Vietnam’s exports to the eu Situation and recommendations.doc

Vietnam’s exports to the eu Situation and recommendations

CHAPTER 1: THEORETICAL FRAMEWORK 8

1.1 EXPORTING AND THEORIES OF INTERNATIONAL TRADE 8

1.1.1 Definition of exporting 8

1.1.2 Theories of international trade 8

1.1.2.1 Absolute advantage 8

1.1.2.2 Comparative advantage 9

1.1.2.3 Factor proportion theory 9

1.1.2.4 National competitive advantage 10

1.1.2.5 International product life cycle 10

1.2 THE VITAL ROLE OF EXPORTING 11

CHAPTER 2: REAL SITUATION OF VIETNAM’S EXPORTS TO THE EU 15

2.1 ESTABLISHMENT AND DEVELOPMENT OF THE EUROPEAN UNION 15

2.2 VIET NAM EXPORT TURNOVER 16

2.3 REAL SITUATION OF SOME MAIN EXPORT ITEMS TO THE EU 19

2.3.1 Textile fabric goods 19

2.3.2 Footwear 20

2.3.3 Art and handicrafts 21

2.3.4 Seafood and aquatic products 22

2.4 SOME ACHIVEMENTS AND CHALLENGES OF VIETNAM’S EXPORTS TO THE EU 23

2.4.1 Achievements 23

2.4.2 Challenges 23

CHAPTER 3: RECOMMENDATIONS TO FURTHER PROMOTE VIETNAM’S EXPORT TO THE EU MARKET 25

3.1 RECOMMENDATIONS TO VIETNAM ENTERPRISES 25

3.1.1 To select the suitable method to actively penetrate into the distribution channels in EU market 25

3.1.2 To reinforce investing activities and perfect management work to produce goods suitable with EU market 25

3.1.3 To step up applying e-commerce in business 26

3.1.4 To improve the operating capacity and competitiveness with their rivals to produce the suitable produce with EU market 26

3.2 RECOMMENDATIONS TO THE GOVERNMENT 28

3.2.1 To construct and perfect economic and commercial policies to promote

3.2.2 To restructure the economy, schedule production operations forward towards export, fully exploit the advantages to enhance the competitive capacity and reduce the disadvantages 28

3.2.3 To restructure the state-owned enterprises 29

3.2.4 To support credits for the export enterprises 29

3.2.5 To innovate administrative machinery and import-export machinist 29

3.2.6 Other recommendations .30

CONCLUSION 31

REFERENCES 32

LIST OF ABBREVIATIONS

EU: European Union

CESC: Community of European Steel and CoalEEC: European Economic Community

CEEA: Community of European Energy AtomicEC: European Community

USD: United States DollarUS: The United States

WTO: Word Trade OrganizationGDP: Gross Domestic Product

ISO: International Organization for Standardization

LIST OF TABLES

Table 1: Vietnam – EU import and export turnover ……….Table 2: Vietnam – EU export turnover ……… Table 3: Vietnam – EU turnover ………

2005 marked the 15th anniversary of diplomatic relations between the EuropeanCommunity (EC) and Vietnam Diplomatic ties were established in October 1990 TheDelegation of the European Commission to Vietnam was officially opened in 1996

The EU is one of Vietnam's largest trading partners and export markets EUcompanies have also invested considerably in Vietnam, bringing stocks of EU FDI toUSD 4 billion, which makes the EU the second largest source of FDI into Vietnam.

* Objectives of the report

First, I would like to give out of brief a theoretical framework about exporting andinternational trade Then, in the next part, I will review and analyses the real situation ofVietnam export to the EU Finally, I would like to give some recommendations of myown, in the last, to enhance export activity of Vietnam enterprises in the time to come.

* Scope of report

Due to the limited time and knowledge, my research can not cover all the export – importactivities of Vietnam enterprises but it only focuses on the Vietnam enterprises’ exportactivity Some recommendations are to the Vietnam enterprises and State only.

* Methodology of the report is a combination of

_Method of statistics_Method of analysis_Method of comparison_Method of synthesis

* Outline of the report

Apart from an Introduction and Conclusion, the report consists of three chapters: _Chapter 1: Theoretical framework

_Chapter 2: Real situation of Vietnam’s exports to EU

_Chapter 3: Recommendations to strengthen Vietnam export activities in EU market.

