recent years - combined application of impacts in block diamond model of M Porter

2.1.3.1 Export market

2.1.3.2 Competitors

2.1.3.3 Substitutes

2.1.3.4 Peripheral factors

2.1.3.5 Government’s support

2.2 Analysis of export situation of Vietnamese natural rubber into Chinese market from 2005 to the beginning of 2010

2.2.1 China is a key export market of Vietnamese natural rubber

2.2.1.1 General overview of Chinese natural rubber market

2.2.1.2 Demand for natural rubber of Chinese market

2.2.1.3 Supply for natural rubber of Chinese market 2.2.1.4 China - a key export market of Vietnam natural rubber 2.2.1.5 Vietnamese natural market can increase market share in

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2.2.2 Export situation of Vietnam’s natural rubber to Chinese market from 2005 to the beginning of 2010

2.2.2.1 Yield and export turnover

2.2.2.2 Structure and type of export products

2.2.2.3 Export price

2.2.2.4 Quality of export product

2.2.2.5 Payment method

2.2.2.6 Export methods

2.2.2.7 Strategy of promotion and building trademark

2.2.2.8 Competiveness capacity

2.2.3 General judgment on export situation of Vietnamese natural rubber to Chinese market in the period of 2005 – the beginning of 2010 2.2.3.1 Result

2.2.3.2 Existing drawbacks

2.3 Analysis of marketing model, logistics, supply chain and other issues relating to geography and politics between Vietnam and China

2.3.1 4P model

2.3.1.1 PRODUCT

2.3.1.2 PRICE

2.3.1.3 PLACE

2.3.1.4 PROMOTION

2.3.2 Logistic issues for Vietnamese natural rubber export into Chinese market

2.3.3 Problems in rubber export supply chain into Chinese market

2.3.4 Issues related to technique barriers

2.3.4.1 Technical barriers to Vietnamese natural rubber export into Chinese market 2.3.4.2 Export tariff barriers to natural rubber into Chinese

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2.3.4.3 Advantages, disadvantages of main line and small line rubber export into Chinese market

2.4 Chinese natural rubber market situation forecast

2.4.1 Consumption demand and domestic supply capacity

2.4.1.1 Consumption demand

2.4.1.2 Domestic supply capacity

2.4.2 Import demand and supplying capacity from natural rubber exporting countries into Chinese market

2.5 Prospect for enhancing Vietnamese natural rubber export in to Chinese market in the period 2010 – 2020

2.5.1 Demand of Chinese market for Vietnamese natural rubber

2.5.2 Development potential of domestic natural rubber production meets the demand of Chinese market

2.5.2.1 Supply source potential

2.5.2.2 Prospect for stabilizing export price

2.5.3 SWOT analysis when exporting Vietnamese natural rubber into Chinese market in the period 2010 – 2020

CHAPTER 3 : SOME SOLUTIONS AND RECOMMENDATIONS FOR ELABORATING STRATEGY OF EXPORTING VIETNAMESE NATURAL RUBBER TO CHINESE MARKET IN THE PERIOD OF 2010-2020

3.1 Several proposed solutions for raising export turnover of Vietnam natural rubber to Chinese market in the period of 2010-2020

3.1.1 Solution group for improving export

3.1.1.1 Increase cultivated area

3.1.1.2 Raise production capacity 3.1.1.3 Gathering stable goods source serving for exporting to

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3.1.1.4 Strengthen trade promotion, actively approach and build up partner relationship with Chinese customers

