Đề tài Recommendations to strengthen Vietnam export activities in EU market

TABLE OF CONTENTS Acknowledgement 4 List of abbreviations 5 List of tables 6 Introduction 7 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 1.2.1 To the country 11 1.2.2 To the company 12 1.2.2.1 Expand sales 12 1.2.2.2 Excess production capacity 12 1.2.2.3 Gain experience 13 1.3 METHODS OF PROMOTING EXPORT 13 1.3.1 Subsidies 13 1.3.2 Export financing 14 1.3.3 Special government agencies 14 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 export 28 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 Coal EEC: European Economic Community CEEA: Community of European Energy Atomic EC: European Community USD: United States Dollar US: The United States WTO: Word Trade Organization GDP: 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 ……………… INTRODUCTION 2005 marked the 15th anniversary of diplomatic relations between the European Community (EC) and Vietnam. Diplomatic ties were established in October 1990. The Delegation of the European Commission to Vietnam was officially opened in 1996 The EU is one of Vietnam's largest trading partners and export markets. EU companies have also invested considerably in Vietnam, bringing stocks of EU FDI to USD 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 and international trade. Then, in the next part, I will review and analyses the real situation of Vietnam export to the EU. Finally, I would like to give some recommendations of my own, 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 – import activities of Vietnam enterprises but it only focuses on the Vietnam enterprises’ export activity. 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 a numbers of theories discussing the reasons why countries take part in the international trade and what gains and benefits counties have from international trade. As this report focuses on the exporting activity of the Hung Thinh Company, exporting and theories of international 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 to other nation” . Companies export products when the international market place offers opportunities 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, not all companies get involved in export activities to the same extend. Some companies perform 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 that bridges 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 factors and what the gains from exporting are. The theories of international trade are studied below: 1.1.2.1 Absolute advantage Scottish economist Adam Smith (1776) first put the trade theory of absolute advantage 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 absolute advantage can produce greater output of a good or service than other nations using the same amount of, or fewer, resources. Therefore, a country could concentrates on producing the goods in which it holds an absolute advantage. It could then trade with other nations to obtain the goods it needed but did not produce. And despite the power of the theory of absolute advantage in showing the gains from trade, there is one potential problem. What happens if one country does not hold an absolute 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 of absolute advantage, the theory of comparative advantage. 1.1.2.2 Comparative advantage An English economist name David Ricardo developed the theory of comparative advantage 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 and trade could still benefit both countries. A country has a comparative advantage when it is unable to produce a good more efficiently than other nations, but produces the goods more efficiently than it does any other goods. In other words, trade will be beneficial even if one country is less efficient in the production of two goods, so long as it is less inefficient in the production of one of goods. And economic researchers continue to develop and new theories to explain the international purchase and sale of products. Let’s now examine one of these, the theory of factor proportions. 1.1.2.3 Factor proportions theory In the early 1990s, an international trade theory emerged that focused attention on the proportion (supply) of resources in a nation. The cost of any resource is simply the result of supply and demand: Factor in great supply relative to demand will be less costly than factors in short supply relative to demand. Factors proportion theory states that countries produce and export goods that require resources in short supply. The theory resulted from research of two economists, Elle Heckscher and Bertil Olin, and is therefore sometimes called the Heckscher-Ohlin theory. Thus factor proportions theory differs considerably the theory of comparative advantage. Recall that the theory of comparative advantage states that countries specialize 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 the production process for a particular good. In contract, factor proportions theory says that a country specializes in producing and exporting goods using the factors of production that are 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 certain countries are leaders in the production of certain products. His national advantage theory states that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. Porter’s work incorporates certain elements of previous trade theories but also makes some important new discoveries. Porter is not preoccupied the export and import patterns of nations, but with explaining why 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 will begin by exporting its product and later undertake foreign direct investment as the product move through its life cycle (from new to maturing standardized product) to determine where it will be produced. In the new product stage, stage 1, the high purchasing power and demand of buyer in an industrialized country spur a company to design and introduce a new product concept. 