CHAPTER 1

THEORETICAL FRAMEWORK

International trade has occurred for thousands of year and there have been anumbers of theories discussing the reasons why countries take part in the internationaltrade and what gains and benefits counties have from international trade As this reportfocuses on the exporting activity of the Hung Thinh Company, exporting and theories ofinternational trade will be discussed in the following part of the chapter

1.1 EXPORTING AND THEORIES OF INTERNATIONAL TRADE

1.1.1Definition of exporting

“Exporting is the act of sending goods and services from one nation to others”.Relatively, exports would be defined as” all goods and services sent from one country toother nation” Companies export products when the international market place offersopportunities to increase sales and in turn profits Those companies may be small,medium-size or large multination firms, but they all engage in exporting However, notall companies get involved in export activities to the same extend Some companiesperform few or none of necessary activities to get their product a market abroad Instead,they use intermediaries that specialize in getting products from one market to another.Other companies perform all of their activities themselves with an infrastructure thatbridges the gap between two markets.

1.1.2 Theories of international trade

To understand the nature of exporting, how it is based on related economic factorsand what the gains from exporting are The theories of international trade are studiedbelow:

1.1.2.1 Absolute advantage

Scottish economist Adam Smith (1776) first put the trade theory of absoluteadvantage as follow:” Absolute advantage is the ability of a nation to produce a good

more efficiently than any other nation” In other words, a nation with an absoluteadvantage can produce greater output of a good or service than other nations usingthe same amount of, or fewer, resources Therefore, a country could concentrateson producing the goods in which it holds an absolute advantage It could then trade withother nations to obtain the goods it needed but did not produce.

And despite the power of the theory of absolute advantage in showing the gainsfrom trade, there is one potential problem What happens if one country does not hold anabsolute advantage in the production of any products? Are there still benefits to trade,and will trade event occur? To answer these questions, let’s take a look at an extension ofabsolute advantage, the theory of comparative advantage.

1.1.2.2 Comparative advantage

An English economist name David Ricardo developed the theory of comparativeadvantage in 1817 He proposed that if one country (in the example listed here of two-country world) held absolute advantage in the production of products, specialization andtrade could still benefit both countries A country has a comparative advantage when it isunable to produce a good more efficiently than other nations, but produces the goodsmore efficiently than it does any other goods In other words, trade will be beneficialeven if one country is less efficient in the production of two goods, so long as it is lessinefficient in the production of one of goods.

And economic researchers continue to develop and new theories to explain theinternational purchase and sale of products Let’s now examine one of these, the theory offactor proportions.

1.1.2.3 Factor proportions theory

In the early 1990s, an international trade theory emerged that focused attention onthe proportion (supply) of resources in a nation The cost of any resource is simply theresult of supply and demand: Factor in great supply relative to demand will be less costlythan factors in short supply relative to demand Factors proportion theory states thatcountries produce and export goods that require resources in short supply The theoryresulted from research of two economists, Elle Heckscher and Bertil Olin, and istherefore sometimes called the Heckscher-Ohlin theory.

Thus factor proportions theory differs considerably the theory of comparativeadvantage Recall that the theory of comparative advantage states that countriesspecialize in producing the good that it can produce more efficiently than any other good.Thus the focus of the theory (and absolute advantage as well) is on the productivity of theproduction process for a particular good In contract, factor proportions theory says that acountry specializes in producing and exporting goods using the factors of production thatare the most abundant, and thus cheapest – not the goods in which it is most productive.

1.1.2.4 National competitive advantage

In 1990, a new theory was put forth by Michael Porter to explain why certaincountries are leaders in the production of certain products His national advantage theorystates that a nation’s competitiveness in an industry depends on the capacity of theindustry to innovate and upgrade Porter’s work incorporates certain elements of previoustrade theories but also makes some important new discoveries.

Porter is not preoccupied the export and import patterns of nations, but with explainingwhy some nations are more competitive in certain industries He identifies four elements:

Factor condition

Demand conditions

Related and supporting industries Firm strategy, structure and rivalry

1.1.2.5 International product life cycle

Raymond Vernon’s international product life cycle states that a company willbegin by exporting its product and later undertake foreign direct investment as theproduct move through its life cycle (from new to maturing standardized product) todetermine where it will be produced.

In the new product stage, stage 1, the high purchasing power and demand of buyerin an industrialized country spur a company to design and introduce a new productconcept Because the exact level of demand in the domestic market is highly uncertain at

this point, the company keeps production volume low and based in home country.Keeping production where initial research and development occurred and staying in

contact with customers allows managers to monitor buyer preferences and modify theproduct as needed Although initially there is virtually no export market, exports do beginto pickup late in the new products stage.