3.1.1.5 Change product structure according to Chinese market demand

3.1.1.6 Complete payment process

3.1.1.7 Participate in payment risk insurance

3.1.2 Solution group of improving and increasing export price

3.1.2.1 Improve export product quality

3.1.2.2 Build, register and broadcast brand

3.1.2.3 Adjust export type

3.1.2.4 Establish bonded warehouse to store export goods near border gate region

3.1.2.5 Industry integration

3.1.2.6 Participate in export exchange rate insurance

3.1.3 Solution group of support

3.1.3.1 Develop human resources

3.1.3.2 Enhance monitoring and forecasting Chinese market situation

3.2 Some proposed petitions

3.2.1 For the State

3.2.2 For industry management agencies

3.2.3 For Vietnamese Rubber Association

CONCLUSION

REFERENCES

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ABBREVIATED TERMINOLOGIES

Terms English explanation

ANRPC Association of Natural Rubber Producing Countries

ARBC ASEAN Rubber Business Council

ASEAN Association of Southeast Asia Nations

CAIA China Automotive Industry Association

CRIA China Rubber Industry Association

FAO Food and Agriculture Organization

GAPKINDO Rubber Association of Indonesia

IMF International Monetary Fund

IRCo International Rubber Consortium Limited

IRSG International Rubber Study Group

KNXK Export turnover

L/C Letter of Credit

MREPC Malaysian Rubber Export Promotion Council

NN&PTNT Rural and Agriculture Development

OPEC The Organization of the petroleum Exporting Countries

RRIV Rubber Research Institute of Vietnam

SICOM Singapore Commodities Exchange

SWOT Strengths, Weaknesses, Opportunities, Threats

TOCOM Tokyo Commodities Exchange

TSNR/SR Technically Specified Natural Rubber/ Standard Rubber

TTR Telegraphic Transfer Reimbursement

USD United State Dollar

VILAS Vietnam Laboratory Accreditation Scheme

LIST OF TABLES, FIGURES AND CHARTS

LIST OF TABLES:

Table 2.1: Vietnamese natural rubber growing area, 2001 - 2009 Table 2.2: Proportion area of small and large rubber plantation of Vietnam Table 2.3: The average annual productivity of natural rubber industry in

several major rubbers growing countries in the world period 2003 - 2009 and estimated in 2010

Table 2.4: Vietnamese natural rubber yield in the period 2001 – 2009 Table 2.5: Volume and Vietnamese natural rubber export turnover, 2002 –

2009

Table 2.6: Comparison of five leading markets of Vietnamese natural

rubber export turnover in 2008 – 2009

Table 2.7: Statistic data for natural rubber yield in major producing

countries in the period 2005 – 2009

Table 2.8: International rubber consumption in the period 2005 – 2009 Table 2.9: Natural rubber consumption of China and the World Table 2.10: Types of natural rubber classified according to use purpose in

China

Table 2.11: Production of natural rubber in China, 2004 -2009 Table 2.12: Yield and export turnover of Vietnam natural rubber to

Chinese market in period of 2005 – the first quarter of 2010

Table 2.13: Some main types of Vietnam natural rubber exporting to

LIST OF FIGURES:

Figure 1.1: Michael Porter’s five forces model

Figure 1.2: SWOT model

Figure 1.3: Theoretical model of marketing 4Ps

Figure 1.4: Logistics description in a company

Figure 1.5: Integrated supplying chain

Figure 2.1: Logistic procedures to export rubber into China

Figure 2.2: Rubber export supply chain procedure

LIST OF CHARTS: Chart 2.1: Total rubber area in Vietnam in the period 2001 – 2009

Chart 2.2: Proportion area of small and large rubber plantation of Vietnam, 2001 – 2009

Chart 2.3: Vietnamese natural rubber yield in the period 2001 – 2009

Chart 2.4: Scale and growing rate of yield and export turnover of Vietnamese natural rubber in the period 2002 - 2009

Chart 2.5: Structure of Vietnamese exporting market in 2009 according to export turnover

Chart 2.6: Structure of Vietnamese natural rubber products exported in 2009

Chart 2.7: Price of natural rubber in the world market and export price of Vietnam in the period 2004-2009

Chart 2.8: Natural rubber and synthetic rubber consumption rate from 2005 – 9/2009

Chart 2.9: Consumption – import of natural rubber in China from 2004 to 2009

Chart 2.10: Market share of Chinese market in export of Vietnamese natural rubber from 2000 to the first quarter of 2010

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Chart 2.11: Yield and export turnover of Vietnam natural rubber to

Chinese market in period of 2005 – the first quarter of 2010

Chart 2.12: Average export price of Vietnamese natural rubber to China

in the period of 2005 to the first quarter 2010

Chart 2.13: Type structure of rubber product

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FOREWORD

Globalization and regionalization, integration with world economy has become inevitable trend today In the context of open and global economy integration, Vietnam has actively shifted and asserted their integration into the world economy, particularly in the field of trade Prominent point is the event on 7thNovember 2006, Vietnam was officially admitted as 150th member of the World Trade Organization (WTO) and on 11th February 2007, Vietnam became an official member of this organization

In order to create ways to develop our country’s economy under market mechanism, development of export-oriented agriculture, foreign trade development and expansion of economic cooperation, scientific and technical cooperation with other countries, strongly increasing export turnovers to the country is one of the main objective factors Identify agricultural products export strength of Vietnam is natural rubber, one of the agricultural products which brought the largest turnover to Vietnam Vietnam today is one of the five leading major rubber exporting countries

in the world, in which natural rubber yield exported to China accounted for about 65% Aware that China is a potential market for exports of natural rubber, with geographical conditions advantages with shared borders, populated market, large demand, easygoing and diversified market However, besides there are still difficulties for natural rubber in Vietnam such as export turnover does not match the potentials, not take full advantage of our strength and mainly raw materials export structure, low added value , weaknesses in management, administration, quality control, active in business activities is low, small quota export accounting for large proportion

