The closeness of a foreign sales contract in Binh Minh Household Joint Stock Company

ACKNOWLEDGEMENT To some extent, I can say for sure that this thesis is the end of my long journey to obtain my degree in the National Economics University. In this journey, I did not travel alone, but my advisor, teachers, colleagues, parents and friends have been always by my side to give me lots of precious support. In other words, this report would not have been possible without ongoing guidance and support provided by them during the last time. From the bottom of my heart, I would like to thank my advisor Pham Phuong Lan who has been directly responsible for guiding my performance devotedly. Special thanks are for teachers of the faculty who have been willing to contribute their time and efforts to this report by providing necessary information and advice for my preparation. In addition, I would like to give my sincere obligation to my temporary colleagues in Binh Minh Household Joint Stock Company for their dedication and enthusiasm to help me with data collection and professional skill. They somewhat gave me numerous opportunities to be exposed to real practice. My appreciations are also extended to Dr. Nguyen Hong Hai - Deputy Head of International Payment Subject, and M.A Tran Nguyen Hop Chau – Lecturer of Finance Faculty, Banking Academy of Vietnam, for their devotion to me during the short-term course related to import-export operation. By the way, I also wish to express my obligation to Mrs. Vu Thanh Van for the time when I worked as a collaborator for VinatranzPro translation office. She gave me various chances of sharpening my knowledge of sale contract that somehow made me come to a decision to challenge myself in such field. Finally, I would like to thank my parents, friends who are never reluctant to do me a favor no matter what. It is a precious encouragement for me to strive for such finalization. TABLE OF CONTENT EXECUTIVE SUMMARY The term “contract” is likely familiar with almost all of transactions, especially cross-border ones. Depending on its appropriateness or inappropriateness, a contract can somewhat facilitate or dispute a transaction. This, in fact, has interested me a lot during my internship period in Binh Minh Household Joint Stock Company. Taking pains to analyze the Company’s existing sales contract, I myself discovered several shortcomings regarding contract’s closeness that is thought to cause transactional disputes possibly. With a view to contributing my part to the Company and fulfilling my graduation thesis, this paper therefore is intended to clarify problematic provisions. Accordingly, I would like to take the chance to put forward some recommendations to make the Company’s contract more proper in the hope of facilitating transactions between the Company and its foreign counterparts.  ABSTRACT Recent years, globalization is becoming a common trend worldwide. It has proved its crucial influence on almost all economies, especially those of developing countries and Vietnam is not an exception. In the context of global integration, self-sufficient economic model becomes absolutely obsolete, it should be replaced with a modern one in which an opening mechanism is encouraged. In so doing, business transactions both domestically and internationally are popular accordingly. Of which, it can be said that sales contracts, especially foreign ones play an important role in almost enterprises’ carrying-out for their normal operation. In fact, a sales contract is deemed as a legal documents by which involved parties’ obligations and rights are preserved lawfully. Therefore, it is strongly advised that the work of drafting a proper sales contract be paid due attention by all businesses in general and import-export enterprises in particular. Objectives & Scope of work Being aware of the importance of drafting sales contract and based on a useful internship period in Binh Minh Household Joint Stock Company, I am really interested in a research on “The closeness of a foreign sales contract in Binh Minh Household Joint Stock Company”. The research is intended to aim at analyzing some restrictions in the contract form of the Company and proposing several practical measures to sharpen the closeness of all provisions in the Company’s sale contract. Methodology & Data Sources To some extent, the internship period at Binh Minh Household Joint Stock Company allows me to take such a marvelous opportunity to conduct my research as favorably as possible. To build my data base, I myself take pains to gather all information generated from various sources ranging from personal experience concerning sale contract to import-export knowledge shared by my colleagues, and some relevant publications. For the best acquisition, I have also taken part in a course of International Payment to absorb some relevant knowledge. Such combination between theory and real experience via various channels has enabled me to take steps to fulfill the research. Structure Besides abstract, inclusion and appendix, the research is composed of four main Chapters as follows: Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Findings & Analysis Chapter 4: Recommendation Due to time limitation and certain knowledge, this study may not avoid some shortcomings and inappropriateness beyond my ability. I would highly appreciate any comments and suggestions in relation to the study from the Faculty in particular, and any readers in general.  