In the maturing produce stage, stage 2, the domestic market and markets abroadbecome fully aware of the existence of the product and its benefits Demand rises and issustained over a fairy lengthy period of time As exports begin to account for anincreasing greater share of total product sales, the innovating company introductionfacilities in those countries with the highest demand Near the end of the maturity stage,the product begins generating sales in developing nations and perhaps somemanufacturing presence is established there.

In standardized product stage, stage 3, competition from other companies sellingsimilar products pressure companies to lower price in order to maintain sales levels Asthe market becomes more prices sensitive, the company begins searching aggressively forlow-cost production based in developing nations to supply a growing worldwide market.Furthermore, as

most production now takes place outside innovating country; demand in the innovatingcountry is supplied with imports from production in developing and other industrializednations Late in this stage, domestic production might even cease altogether.

From these theories, the core necessity of exporting can be drawn out As forVietnam enterprises, the products, which combined absolute advantage and nationalcompetitive advantage, are what they aim at And by considering the product life cycletheory, domestic companies will find suitable product strategy for each kind of theirproducts.

1.2.1 To the country

So as to understand why a country exports, let’s have look at the internationaltrade and the importance of international trade It is defined as the purchase, sale or

exchange of goods and services across national borders This is in contrast to domestictrade, which occurs between different stage, regions, or cities within a country And asbeing stated,

regions, or cities within a country Exporting, therefore, can be called a core function ofinternational trade, which brings benefits to a country as follows:

Firstly, exporting, in company with importing, provides a country’s people with agreat choice of goods and services For example, because Finland has a cool climate, itcan not be expected to grown cotton But it can sell paper and other products made fromlumber (which it has abundance) to the US It can then use the proceeds from sales to buyPima cotton from the US Thus, people in Finland get cotton they would otherwise nothave Although the US has vast forests, the wood-based products from Finland might beof certain quality or price that fills a gap in the US marketplace Importing these productsfrom Finland might also allow workers in the US to work in other industries that payhigher wages

Secondly, exporting is an important engine for job creation in many countries Forexample, the Department of Commerce of the US estimated that for every $1 billionincrease in exports between 1993 and 1997 created more than 6,5 million jobs in the US.More over, the US Trade Representative’s office report that trade-related jobs pay 13percent to 17 percent more than jobs not related to international trade.

1.2.2 To the Company

As the matter of fact, companies are now increasingly selling goods and servicesto wholesalers, retailers, industry buyers and customers in other nations Generallyspeaking, there are three main reasons why companies export

1.2.2.1 Expand sales

Companies that have a certain status in the domestic marketplace tend to export asa means of expanding total sales when the domestic activities, certainly not all for goinginternational must take into account many factors like: Political environment or culture,etc Greater sales volume allows them to spread the fixed costs of production over agreater number of manufactured products, thereby lowering the cost of production eachunit of output In short, exporting is one way of to archive economies of sale.

1.2.2.2 Excess production capacity

Sometimes companies produce more goods and services than the market canabsorb When that happens, resource sit idle But the firm can find new internationalresources of demand; it can spread its cost over grated number of units produced, so thatcan lower the cost per unit and increase profits.

If it passes on these benefits to customers in the form of lower prices, the firmsmight also capture market share from competitors A dominant market position meansgreater market power, providing the firm with greater leverage in negotiating with bothsuppliers and buyers.

1.2.2.3 Diversify sales

Exporting permits companies to diversify their sales In other words, they canoffset slow sales in one national market (perhaps due to recession) with increased sales inother Diversified sales can level off a company’s cash flow-marking it easier tocoordinate payments to creditors with receipts from customers.

1.2.2.4 Gain experience

Companies often use exporting as a low-cost, low-risk way of getting startedinternational business For example, owners and managers of small companies, whichtypically have little or no knowledge of how to conduct business in other cultures, useexporting to gain valuable international experience.

1.3 METHODS OF PROMOTING EXPORT

Countries often in trade by strongly supporting their domestics companiesexporting activities though they all know that it brings both pros and cons There arethree most common instruments that governments use to promote export:

1.2.1 Subsidies

Financial assistance to domestics produces in the form of cash payments, lowinterest loan, tax breaks, product price supports, or some other forms is called subsidy.Regardless of the form a subsidy takes, it is intended to assist domestic companies infending off international competitors This can mean become more competitive in thehome market or increasingly competitive in international markets through export.