To enhance the value and position for natural rubber export in Vietnam, Group

03 of Gamba01.C03 class has forcibly researched, analyzed and constructed the project " Strategy for exporting Vietnamese natural rubber to Chinese market in the period 2010-2020 " with the desire to contribute to promoting Vietnamese natural

rubber export into China, a potential market, limiting risks, and bringing the highest efficiency for Vietnamese rubber industry

Due to limited knowledge and time for study, research, market survey, there are certain difficulties so our capstone project is inevitable to have shortcoming In the spirit of good will, we do expect to have the contributions from teachers and fellows

Group number 3, class Gamba01.C03 would like to sincerely thank teachers in the Capstone Committee and teachers who have dedicated teaching and helping us during MBA course and in the process of completing this project

Class: Gamba01.C03 Group: N 0 03

Nguyen Vo Thanh Huy Dang Thi Bich Lan Nguyen Hai Minh

Do Viet Nam Trinh Minh Thanh

PREAMBLE GENERAL INTRODUCTION

1 The necessity to implement project research:

In the learning process, MBA students have been training a lot of knowledge about business administration field With gained knowledge, combining with learning, studying relevant documents in business administration field has provided each student in MBA course a new perspective and a scientific approach in solving problems arising from actual production and business

The field that Group 3 chose in the graduation capstone is building strategies for natural rubber exports from Vietnam to Chinese market China is now the largest natural rubber import market all over the world and the leading natural rubber export market of Vietnam (accounting for 65% of total turnover and meet about 13% - 14% of Chinese market) The natural rubber consumption growth rate

of this huge market is predicted to continue increasing next time, especially, when automobile industry of this country becomes a bright spot in the world market On the other hand, China has occupied “controlling” rate in market structure and export turnover of Vietnamese natural rubber which is also a potential factor with risks for this sector

Since then, an urgent requirement has been set in researching solutions to exploit potentials as well as reducing necessary risks to maintain and improve Vietnamese natural rubber export to this primary and promising market

2 Research purpose:

By this research our group would like to contribute ideas to help Vietnamese natural rubber have a look at different angles on strategic issues, to develop strategies to enhance the export of natural rubber in Vietnam into Chinese market in the period 2010 - 2020

3 Research methodology:

To implement the project “Strategy for Exporting Vietnamese natural rubber

to Chinese market in the period 2010 – 2020”, our group has agreed to use data survey method, then basing on theoretical argument which we have been learned to analyze and give comments, reviews and recommendations

3.1 Ideal basis of the method

Comprehensive views, specific historical opinions and development opinions

of philosophy dialectical materialism of Marxist - Leninist are applied to the line of thought of Vietnam

3.2 Detailed research method

Collect secondary data from reference books, academic journals, report analysis and articles, combined with analysis, statistics, comparison, interpretation methods to increase persuasion and practical application values of the project

3.3 Theoretical basis for choosing research method:

Purpose of gathering documents and research materials is an important work which is required for any scientific research activity Researchers and scientists always read before searching for documents as the basis for scientific research This

is a valuable source of knowledge accumulated through historical research process for long time Therefore, the purpose of data collection and research materials are to:

- Help people to understand the research methodology of the studies conducted previously

- Make clear for their research

- Help researcher to have more closely research methodology or arguments

- Have more extensive knowledge in the field under study

- Avoid duplication with previous studies; therefore, take less time, effort and finances

- Help to build research arguments (evidence) to prove theory of

scientific research

4 Structure of the Capstone:

Structure of the Capstone is designed as following:

Preamble: General Introduction

Chapter 1: Theory

Chapter 2: Actual situation analysis

Chapter 3: Some recommendations and solutions to build Vietnamese natural rubber export strategy in the period 2010 – 2020

CHAPTER 1 THEORETICAL BASIS

1.1 Benefits of strategic management

1.1.1.1 Some definitions of strategic management

- According to Michael Porter (1996):

Strategy is harmony creation among activities of a company The success of a strategy is mainly based on well implementing of many things and combining them together the core of strategy is choosing what not to do" With this approach, the strategy is to create differentiation in competition, find and implement what not to do The essence of strategy is to build competitive advantages; strategies exist only in unique activities Strategy is to build unique position and have value to impact on a different activities group

- According to Fredr David:

Strategic management can be defined as an art and establishing science, implementing and evaluating decisions related to a lot of functions which allow an organization to achieve its goals

1.1.1.2 Tasks of strategic management

Strategic management helps businesses to clearly orient strategic vision, mission (tasks) and their goals Indeed, if organizations want strategic management

to be effective, they must manage information systems in business environment, basing on that, administrators can predict changing trends of the business environment and identify where the business should go in the future, what needs to be done to achieve long term results The perception of desired results and goals in the future helps managers and employees to understand what needs to be done to achieve success and create mutual understanding between managers and employees then they will effort to achieve their desire This will encourage both of them to gain short term achievements in order to improve long-term interests of businesses

