Đề tài Machinery import activities at VNPhat Co., Ltd: Situation and suggestions

ported equipment, technical science, and modern production methods. With the trend to strengthen international cooperation, the Vietnamese government has allowed various business types, including state-owned enterprises, joint- ventures, business cooperation and private sector to participate in import and export business. Therefore, improving the efficiency of import-export business in general and import business inparticular is extremely important . Like other commercial enterprises, Vinh Nguyen Phat Trading and Service Company is also very interested in improving its import business performance. During her internship at the company, the writer has tried to study how the company does business and decided to choose the topic "Machinery import activities at VNPhat Co., Ltd: Situation and suggestions" for her field stydy report. This report was finished with the aim to study the status and ability to perform business activities on international trade of a medium company, to understand the process of importation and how to use available resources to achieve the highest efficiency. The report includes the following sections: Introduction Chapter I: An overview of VNPHAT Co., Ltd Chapter II: Machinery import activities at VNPHAT Co., Ltd Chapter III: Sugesstions to improve machinery import activities at VNPHAT Co., Ltd Conclusion References Because of the short practice time and limited knowledge, this report should have some inevitable errors. The writer would like to receive comments from readers in order to improve her report. CHAPTER I: AN OVERVIEW OF VNPHATCO., LTD: 1.1. Establishment and development: VNPhat Co., Ltd was set up from a store specializing in trading mechanical equipment in Hanoi. After a period of operation, realizing the potential market for mechanical goods in Vietnam, and the limitations of a familly business, the store owner decided to set up a limited liability company called VNPhat Co.,Ltd. VNPhat Co., Ltd was officialy established in March 2001 with the initial capital of 5,000,000 VND. Its headquarters were then at No. 37/4, Phuongmai Road, Hoangmai, Hanoi. A representative office was opened at No. 21, 152 A Caolo Road, 4 Ward, 8 District, Hochiminh City in 2005. In september 2005, VNPhat Co., Ltd was relocated to 30/192 Giapbat, Hoangmai, Hanoi. During its operation, the company has tried to expand the market in Hanoi and Hochiminh city while increasing the ability to grasp and manager new markets by opening branches in various provinces. The company estiblished a representative office in Hai Phong in 2004. Representative office in Danang - the largest industrial city Center of Vietnam in 2007. March 2008, it opened a branch in Thainguyen – an industrial city of Vietnam. Thus, so far the distribution network of the company has expanded across the country. Initially the company’s major sources of import were from Russia and Eastern Europe. However it has now transferred to sourcing goods from Taiwan and China because of their good quality and competitive prices. With the expanding market, the company has diversified its lines of business. Its initial major business items included hydraulic presses, broaching machines, compressors, welding machines and lathe. Currently, the company's products range from handheld machines for small operation such as welding machines, drilling machines, to the machines for production and business processes of large factories such as drilling machines and two-stone grinding machines. Experiencing the rises and falls of the country's economy, especially the serious economic crisis wordwide in 2007-2008, like other companies, VNPhat co.,Ltd, faces with more and more difficulties but its brand has won market acceptance, customer trust and reputation. Futhermore, along with the efforts of the entire management and employees in the company, Vinh Nguyen Phat has overcome the difficulties, maintaining growth and exceeding the targets set. The company's motto is: "prestige accompaning brand”. Vinh Nguyen Phat brand is developing and will surely grow with the growth of the national economy. 1.2. Organizational structure Vinh Nguyen Phat’s organizational structure is reflected in the following figure (figure 1.1). Figure 1.1: Organizational structure Board of Directors Import department Technical department Accounts department Sales department Marketing department 1.2.1. Board of Directors The directors are responsible for general planning and strategic direction for the entire company; they are also responsible for all activities of the company, ensuring profitability, growth and development of the entire company, achieving the objectives of the company on sales growth, profit, personnel development and others. 1.2.2. Sales department The salesforce is responsible for sales, services provision through direct transactions with customers in the areas assigned. On the basis of the overall business plan given by the directors each year, the sales department will work out plans and specific methods of implementation, distribution, and revenue goals that each salesperson must complete. The sales department  must carry out all necessary market activities to win customers (mainly dealers, shops, mechanical plants), to sign contracts,  and to take care of customers, commodity distribution and other related activities. The results of the sales department operation are reported monthly to the directors, which will be the basis for business planning and import plan for the folowing years. 1.2.3. Marketing department This deparment’s function is to determine the market demand for each type of products in quantity, quality, distribution methods etc. The marketing department's quarterly report on market will be the basis for the directors to make plans for importing goods or business plan, and orientation for the marketing department on market approach accordingly. The department also implements programs to build and promote the company’s brand such as promotion, advertising and customer conferences. For some goods that the company is a sole distributor in Vietnam for a short time (about 3-5 years), the construction of brand names plays an important role in the busines activities of the company. 