Because of many forms a subsidy can take, it is possible to calculate the amount ofsubsidies any country offers its producers One of the most popular forms in the world today is amedia and entertainment, especially in developed countries In Vietnam, this type ofsubsidy only appears in tourism sector.

Nevertheless, when offering subsidies, governments should pay more attention toarguments over unfair subsidies settled by WTO Critics charge that subsidies cover costthat truly competitive industries should be able to absorb on their own In this sense,subsidies simply encourage inefficiency and complacency Because governmentgenerally pay for subsidies founds obtained from income and sales taxes, it is widelybelieved that subsidies benefits companies and industries that received them but harmconsumers.

1.2.2 Export financing

Government often promotes exports by helping companies finance their exportactivities They can offer loans that company could otherwise not obtain or charge theman interest rate that is lower than the market rate Or the government can guarantee that itwill replay the loan if a company should default on the repayment-called loan guarantee.However, receiving financing from government agencies is often crucial to the success ofsmall businesses just beginning export Export financing programs are not immune tocontroversy Few criticize government support of small business exporting activities Butsupport for large Multinational Corporation is often controversial.

1.2.3 Special government agencies.

The government of the most nations has special agencies responsible forpromoting exports Such agencies can be particularly helpful in obtaining contracts orsmall and midsize businesses that have limited financial resources Government trade-promotion agencies also often organize trips for trade officials and business people tovisit other countries to meet potential business partners and generate contracts for newbusiness They also typically trade officers in other countries These officers are topromote the home country’s export and introduce business to potential partners in thehost nation Government trade promotion agencies typically do a great deal of advertisingin the other countries promote the nation’s export.

The above trade theories have given an overview of what exporting is, itsrationales, and what gains that a company can benefit from talking export activities Fromthese theories, Vietnamese companies may draw out an exporting pattern in which theycan take use of the countries international advantages for achieve high manufacturing andtrading productivity.

CHAPTER 2

REAL SITUATION OF VIETNAM’S EXPORTS TO THE EU

The European Union (EU) now consists of 15 member countries, including France,Germany, Italy, Belgium, Holland, Luxembourg England, Ireland, Denmark, Greece,Spain, Portugal, Austria, Swede, and Finland The EU total area is of 3.3 million squarekilometers, with the population of 400 million, and Gross National Product of USD 8.000billion The head office is located in Bruxelles (the capital of Belgium) EU is managedby a range of general Institutions (including European Parliament, Assembly, andCommittee…)

The foundation process of EU was marked on 04/18/1951 when Belgium, France,Italy, Holland, Luxemburg and Federal Republic of Germany (Western Germany) jointlysigned Paris Treaty, establishing a Community of European Steel and Coal (CESC) inorder to form a common market for a coal, steel and iron ore products Next, all membercountries of CESC signed Roma Agreement on 07/25/1957 setting up an EuropeanEconomic Commodity (EEC), which aimed to establish a common market of agriculturaland industrial goods And then they came to form a Community of European EnergyAtomic (CEEA) as to control the use of energy and study of atomic in cooperation Fromthe date of January 07, 1976 on hall head offices of the organizations including CESC,

EEC, and CEEA were brought together and called with a common name-EuropeanCommunity (EC).

In December 1991 in Maastricht (Holland), the heads of states of the EC countriesunanimously arrives at a decision of renaming European Community (EC) to EuropeanUnion (EU) on 1st December 1992 when European Union Treaty (normally calledMaastricht Treaty) was signed European Union was officially founded on 10thSeptember, 1993.

Regarding the economic alliance, EU countries began out abolishing the control ofcapital exchange among its member countries, founded European Monetary Instruction in1945, European Central Bank in 1998 Since 1st January 1999, the Euro has beenofficially considered as the common money for 11 countries out of 15 Europeanmembers The European common money (Euro) was formally circulated at the beginningof 2002, and replaced the stated currency of EU member countries with a view to deletethe monopoly position of the US dollar in the world market When the opening EuropeanTreaty became effective (on 1st May 2004), EU became the biggest economic area in theworld with 25 member countries (including 10 new candidates: Spain, the CzechRepublic, Estonia, Hungary, Latvia, Manta, Poland, Slovenia); and the total population of500 million.