1.1.1.3 Benefits of strategic management

Strategic management helps businesses to have good strategies all the time, adapt to the environment

Strategic management helps businesses to be active in making decisions to exploit opportunities in time and prevent or limit risks in external environment, promote strengths and reduce weaknesses in internal business

Strategic management helps businesses achieve higher efficiency in comparison with no management

1.2 Theoretical models highly applied in new market analysis and market

penetration

1.1.2.1 Five forces model of M Porter

Porter's Five Forces model was first published in Harvard Business Review magazine in 1979 with the content of studying elements to create profit in business This model is commonly known as "Porter's Five Forces" which is considered as useful and effective tool to find out the origins of profit More importantly, this model offers competitive strategies to help business to maintain or increase profits

Businesses often use this model to analyze whether they should join a certain market, operate in a market or not However, because of today’s business environment has the sense of “dynamic”, then this model is applied to search in a certain industry to find out sectors need to be improved to generate more profit

According to Michael Porter, intensity of competition in the market in any industry affected by five competitive forces as following:

Economists assess competitive capacity according to the indicators of the level of that sector concentration, and concentration ration (Concentration ration - CR) is one of the indicators which must be mentioned first This indicator shows percentage of market share hold by the four largest firms in that sector There is also

a CR index of market rates controlled by 8, 25 and 50 leading companies in that sector

If the level of competition between firms in an industry is low, then that sector is considered to be “disciplined” This discipline may result from competition in history, role of the leading firms, or compliance with common

ethical standards Collusion among companies is generally illegal In sectors with low levels of competition, competitive behaviors are certainly limited unofficially However, a company does not agree to comply with rules that seeks competitive advantage can lose that "disciplined" market

When a rival acts in a way that makes others be forced to retaliate, then competition in that market will increase Intensity of competition is often described

as brutal, strong, moderate, or weak, depending on how firms’ efforts to win the competitive advantages market will increase

2 Threat of Substitutes

In Porter's model, the term "substitute products" is referring to products of other manufacturing industries According to economists, threat of substitutes occurs when a product demands are affected by changes in price of substitute product Demand elasticity in the price of a product is affected by changes in substitute commodity prices More and more substitute goods, graph reflects demands of the product has higher elasticity (that

is only a small change in product prices also lead to major changes in product demand) because buyers now have more choices Thus, the existence of substitute products limits the ability to increase price of business in a certain manufacturing industry

Competition caused by this substitute risk usually comes from outside products of the industry

3 Buyer Power

Buyer power is influence of buyers on a certain manufacturing industry Generally, when buyer power is greater, relationship between clients and the

call purchasing monopoly – the market has many suppliers but there is only one purchaser In such market conditions, buyers have ability to impose price

If buyer is powerful, they can force prices to be reduced, making industry’s profit rate decrease There are few purchasing monopoly phenomena in fact, but the

unbalance relationships often exist between an industry and buyers

4 Supplier Power

A manufacturing industry requires raw materials – including labors, input and other components This requirement leads to the relationships between buyer and supplier, between manufacture and raw materials suppliers to manufacture products The power of suppliers shows the ability to decide their trading conditions for their businesses

The weaker suppliers may have to accept terms that business has given, thereby business reduces costs and increase profit in manufacturing, by contrast, big suppliers may put pressure on the manufacturing industry in many ways, like setting higher raw material prices to share the profits of that industry

5 Barriers to Entry

Not only present competitors create threats to businesses in an industry, but the ability of new firms join the industry also affects on competition In terms of theory, any company can join or withdraw from the market if there is one “exit gateway” and one “entry gateway” freely Meanwhile, industry profits would be negligible But in reality, each industry has its own measures to protect high profits of the existed units in the market, and prevent potential competitors entering the market These measures are called barriers to entry

The barriers to entry are typical provisions of an industry These barriers decrease participation of new companies, thereby maintaining a stable profit for existed firms operating in the industry Reviewing from strategic perspective, firms can create, or exploit these barriers to increase their competitive advantage The barriers to entry can be initiated from several main factors as following:

 Government creates barriers

 Patents and intellectual property is a barrier to entry

 The characteristics of asset restrict the entry to that sector

 Economy scale

Barriers to escape from the industry are similar to barriers to entry

1.2.1.1 SWOT matrix

SWOT is abbreviated collection of the first letter of English words

Or it is also called as matrix of strengths, weaknesses, opportunities and threats

Figure 1.2: SWOT model

SWOT analysis is to give opportunities and threats, strengths and

weaknesses on current status and future of the business in relationship interactions, then determining strategic position of each relationship