1.2.4. Accounts department The duties of this department are to advise the directors on corporate finance, making sure it is in line with the State policies on business, financing, investment, and  management so as to effectively use all sources for business development. 1.2.5 Technical department The technical deparment is in change of installing machinery and intructing customers on how to operate them, repairing the machines when customers request. It also organizes professional training, and coordinates with the sales department to train workers for the implementation of projects. 1.2.6. Import department The import department plays an important role in the search for input goods for the company. It conducts organized import activities as planned under the direct leadership of the directors, such as finding partners, making contractual arrangements, implementing contracts etc. 1.3. Main business fields and achivements Vinh Nguyen Phat Trading and Service Limited Company is a professional importer of metal processing equipment with over 10-year experience in Vietnam’s market. With a team of mechanical engineers of high levels and many years of experience working in large factories, who are constantly updated with technical information and technology through the cooperation with foreign experts, VNPhat Co.,Ltd provides customers with program packages including: technical advice, equipment selection, technology suitable for technical requirements and capabilities, technology transfer package, installation instructions, workers training, maintenance and technical support. Items of equipment provided by VNPhat Co., Ltd  include: lathe, universal lathe screw, CNC lathes, drilling machines, milling machine, two-stone grinding and surface grinding machines, grinding holes, grinding machine tools, hydraulic shearing machine, brake machine hydraulic, hydraulic presses, sawmill, welder, air compressor, etc. During its development, VNPhat Co., Ltd has established solid relationships with many domestic and foreign partners. The company’s domestic customers are mainly mechanical plants who need to purchase machinery and equipment for their production. The purchasing power of the mechanical plants in Viet Nam is huge. Heavy industry is growing, so the market for all kinds of electrical machinery and metal processing is potential. Some of its domestic customers are Duyen Ha cement plant, Bai Bang Paper Factory, Bach Dang shipyard, Lilama7, Engineering Factory 19-5, Mechanical and Chemical Company 13. The company's foreign partners are mostly manufacturing plants who have done business with the company for a long time, such as ARSENAL Group (EU); Rostselmash, Kamas, Irkut, Mikron (Russia); Annn Yang, China Jiangsu, Nanton Donghai, Shanghai (China); etc. CHAPTER II: MACHINERY IMPORT ACTIVITIES AT VNPHAT CO., LTD 2.1. Factors affecting import activities In fact, there are many factors affecting the import activities of enterprises and thereby affecting their business performance. They can be divided into two main groups: factors outside the company (objective factors), and factors within the company (subjective factors). 2.1.1: Objective factors Objective factors are elements related to business environment and laws.  For enterprises importing goods, these factors include: - Business environment and laws of the exporting countries and international legislation: the biggest difference between doing business locally and internationally is the impact of foreign laws, and international conventions. Import contracts and import activities must abide by the laws of the exporting country, the law of a third country (if specified in the import contracts), international business practices and international conventions, treaties that the parties participate in. The laws and regulations of the exporting country can make the process of import business simpler or more complex, which affects the import operating costs and thus import activites efficiency. Therefore, before conducting import, enterprises must clearly understand international laws and the laws of the exporting countries. - Fluctuations in the domestic market and international market: like other types of businesses, import businesses are influenced by input commodity markets and output commodity markets. However, for businesses specializing in imports, the input markets are international markets influenced by the changes happening on the world market   When commodity prices on the world markets increase, the prices of imports also increase, so do the costs of imported goods. This may reduce the competitiveness of imported goods on the domestic market, reducing consumption and thereby reducing business efficienery. - Fluctuations of exchange rates The exchange rate is an important factor affecting import prices or the cost of imported products, thus affecting the efficiency of the import business. When the exchange rate increases, the cost of one unit of imported goods increases accordingly and therefore reducing the competitiveness of the goods, their consumption and business efficiency. Conversely, when the exchange rate falls, the price of one unit of imported goods also declines, and thereby increasing the competitiveness of the products, their consumption and business effectiveness. - Competitors For a business, competitors include current competitors and potential competitors. Enterprises must study the current competitors and potential competitors to find out their strengths and weaknesses so as to look for suitable orientations, especially suitable marketing programs. This will make businesses and their goods not be confused with other businesses’, and increase their competitiveness in the market. - Other factors Other factors in domestic and international markets include demographic factors, culture, traditions, and natural conditions. These factors will affect production practices and consumption habits of each country. Law and business environment are objective factors that individual business cannot change. They must comply with them and take steps to adjust their operations, organizational structure in accordance with the rules in the markets they operate in. 2.1.2: Subjective factors In contrast to objective factors, subjective factors are those that the