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Vietnam’s exports to the eu Situation and recommendations
------------------------------------------------------------------------------------------------------------------TABLE OF CONTENTSAcknowledgement 4List of abbreviations .5List of tables .6Introduction 7CHAPTER 1: THEORETICAL FRAMEWORK 81.1 EXPORTING AND THEORIES OF INTERNATIONAL TRADE .81.1.1 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 101.2 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 131.3 METHODS OF PROMOTING EXPORT 13 1.3.1 Subsidies .13 1.3.2 Export financing .14 1.3.3 Special government agencies 14 - 1 - ------------------------------------------------------------------------------------------------------------------CHAPTER 2: REAL SITUATION OF VIETNAM’S EXPORTS TO THE EU 152.1 ESTABLISHMENT AND DEVELOPMENT OF THE EUROPEAN UNION .152.2 VIET NAM EXPORT TURNOVER .162.3 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 222.4 SOME ACHIVEMENTS AND CHALLENGES OF VIETNAM’S EXPORTS TO THE EU 23 2.4.1 Achievements 23 2.4.2 Challenges 23CHAPTER 3: RECOMMENDATIONS TO FURTHER PROMOTE VIETNAM’S EXPORT TO THE EU MARKET 253.1 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 .263.2 RECOMMENDATIONS TO THE GOVERNMENT .28 3.2.1 To construct and perfect economic and commercial policies to promote - 2 - ------------------------------------------------------------------------------------------------------------------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 30CONCLUSION 31REFERENCES .32 - 3 - ------------------------------------------------------------------------------------------------------------------LIST OF ABBREVIATIONSEU: European UnionCESC: Community of European Steel and CoalEEC: European Economic CommunityCEEA: Community of European Energy AtomicEC: European CommunityUSD: United States DollarUS: The United States WTO: Word Trade OrganizationGDP: Gross Domestic ProductISO: International Organization for Standardization - 4 - ------------------------------------------------------------------------------------------------------------------LIST OF TABLESTable 1: Vietnam – EU import and export turnover ……….Table 2: Vietnam – EU export turnover ………………… Table 3: Vietnam – EU turnover ……………… - 5 - ------------------------------------------------------------------------------------------------------------------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 reportFirst, 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 reportDue 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 reportApart 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. - 6 - ------------------------------------------------------------------------------------------------------------------CHAPTER 1THEORETICAL 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 TRADE1.1.1Definition 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 - 7 - ------------------------------------------------------------------------------------------------------------------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. - 8 - ------------------------------------------------------------------------------------------------------------------ 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 rivalry1.1.2.5 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 - 9 - ------------------------------------------------------------------------------------------------------------------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.1.2 THE VITAL ROLE OF EXPORTING1.2.1 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, - 10 - [...]... as to promote exports to the EU, in particular, and to the World market, in general 3.1.1 To select the suitable method to actively penetrate into the distribution channels in EU market There are many modes for Vietnam enterprises to penetrate into the EU such as through-intermediary export, direct export, join venture, direct investment Among these modes, the first is the common way applied by the. .. 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 population of 400 million, and Gross... enterprises will have to seriously ensure the quality and quantity of exports, conform to the regulations for exports, and conform with the regulations for exports to the EU 3.2.6 Other recommendations Government should do the research on the possibility of cooperating with Laos, Cambodia, Myanmar and Bangladesh so as to the products of textiles, footwear, and fishery, which are tax-free and not controlled... products, textiles, and art and handicraft commodities for its exports to the EU At the same time, it gradually invests in quality improvement of the commodities to produce competitive goods in the EU The exploitation of the EU markets require us to develop material facilities and capacity of some agricultural branches in processing sectors of cashew nuts, fruits and vegetables, coffees The export growth... 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... 2.3.3 Art and handicraft The consumption quantity for this product of EU is very large Vietnam art and handicraft products exported to the EU are mainly fine art wooden furniture, potteries, porcelain products and commodities made from rattan and bamboo Recently, the export turnovers of this group to the EU increase rather quickly, to 21.28% per year; however, this equals to 2.8% of Vietnam total export... the field; enterprises should define the suitable steps in using Internet as: - Vietnam enterprises should make preparations to world in an English using environment - Using the Internet services in their operations to exploit information and put their information into the websites and publicize their products on the market In the other hand, they can find out almost the information necessary for their... issuing shares and bond 3.2 RECOMENTDATIONS TO THE GOVERNMENT 3.2.1 To construct and perfect economic and commercial policies to promote export The Government should have necessary changes and additions to his system of laws on foreign trading, make them suitable to be the international trading customs and normal practice as followings: To extend the regulation scopes of these laws to conform with... further encouraged and improved their competitive ability by demolishing the monopoly position of the companies’ No.90, No 91 The right to value goods should be passed and controlled by the state based on variables of the demand and supply relation and strategic products such as cement, petroleum, iron and steel, raw materials, and electricity on both the national and international markets 3.2.4 To. .. products namely shrimps, fish, and contained fish, cuttlefish, mixed shrimp meat and other aquatic products Thanks to Vietnam aquatic sector’s efforts in improving the product quality, the competitiveness of the products has been up graded and they penetrate deeply into the EU with the increasing quantity The exporting turnover of Vietnam seafood and aquatic products to the EU was 2.408.3 million US dollars . ------------------------------------------------------------------------------------------------------------------CHAPTER 2REAL SITUATION OF VIETNAM’S EXPORTS TO THE EU2 .1 ESTABLISHMENT AND DEVELOPMENT OF THE EUROPEAN UNION The European Union (EU) now consists. 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