CHAPTER 1: INTRODUCTION 1.1 Company’s establishment and development Binh Minh Household Joint Stock Company was established in March 2008. For any detail, please make reference to the table hereunder: Name of Company  Binh Minh Household Joint Stock Company   Head office Address  No.5 Lane 75 Hong Ha street, Ba Dinh District Hanoi - Viet Nam   Business Registration No.  0103023380 issued by Hanoi Planning & Investment Department in March 31, 2008   Tax Code  0102701149   Telephone  +844.3932.8848    Fax: +844.3932.8884   Mobile phone  +84912.146.147 Y/M: ntb_802   Skype: bmhanoi     Email  bmhanoi@gmail.com   Bank Account  11120805087010 TechcomBank-Ha Noi Branch   General Director  Nguyen Thi Giang   The Company serves as an importer and a distributor of household appliances labeled Midea in Vietnam. Although the Company has just entered business for over 2 years, it has performed well in the capacity of a prominent representative distributor for Midea branch. In other words, it has played a crucial role in raising Vietnamese’s awareness of Midea household appliances. Accordingly, it can build up good relationship with almost supermarket systems nationwide as well as wholesale agents in various provinces. In so doing, it has helped increase Midea’s reputation for its supply in Vietnam market in general. To some extent, the development period of the Company can be divided into two separate parts: Period of 2008-2009: This is the period when the Company made its debut in the Vietnam market for the first time. At that time, Vietnam market has been riddled with various brands of household appliance like Supor, Happy Cook, Philip, Panasonic, etc. Conspicuously, it had to face numerous obstacles both internally and externally. In terms of internal conditions, the Company was somewhat in the shortage of capital that required it manage to mobilize capital from various sources. Externally, it had to cope with a fierce competition from other counterparts. Despite these difficulties, the Company has taken steps to penetrate each particular markets ranging from supermarket systems to retail and wholesale agents nationwide. In more details, it determined to pay due attention to customization services and as well as product quality in order to meet increasing demand of the diversified customers. Period of 2009-2010: Owing to gradually surmount such aforementioned hinders, Binh Minh Company now can get a certain foothold in the appliances market. Based on this achievement, it has also determined that the initial priority should be given to sales promotion as much as possible through various exhibition, fairs, and events. So far, it has been said that the Company’s products have been made available almost all provinces in the whole nation. Accordingly, the mass’s awareness of the Company’s products has been on the rise that has contributed to the revenue growth of the Company year to year. Today, the Government gives more and more incentives to encourage operations of import and export enterprises. This somewhat creates various favorable conditions for almost all domestic enterprises in general and the Company in particular to promote its performance. 1.2 Company’s functions and obligations 1.2.1 – Functions The main function of the Company is trading imported goods, including both retail and wholesale through domestic supermarket systems and agents. 1.2.2 – Obligations - Carrying out business in line with the registration. - Registering, enumerating and paying taxation as well as performing other financial obligations in accordance with the prevailing laws. - Ensuring product quality in line with the registered standards, and offering appropriate post-sale services (warranty) to customers. It can be seen that the Company has shown a great self-control in its business, especially in such a market-oriented economy at present. Again, it creates a lot of precious opportunities for the Company, but poses numerous challenges at the same time. For this reason, the Company should bear in mind researching market, especially niche market, and improving management instruments and organization apparatus in conformity with its scale, functions and obligations for the best performance. 