In which:

 SO strategy-“development” strategy: Combining strengths and opportunities

of the company to make large expansion and diversify development

 WO strategy: the weaknesses are more than strengths, but many outside opportunities are dominant, correspondent to the name "competition"

 ST strategy: this is the situation that company use internal strong conditions

to against external obstacle This strategy is called “resistance” strategy

 WT strategy-“Defense”: The company can not deal with external threats, it

is deprived the ability to develop In such situations, they have only two

directions: the first bankrupt or affiliate with another company

1.2.1.2 Competitive image matrix:

Setting this matrix to identify comparative evaluation of the company with major competitors in the industry, the comparison is based on factors affecting on the competitiveness of the company in the industry Thereby it helps the administrator recognize strengths and weaknesses of competitors, identify competitive advantages for the company the weaknesses that need to be overcome

1.3 Theoretical models about marketing management in rubber industry and technical barriers to trade in rubber market, business culture issues, logistics issues and supplying chain

1.1.3.1 4P marketing model:

Marketing Mix with traditional 4P including: Product, Price, Place and Promotion General meaning of combining 4P into 1 Marketing Mix is that when you have a good product but you sell that product with unacceptable price (with targeted customers), then customers will have difficulty in buying your product or it

is not easy to buy your product (role of distribution channel), so there is few people know about your product (role of Marketing communication) then you are still able

Opportunities Combining strategy SO Combining strategy WO

Threats Combining strategy ST Combining strategy WT

to be lose in doing your business A good marketer should know how to combine cleverly the four factors mentioned above

It is important to understand that principles of mixed marketing is variables that can be controlled Mix marketing model can be adjusted periodically to meet constantly changing demands of targeted customers or meet the dynamics of market

4Ps combination model:

Nearly a half century elapsed, there have been numerous articles offer arguments and critcs that said 4Ps was outdated and insufficient to create a solid foundation for a marketing strategy in the new century And also a variety of marketing models (eg 7Ps, 4As .) is introduced to replace the position of 4Ps in the marketing world However, 4Ps still exist because it covers all elements of a marketing strategy in the simple way that is relatively completion Of course, 4Ps are now defined broader than at the beginning to better suit with the times

- Product: Managing elements of the product / service (brand, function,

quality, form, packaging, plus service, warranty system .) and plan to develop product / service into market

- Price: Decision on product price excluding cost of production and

administration Also considering other factors (current price of competing products, promotion prices, prices for dealers, price applies for other forms of payment ) to determine listed price for the product

- Place: Select and manage commerce channels to occupy target market at

the right time and develop logistics systems and transportation of products

- Promotion: Introduce and convince potential markets to use products of

the business through advertising types (advertising, personal selling, public relations, journalism or Internet )

Source: www.apex.vn

Figure 1.3: Theoretical model of marketing 4Ps

In theory, if the enterprise can perform any P factor in 4Ps better than its rival, the enterprise will have competitive advantage - sign of a successful marketing strategy - customer favorite and become more popular and more successful

1.1.3.2 Technical barriers to trade:

In international trade, the "technical barriers to trade” are standards in fact, technical regulations that a country applies to imported goods or conformity assessment process of imported goods for that technical regulations, standards (hereinafter referred to technical measures – TBT measures)

These technical measures in principle is necessary and reasonable to protect the important interests such as human health, environment, security Thus, each WTO member country sets up and maintains a system of technical measures separately for their goods and imported goods

However, in reality, the technical measures may be potential barriers to international trade because they can be used for the purpose of protecting domestic production, making it difficult for importing goods of foreign countries into importing country market Therefore it is also called "technical barriers to trade"

requirements (businesses must

comply with them)

 Technical standards: are

recognized and accepted by an

organization but they are not

compulsory

 Conformity assessment procedure of a kind of commodity with conformity

assessment procedure

1.1.3.3 Business culture issues

Culture is a set of basic values, beliefs, standards, knowledge, ethics, laws and recognized behaviors, shared by individual and society and is crucial factor to decide action, feelings, and views of ourselves and others Culture of a society is inherited from generation to generation, and other aspects such as language, religion, customs, and laws are closely related to each other-that is view of power, ethics and race of a society will eventually reflect itself in a way that an individual conducts business, negotiate contracts or handle potential business relationship Understand cultural context and memorize a potential foreign partner or competitor can help the business to develop effective strategies for negotiations and signing contracts What was once considered as a mystery could become easier to be predicted than expected and could eventually be used to provide advantages for you