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 the product as needed. Although initially there is virtually no export market, exports do begin to pickup late in the new products stage. In the maturing produce stage, stage 2, the domestic market and markets abroad become fully aware of the existence of the product and its benefits. Demand rises and is sustained over a fairy lengthy period of time. As exports begin to account for an increasing greater share of total product sales, the innovating company introduction facilities in those countries with the highest demand. Near the end of the maturity stage, the product begins generating sales in developing nations and perhaps some manufacturing presence is established there. In standardized product stage, stage 3, competition from other companies selling similar products pressure companies to lower price in order to maintain sales levels. As the market becomes more prices sensitive, the company begins searching aggressively for low-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 innovating country is supplied with imports from production in developing and other industrialized nations. Late in this stage, domestic production might even cease altogether. From these theories, the core necessity of exporting can be drawn out. As for Vietnam enterprises, the products, which combined absolute advantage and national competitive advantage, are what they aim at. And by considering the product life cycle theory, domestic companies will find suitable product strategy for each kind of their products. THE VITAL ROLE OF EXPORTING 1.2.1 To the country So as to understand why a country exports, let’s have look at the international trade 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 domestic trade, which occurs between different stage, regions, or cities within a country. And as being stated, regions, or cities within a country. Exporting, therefore, can be called a core function of international trade, which brings benefits to a country as follows: Firstly, exporting, in company with importing, provides a country’s people with a great choice of goods and services. For example, because Finland has a cool climate, it can not be expected to grown cotton. But it can sell paper and other products made from lumber (which it has abundance) to the US. It can then use the proceeds from sales to buy Pima cotton from the US. Thus, people in Finland get cotton they would otherwise not have. Although the US has vast forests, the wood-based products from Finland might be of certain quality or price that fills a gap in the US marketplace. Importing these products from Finland might also allow workers in the US to work in other industries that pay higher wages. Secondly, exporting is an important engine for job creation in many countries. For example, the Department of Commerce of the US estimated that for every $1 billion increase 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 13 percent 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 services to wholesalers, retailers, industry buyers and customers in other nations. Generally speaking, 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 as a means of expanding total sales when the domestic activities, certainly not all for going international 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 a greater number of manufactured products, thereby lowering the cost of production each unit 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 can absorb. When that happens, resource sit idle. But the firm can find new international resources of demand; it can spread its cost over grated number of units produced, so that can lower the cost per unit and increase profits. If it passes on these benefits to customers in the form of lower prices, the firms might also capture market share from competitors. A dominant market position means greater market power, providing the firm with greater leverage in negotiating with both suppliers and buyers. 1.2.2.3 Diversify sales Exporting permits companies to diversify their sales. In other words, they can offset slow sales in one national market (perhaps due to recession) with increased sales in other. Diversified sales can level off a company’s cash flow-marking it easier to coordinate 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 started international business. For example, owners and managers of small companies, which typically have little or no knowledge of how to conduct business in other cultures, use exporting to gain valuable international experience. 1.3 METHODS OF PROMOTING EXPORT Countries often in trade by strongly supporting their domestics companies exporting activities though they all know that it brings both pros and cons. There are three most common instruments that governments use to promote export: Subsidies Financial assistance to domestics produces in the form of cash payments, low interest 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 in fending off international competitors. This can mean become more competitive in the home market or increasingly competitive in international markets through export. Because of many forms a subsidy can take, it is possible to calculate the amount of subsidies any country offers its producers. One of the most popular forms in the world today is a media and entertainment, especially in developed countries. In Vietnam, this type of subsidy only appears in tourism sector. Nevertheless, when offering subsidies, governments should pay more attention to arguments over unfair subsidies settled by WTO. Critics charge that subsidies cover cost that truly competitive industries should be able to absorb on their own. In this sense, subsidies simply encourage inefficiency and complacency. Because government generally pay for subsidies founds obtained from income and sales taxes, it is widely believed that subsidies benefits companies and industries that received them but harm consumers. Export financing Government often promotes exports by helping companies finance their export activities. They can offer loans that company could otherwise not obtain or charge them an interest rate that is lower than the market rate. Or the government can guarantee that it will 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 of small businesses just beginning export. Export financing programs are not immune to controversy. Few criticize government support of small business exporting activities. But support for large Multinational Corporation is often controversial. Special government agencies. The government of the most nations has special agencies responsible for promoting exports. Such agencies can be particularly helpful in obtaining contracts or small and midsize businesses that have limited financial resources. Government trade-promotion agencies also often organize trips for trade officials and business people to visit other countries to meet potential business partners and generate contracts for new business. They also typically trade officers in other countries. These officers are to promote the home country’s export and introduce business to potential partners in the host nation. Government trade promotion agencies typically do a great deal of advertising in the other countries promote the nation’s export. The above trade theories have given an overview of what exporting is, its rationales, and what gains that a company can benefit from talking export activities. From these theories, Vietnamese companies may draw out an exporting pattern in which they can take use of the countries international advantages for achieve high manufacturing and trading productivity. CHAPTER 2 REAL SITUATION OF VIETNAM’S EXPORTS TO THE EU 2.1 ESTABLISHMENT AND DEVELOPMENT OF THE EUROPEAN UNION 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 square kilometers, with the popula