1.3 Organization Structure 1.3.1. Organization structure The Company’s management structure is subject to a direct mechanism, it means that there is only one chief officer, and other staffs will pertain to different functional divisions. Diagram 1: - Organization structure of Binh Minh Household Joint Stock Company 1.3.2. Functions and obligations of department, divisions * Directors Board: - Chairman of Management Board cum Director is the top leader who is responsible for managing all operations of the Company. - Deputy Director is in charge of assisting and controlling tasks entrusted by General Director, and acting in the capacity of a Director whenever authorized. - Chief Accountant cum Head of Accounting Department takes over accounting and statistic operations, and consult Director financial operations of the Company. * Departments: Accounting & Finance Department: takes responsibility for directly recording accounting manuals, dealing with figures in relation to imported and exported goods and inventory in conformity with the regulations, supporting Director to manage activities relating finance and monetary. Sales Department: directly makes schedules for different orders, and sign contract with both domestic and foreign counterparts, conduct promotion programs, work out sales plans, and carry out market research. Import-Export Department: Based on orders delivered by Sales Department, it makes orders to the suppliers, and engages in signing foreign contracts, works with customs agencies, appoints people to conduct the import and enters transactions with foreign counterparts. 1.4 Company’s counterparts 1.4.1 Suppliers * ZHEJIANG TIANXI INDUSTRY GROUP CO.,LTD  No.7 Baoan Road, Huzhen Town, Jinyun County, Zhejiang, China  Tel: +86578-3559996    Fax: +86578-3156000 Zhejiang Tianxi Industry Group co., Ltd. is a key enterprise specialized in production of pressure-lid type explosion-proof pressure cookers, non-stick cookware pots and aluminum wares of complete series. It boasts production bases of aluminum ware and materials and advanced equipment. Based on its powerful economic and technical strength, and scientific and perfect management system, the company was appointed in 1999 one of the five large enterprises  responsible for drafting out the"2000 national standard of pressure coolers" and passed the authentications of CE and GS safe quality and ISO9001 quality system, Seizing the opportunity of the reform, it has established stable business relationship with over 20 regions and countries such as Europe ,South America, Middle East ,Japan etc, with numerous trading partners and market channels. Its products are gaining popularity for its elaborate workmanship. * MIDEA CONSUMER & INDUSTRIAL GROUP Beijiao Town,Shunde District, Foshan City Guangdong Province, China Tel: +86-757-26605280 Fax: +86-757-26339469 Midea Group is a comprehensive and modern business conglomeration that engages mainly in the industry of household appliances, as well as the domains of real estate and logistics. The group is also one of the largest manufacturing and exportation bases of electric appliances in China. Major products by Midea Group include household and commercial air-conditioners, large central air-conditioners, electric fans, electric cookers, refrigerators, microwave ovens, water dispensers, washing machines, electric heaters, dishwashers, induction cookers, water heaters, cooking stoves, sterilizers, electric chafing pots, electric ovens, vacuum cleaners, and small electric appliances, as well as related products such as compressors, motors, magnetrons, transformers, and enameled wires. 1.4.2 Existing customers In order to obtain optimal revenue, the Company has adopted both methods of retailing and wholesaling nationwide. Consequently, its products have been distributed various supermarket systems and agents mentioned hereunder: Fivimart supermarket system Marko supermarket system Intimex supermarket system Big C supermarket system Metro supermarket system Hapro Mart supermarket system …. Agents in Provinces such as: Hanoi, Nam Dinh, Thanh Hoa, Ninh Binh, Hai Phong, Thai Nguyen, Hung Yen, Bac Ninh, etc. 1.5 Features of Company’s revenue It can be clearly seen that Company’s revenue comes from different sources, including revenue from sales of goods, revenue from financial operation, and other incomes. Of which, revenue from financial operation mainly stems from: deductions for advance payments, commercial discounts, etc. Therefore, revenue from financial operation is much smaller than gross profit from sales of goods. Deductible items of the Company are comprised of: sale returns, sale discounts offered to the customers. At present, the Company’s Charter Capital is: 3.000.000.000 VND 1.6 Mode of transactions with Suppliers and potential risks As mentioned above, the two main Suppliers of the Company come from China. Accordingly, its transactions with Suppliers are characterized by foreign sales contracts in writing by fax, email, or