1.1.3.4 Logistics issues and supplying chain

a Logistics theory

Logistics is a process anticipating needs and requirements of customers;

concerning about capital, materials, manpower, technology and information needed

to meet the needs and requirements of customers; optimizing goods and services

network to satisfy customer requirements, and utilizing this network to satisfy

customer requirements on time

Previously it was primarily focused on researching transportation

organization and products distribution (outbound), now people have to combine

both at the same time meanwhile doing research outbound, raw materials and

facilities… for input (inbound) It is key combination in a program create

logistics management

Figure 1.4: Logistics description in a company – Source: Internet

Main activities in logistics management include: Customer service / Demand

forecasting / Reserve management / Logistics contact/ Materials purchasing /

Processing orders / Packing / After sale service (maintenance, spare supply ) /

Stock choosing / Warehousing, goods storage/ Transport management and

monitoring goods and materials journey

b Supplying chain

The concept of supplying chain has emerged from 60’s of the twentieth

century that means it appeared before the concept of logistics (business logistics)

Meanwhile, supplying chain is single, but when we combine the supply of

materials, techniques, raw materials… with the distribution of products, the development of supplying chain has a different appearance; it is an indispensable part when studying and application logistics

Supply chain can be envisioned as a pipeline or a trough used for the flow of

products /materials, services, and financial information from suppliers through

various organizations, intermediary companies to consumers

Then such a supplying chain consists of involved units with specific logistics services

When logistics was born and developed in many companies - its simplest form is the merger of supplying materials (inbound logistics) to product distribution (outbound logistics), along with overall cost perspective, value chain perspective are also taken into consideration This concept is especially important in logistics management

In 90’s of the twentieth century, with the development of logistics, modern supplying chains has been formed and developed in many companies The most integrated supplying chain nowadays can be described as in the figure below

Figure 1.5: Integrated supplying chain – Source :Internet

According to the figure above, an integrated supplying chain links suppliers

to retailers-consumers through a variety of related units such as distributors, producers (plants), wholesalers, to manage three-lines: service products (goods traffic), relevant information and finance

Currently, the design and application of specific supplying chain is the object

of research and application In designing the supplying chain, in addition to setting the specific schedule of goods and services to suppliers, we shall establish detailed relationship between involved units in the supplying chain to supply must meet the needs of customers, including delivery on time (in time) which is very important

The calculation and determination of entire cost of the product through this chain are also critical issues of chain management, because of benefit that logistics bring about owns for part of this To do these things we need to monitor and manage information across the chain in a systematic way

CHAPTER 2 REAL SITUATION ANALYSIS

2.1 Vietnamese natural rubber production and export situation in recent years:

Natural rubber material is types of product produced from latex of rubber trees (Heave brasiliensis) which is originated from Brazil, this is the largest economic value tree in group of trees belong to Heave branch When the plant reaches the age of 5-6 years it will begin to produce latex and can produce within 20-25 following years

Natural rubber is mainly used in automobiles tires and other types of vehicles, aircraft tires, gloves and engineering accessories in the vehicle, adhesives, mats, shoe soles, machinery belts, turn drives demand in the machinery and materials used in medicine, sports, construction, manufacturing industry With some special properties such as viscosity, high elasticity that synthetic rubber cannot replace; therefore, over 70% of global natural rubber is used in industries, producing tires and a small amount is used in producing ultra-thin latex gloves using in medicine Currently, natural rubber accounting for approximately 40-45%

of total global consumption of rubber and with two items correlated alternative, natural rubber is constantly increasing market share in comparison with synthetic rubber produced from petroleum

2.1.1 Natural rubber production situation of Vietnam

2.1.1.1 Area

a Total area:

Rubber trees have been planted in Vietnam since 1897 Through encouraging policies of colonial government, France had established large rubber plantations in Southeast provinces and Central Highlands with continuously increasing area

of farming and exploiting

Table 2.1: Vietnamese natural rubber growing area, 2001 - 2009

Unit: Thousand ha

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total area 415,8 428,8 440,8 454,1 482,7 522,2 556,3 631,4 674,2

Exploiting

area 241 243 267 301 334 356 373 399,1 421,6

Source: General statistics department Agro info synthetics data from VRA, Rural and Agriculture Development Ministry

Chart 2.1: Total rubber area in Vietnam in the period 2001 – 2009

During the period from 2001 to present planted rubber area in our country has been increasing over the years with an average growth of 6.5% per year Rubber-growing areas are mainly in Southeast – accounting for 65%, Central Highlands account for 23% Central Coast accounts for about 8% and North accounts for approximately 4% of the total cultivated area of the country The total natural rubber area under cultivation in 2009 was 674,200 ha, 1.6 times higher than the figure in 2001

b Small and large rubber plantations area

Vietnam has two forms of rubber production are large plantations (mostly

Total area Exploiting area

state-owned rubbers) and small plantations (households) Although being born after the state owned rubber, in recent years the small rubber plantations area developed rapidly