2.2 VIETNAM EXPORT TURNOVER

The EU is now one of the important trading partners of Vietnam Since 1995when Vietnam signed the trade cooperation agreement with EU, which opened a newperiod of bilateral cooperation relationship, to 1995 Vietnam’s trade surplus has beenincreasingly rising (table 2.1)

Table 2.1: VIET NAM – EU IMPORT AND EXPORT TURNOVER (1996-2006)(Unit: Million USD)

Vietnam to EU export turnover

Import turnover ofVietnam from EU

Import and exportturnover

Cost of TradeSurplus

rate (%) Cost

Increase rate(%) Cost

Increaserate (%)

1999 2.474 21.04 1.062 -153.536 71.412 2000 2.849 15.16 1.261 19 4.110 16 1.588 2001 3.008 5.58 1.269 1 4.277 4 1.739 2002 3.168 5.32 1.425 12 4.593 7 1.743 2003 3.860 21.84 1.498 5 5.358 17 2.3622004 4.797 24.27 1.615 8 6.412 20 3.182

It is clear that the trading scale between the two partners is ceaselessly speeding up.The annual average commercial growth speed is 29.52% per year, export and importgrowth is 41.32% and 29.52% respectively The real statistics shows that Vietnamexported commodities have been accepted by EU market and its prospect will be muchbrighter.

Vietnam exported to the EU grows both in quantity and quality The structure ofexports has a significant change and the export turnover quickly increases According tothe statistics supplied by the Vietnam General Statistics Department, the export turnoverof the country to the EU grows at a relatively high average speed of around 36.32% rightafter signing a draft Agreement on cooperation relationship between the two parties(during 1995-2005).

This result demonstrates the fact that the EU great partner who strongly supportsVietnam efforts in ameliorating the prolonged trade balance deficit Vietnam’s exports tothe EU in 2001 accounted for 19.63% of the country’s total export revenue In addition,Vietnam-EU exports in the EU total import volume are strongly increasing; it increasedto 41.86% in 1996; 13.02% in 1997; -4.62% in 1998; -8.00% in 1999; 7.85% in 2000;7.89% in 2001; 3.93% in 2002; 10.83% in 2003; 6.82% in 2004 and 6.03% in 2005.

Table 2.2: VIETNAM – EU EXPORT TURNOVER (1995-2005)(Unit: Million USD)

19951996199719981999200020012002200320042005

Vietnam's total export

turnover(1) 5.448 7.255 9.185 9.361 11.54 14.48 15.029 16.706 20.149 26.49 32.441Vietnam's export

to the EU

turnover(2) 664 848 1.607 2.079 2.515 2.845 3.002 3.162 3.852 4.968 5.519(2)' share of (1):% 24.9 21.01 1.88 18.88 20.3 3.63 10.03 17.08 23.92 18.35The EU total

turnover(3) 664 1.142 1.313 1.255 1.062 1.261 1.269 1.425 1.498 1.615 1.825(2)' share of (3):% 41.86 13.02 -4.62 -8 7.85 7.89 3.3 10.83 6.82 6.03Yearly increase of

(2):% 21.7 47.23 22.7 17.34 11.6 5.23 5.06 17.91 22.46 9.98

Table 2.2 shows that Vietnam-EU export value rises but with unstably speed: in1996 in creasesed by 21.70% compared with 1995; in 1997 increased by 47.23% over1996; in 1998 increased by 22.70% over 1997; in 1999 increased by 17.34% over 1998;in 2000 increased by 11.60% over 1999; in 2001 increased by 5.23% over 2000; 2002increased by 5.06% over 2001; 2003 increased by 17.91% over 2002; 2004 increased by22.46% over 2003; however, only by 8.89% in 2005 over 2004 The cause of this is ahard price reduction of some goods in the world (especially coffee), and all Vietnam keyexport commodities are facing some difficulties and barriers caused by the importregulations of the EU.

Although the EU market has a great annual demand for Vietnam main exportedgoods and Vietnam export turnover to the market rapidly grows up, the volume ofVietnam-EU exports is negligible (0.22%) compared with the total import quantity ofEU The prior discussible cause of this matter is Vietnam small economic potential, weakindustry development, and poor processing technique; another reason is that EU partner’srequirements; for example, the exports still contains impurity, the aquatic processingcondition do not meet EU hygienic standards, textile garment goods is sometimescovered with stains Besides, in some case, Vietnam export products fail to guaranteecontractual regulations in terms of specifications, quantity and delivery deadline.Accordingly, the export-import circulation from Vietnam to the EU is relativelydecreased.