skype. So far, the Company has entered various contracts with counterparts and it is deemed as a manner in which the Company can make orders to manufacturers effectively and lawfully. To some extent, most contracts are based on the reliability amongst parties involved that somehow helps avoid several trivial procedures. Nevertheless, such conduct also reveals highly potential risks for both parties in case of any disputes arising along. As such, the Company in general and the Import-Export Department which is directly in charge of import operations in particular should pay due attention to the work of drafting contracts. In other words, it is necessary to terms and conditions included in such agreements to ensure successful transactions for mutual benefits.  CHAPTER 2: LITERATURE REVIEW 2.1 Basic knowledge of foreign sales contract 2.1.1 Definition of foreign sales contract A foreign sales contract is a legal contract an exchange of goods, services or property to be exchanged from seller (or vendor) to buyer (or purchaser) for an agreed upon value in money (or money equivalent) paid or the promise to pay same. It involves at least two countries which represent separate Parties entering the contract. 2.1.2. Characteristics & role of foreign sales contract 2.1.2.1. Role of foreign sales contract Business contracts are legally binding written agreements between two or more parties. They are an important part of business and such agreements need to be created and/or reviewed carefully. While smaller companies often conduct business based on informal handshake agreements or unspoken understandings, the more that is at stake, the more essential it is to have a signed contract. A contract serves as a guide and a memorial of the agreement that must be followed by both parties. 2.1.2.2. Characteristics of foreign sales contract Basically, a foreign sales contract shares much common with a domestic one. However, there are also some points by which we can be aware of differences between them. Amongst the others, we hereby intend to refer three distinguished characteristics as follows: Objects of the contract: include Seller and Buyer from at least two different countries. Nevertheless, it is noted that the factor of nationality shall not make non-sense in case the Buyer and Seller have different nationalities but their trading is conducted in only one territory or country. Type of currency: can be a foreign currency to one or both Parties. Goods – under the contract: shall be delivered from the Seller’s country to the Buyer’s country or somewhere else required by the Buyer. 2.1.3. Contract Content In reality, a contract is a rather self-determined business document. In other words, the parties can make contract with provisions in their sole discretion; Of course, such provisions must be agreed by both Parties to become the binding ones. Despite this fact, it is possible to divide them into three separate categories as mentioned hereunder: 2.1.3.1. Key provisions: These provisions are deemed to form integral parts of a contract. They are constituted of six provisions as follows: - Commodity - Quantity - Quality and specifications - Term of price - Term of delivery - Term of payment 2.1.3.2. Common provisions: In addition to the aforementioned provisions, depending on real situations and requirements of both Seller and Buyer, a contract may cover some other terms such as: - Packing and Marking - Warranty - Inspection and Claim - Penalty - Force Majeure - Arbitration 2.1.3.3. Free provisions: These provisions, to some extent, are not compulsory ones. However, they can contribute to increase the closeness of the contract. To put in another way, such terms together with those aforesaid ones help minimize any dispute arising between the Buyer and Seller during their transactions. They may be provisions in relation to amendment, notice, contract termination, etc. Generally, owing to freedom of sales contracts, based on the real context and mutual agreement, involved Parties can draft provisions in the support themselves. By carefully drafting “reasonable” terms, Parties shall be relieved from potential risks and disputes that can act as a basis for a long-term business relationship. 2.2. How to draft precise contract provisions It can be said that you will not able to cover every gap and fill all loopholes in your contract provisions. Also, you can not make a perfect contract. However, it is reasonable to draft it as clearly as you possibly can. The illustrative clauses hereby are intended to give you some practice in finding ambiguities and tightening up phrases. 2.2.1 Effective date: The contract or agreement should have a date stated as the contract date or effective date. This date is not necessarily the date when the contract was signed but rather the date from which all the contractual rights and obligations begin and from which point any