Large rubber plantation area has constantly increased every year but increased with low rate because of limited land fund With the lower growth rate of large rubber plantation area in comparison with the growth rate area of small rubber plantations, so the proportion of large rubber plantation area has continuously decreased over the years and that reduction is increasing rate of small rubber plantations

Table 2.2: Proportion area of small and large rubber plantation of Vietnam

Unit: thousand ha

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Large rubber

Source: Agro info synthesizes from data VRA, Rural and Agriculture Ministry

Chart 2.2: Proportion area of small and large rubber plantation of Vietnam,

2001 – 2009

2.1.1.2 Cultivation technology - Engineering:

Rubber in our country is cultivated in two major forms: large rubber

Company of Vietnam Rubber Group (VRG), some provinces, national defense agencies and small rubber plantation forms: cultivated and invested by households Due to scale, capital sources and higher level of management advantages, Vietnam Rubber Group - representative for large rubber plantation - in the past years has invested in research and application of scientific and technical advances and new technology in cultivation in units bringing effectiveness and increasingly higher yields

The new cultivation technique advances has been put into application by VRG mainly through two ways:

- Implementation of bilateral cooperation, training, training with other rubber growing countries with this progress be adjusted and supplemented according to domestic growing conditions

- Conducting research at Rubber Research Institute of Vietnam (RRIV)

2.1.1.3 Productivity and production yield

a Production capacity:

With characteristic of perennial industrial crops, besides deciding productivity factor for latex is age of the tree, production capacity of natural rubber depends heavily on soil conditions and climate

Table 2.3: The average annual productivity of natural rubber industry in

several major rubbers growing countries in the world period 2003 - 2009 and estimated in 2010

Source: Member countries of ANRPC

Compared with other world leading countries producing natural rubber,

in recent years, the capacity of natural rubber in Vietnam grew continuously through years and belonging to the highest production capacity countries, only behind Thailand and India If in 2007, capacity was only 1.612 kg / ha and a slight increase by 1.661kg/ha in 2008 then in 2009, productivity level exceeded 1.770 kg/ha This is one of the most effective investment models in rubber tree intensive farming with a good application of new farming methods in our country in the last few years

b Production yield:

Natural rubber production yield mainly depends on the exploiting area and productivity of this sector In addition, latex production yield also suffers from abnormal effects caused by the weather and pests Generally over the years, cultivated and exploited is increasingly grow with enhanced production capacity makes the whole yield of natural rubber industry in Vietnam reach pretty

strong growth In 2000, productions yield was only 290.8 thousand tons, equivalent

to 40% compared to the productions yield of 723.7 thousand tons in 2009

Table 2.4: Vietnamese natural rubber yield in the period 2001 – 2009

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Yield

Source: General statistics department

Chart 2.3: Vietnamese natural rubber yield in the period 2001 – 2009

During the above period, natural rubber production increased continuously over the years with high and uneven growing rate, except in 2002 with a negative growing rate in comparison with previous years Average growing rate for the whole period reached 11.31% higher than the annual yield growing rate of the world by 2% per year Natural rubber yield was increased by 2.5 times in the past 8 years, mainly thanks to increased productivity According to VRG, rubber production in Vietnam in recent years is still likely to rise further because the current estimation just over 60% of the rubber exploitation area and the prospects

Yield (thousand tons) Growing index

of newly planted rubber garden in neighboring countries

Currently, Vietnam is ranking the fifth among the leading global natural rubber exploiting countries, beyond a level compared to the period before 2005 due

to faster yield growth than China The countries rank before Vietnam in the ranking table of IRSG including: Thailand, Indonesia, Malaysia and India

2.1.1.4 Production cost:

Natural rubber production costs are mainly labor costs and fertilizer costs, in which labor costs account for about 50% of production costs of enterprises in the whole rubber industry

Level of production costs of natural rubber industry in our country account for only 70% in comparison with the cost in other countries such as Malaysia or Indonesia, that are assessed as being able to compete well against other countries in the region by analyst

2.1.1.5 Financial scale and capacity of enterprises in the sector:

Generally, scale of Vietnamese natural rubber sector is small and has many weaknesses For the small plantation area, limited capital investment, development

of small scale and financial capacity is relatively low Only the units directly

belongs to VRG that has great financial potential with total investment in 2008 was

29,723 billion VND VRG has 36 member units and managed 240,220 hectares rubber in cultivation areas across country in late 2009

So the natural rubber industry in our country needs to adjust preferences on capital and techniques for small rubber cultivating rubber plantation, help them to

be able to equally compete with larger scale business in the sector

2.1.1.6 Preliminary treated natural rubber production structure

Natural rubbers in our country are mainly raw material processing to block

rubber, centrifugal rubber and smoked sheet rubber, mainly exported; only about

15% - 20% of rubber is processed into products

The standard type of preliminary natural rubber products mainly includes:

- Technical SVR calibrated block rubber

- Concentrated latex

- RSS sheet rubber

- Others such as: crep rubber and mixed rubber

2.1.1.7 The management of natural rubber quality

Quality of natural rubber is a crucial factor for the sustainable development

of commodity in domestic and international markets as consumers become more and more cautious and higher demand for product quality Currently, the management of product quality for natural rubber in our country complies with Vietnamese standards such as ISO 3769:2004, Vietnamese standard 6314:2007 These standards apply only and closely examine for state owned rubber company, for the private sector, the quality of natural rubber has not been closely managed, lack of direction and controlling measures at macro-level as the overall quality of the preliminary treated rubber of Vietnam declines its competitiveness compared to other countries in the region

2.1.2 Natural rubber export situation of our country in recent years:

Natural rubber is one of the agricultural export commodities of Vietnam in recent years, with export turnover ranking the third after rice and coffee export

commodities From 2006 to present, natural rubber exports have contributed more

than $ 1 billion each year, contributing more important part to the overall national export turnovers and is one the highest export turnover growth Vietnam now has over 500 enterprises involved in exporting natural rubber and exports about 80% of the whole yield of the sector, of which approximately 40% of exports are from VRG In 2009, Vietnamese natural rubber ranks the fourth in term of export yield in the global market, after Thailand, Malaysia, and Indonesia

2.1.2.1 Volume and export turnover

Combined data from the General Statistics Department and General Customs Department in recent years shows rubber export turnover increased continuously over the years from 2002, while the export yield in 2008 has decreased significantly

due to global economic distress status Each year, natural rubber export contributes from 1.6 to 3.23% of total national export return

Table 2.5: Volume and Vietnamese natural rubber export turnover, 2002 -

2009

Year 2002 2003 2004 2005 2006 2007 2008 2009 Yield

(thousand tons) 454,8 432,3 523,4 554,1 703,6 715,6 658,3 731,4 Rubber export

In 2006, the value of natural rubber export in our country for the first time exceeded

$ 1 billion, rose from 9th to 7th position in 11 major exporting commodities of the

whole country, and marked the strong growth across the sector

Source: General Statistics Department, General Customs Department

Chart 2.4: Scale and growing rate of yield and export turnover of Vietnamese

natural rubber in the period 2002 - 2009

In the sequent four years from 2006 to 2009, export turnover for natural rubber of Vietnam has reached over $ 1 billion However, this period of both growth rate and growth rate of export turnover is low compared to the period 2002 –

2005 because of many strong fluctuations in the economic world market In 2008,

natural rubber exports decreased by 8% however due to high export prices in the first 8 years so the export turnover increased by 15.05% compared to 2007

The financial crisis started in America in August, 2008 and spread rapidly around the world has made the price of crude oil in the world markets continue to fall, leading to a significant reduction in price and demand for natural rubber Because the average export price decreased in comparison to that of 2008, when natural rubber exports in 2009 reached 731.4 thousand tons with export turnover of 1.226 billion dollars, export yield of natural rubber rose 11.1%, but export turnover fell approximately to 24%

Statistics from General Customs Department in the first two months of 2010 showed that natural rubber export after 2 months reached 76.3 thousand tons; export turnover reached 193 million USD, equivalent to that of the same period in 2009 With recovery of the global market, natural rubber export in Vietnam will be

Yield (thousand tons) Export Turnover (million USD)

% Yield growing

% export turnover growing

evaluated to increase again in 2010 According to Vietnam Rubber Association in

2010, Vietnam is expected to export 750 thousand tons of natural rubber with export turnover reaching $ 1.5 billion USD

2.1.2.2 Structure of export markets

Counting for 2006, Vietnamese natural rubber had been exported to 40 countries and territories around the world, two years later, that number had skyrocketed to 73 the market and not significantly reduced to 71 markets in 2009 The traditional export market of for natural rubber Vietnam, China, Korea, Germany, Taiwan, Malaysia, and Russia With that, the potential market as the United States, Japan, Singapore, EU, and new markets like the Middle East, South America, Africa also been exploited and expanded as Vietnam increasingly deep integration wide into the world economy in recent years

Table 2.6: Comparison of five leading markets of Vietnamese natural rubber export turnover in 2008 – 2009

Nation

Turnover (million USD)

Rate (%) Nation

Turnover (million USD)

Rate (%)

Among import markets of Vietnamese natural rubber, China has always been market leader with consumption exceeding 60% of export turnover Rubber markets such as Korea, Malaysia, and Taiwan accounted for only 4% -5% of the total export