business can change, and adjust the level of their impact on their business activities. They are: - The size of the business: this is shown in the company’s potential financial resources and annual revenue. Businesses specializing in imports must have strong financial resources. - Human resources: these are reflected in the number of employees, their qualifications and working ability and management level. Human resources are the determining factor in every business. The qualifications and capabilities of human resources must be consistent with the type of business. - Target customers: The target customers and the types of goods a company offers can have effect on the level of price elasticily of demand. For example, when there is inflation or price increases, the demand for commodities aiming at high incomes group will decrease less than that for low and middle income groups. On the other hand, different target clients will have different requirements for the same product category, and therefore, the marketing strategy, and product introduction for each type of customer is different. 2.2. Current situation of machinery import activities at VNPhat Co., Ltd 2.2.1: Main imports Currently Vinh Nguyen Phat Trading and Service Limited Company  specializes in the field of electrical machinery, which has great potential in Vietnam's market because we are in the process of industrialization and modernization. Industrial economy is a target we are aiming at. Machinery import business has generated income for the company. Table 2.1 gives information about import value of its main imported products. Table 2.1: Import value by products Product Percentage of total imports value (%) Hydraulic presses 2.0 Broaching machines 3.5 Compressors 2.6 Welding machines CNC and lathe 3.7 (Source: Import Department) 2.2.2: Main customers Our country is in the process of industrialization - modernization so industry is developing fast. Industrrial enterprises are Vinh Nguyen Phat’s customers. With a country-wide network of distribution agents, Vinh Nguyen Phat aims to meet the demand for mechanical machines across the country. The main targeted customers are heavy industry companies, and factories operating in the field of metal processing. 2.2.3: Main suppliers The company's foreign partners are mostly manufacturing plants with which, the company has been doing business for a long time, such as ARSENAL Group (EU); Rostselmash, Kamas, Irkut, Mikron (Russia); Annn Yang, China Jiangsu, Nanton Donghai, Shanghai (China); etc. Figure 2.1 and table 2.2 show the company’s import value by markets in 2007. Table 2.2: Import value by markets (2007) Market Import value (US) Percentage (%) EU 180,223 1.8 Russia 220,225 2.2 Kamas 270,523 2.7 China 130,000 1.3 Tawain 200,000 2 (Source: Import Department) Figure 2.1: Import value by markets (2007) Unit: thousand US $ 2007 (Source: Import Department) 2.2.4.1. Implementation of import plans Since its foundation, Vinh Nguyen Phat company has always met or exceeded its import plans (see table 2.3 and figure 2.2 below) Table 2.3: Implementation of import plans: (2007-2009) Year Plan (BillionVND) Implementation (Billion VND) Plan Implementation (%) 2007 2,300 2,354 102 2008 2,800 2,846 105 2009 3,500 3,845 110 Figure 2.3: Implementation of import plan (2007 – 2009) (Source: Import Department) (Source: Import Department) In recent years, the company has imported more than the projected figure. In the early months of 2007, the company’s turnover from imports was quite high, exceeding plan by 10%, but in late 2007 due to economic crisis, its import turnover was down, but still 2% higher than the proposed plan.  In 2008, although it was still affected by the crisis, with the efforts of all staff, its import turnover exceeded import plan and in 2009, the company achieved an increase of 10% in import value. Generally, in all the three years from 2007 to 2009, import turnover always excessded plan. 2.2.4.2. Import turnover Import business is the main operation of VNPhat Co., Ltd. The import turnover of the company is increasing over years. This is the result of expanding business sectors and business relations with foreign partners. The import turnover of the company between 2007 to 2009 is shown in table 2.4 and figure 2.3 Table 2.4: Import turnover (2007-2009) Year Import turnover (Billion VND) Increase, decrease against previous year Value (Billion VND) Percentarge ( % ) 2007 2,354 _ _ 2008 2,846 492 12 2009 3,845 999 14 (Source: Import Department) Figure 2.3: Import turnover (2007-2009)  Import turnover (Million VND) (Source: Import Department) Import turnover of VNPhat Co., Ltd. has always tended to increase in recent years: the total import turnover reached 2,354 million VND in 2007, 2,846 million VND in 2008, up by 492 million VND (12% up compared with 2007), 3,845 billion in 2009, up by 999 million (equivalent to 14% increase compared with 2008). In general, growth in imports was relatively stable, achieving an average growth of about 12% per year. In 2009 alone, the increase of import turnover was higher than other years due to the expansion of business sectors and an increase in the number of new foreign partners. 2.2.5: Strengths and weaknesses 2.2.5.1. Strengths For nearly 10 years since it was established (in March - 2001), the board of directors and all staff and employees of Vinh Nguyen Phat Company have been trying to build a growing company. The success that the company has made in manufacturing operations and trading business  in general and import business in particular is undeniable. The company has achieved considerable success thanks to the full promotion of its strong points: - Stable sources of supplies: this is a great success of the company. VNPhat Co., has done well to create sources of imports, making the company a dealer distributing the most famous brand merchandise for companies doing business in Vietnam. This will ensure stable supplies of goods for the company in the long run, reducing risks in the implementation of import contracts. Being the sole agents in Vietnam for well-known brands the company has demonstrated that it is a reliable partner with firm position and good prestige on the world market. - Wide distribution network in domestic market: the company has built distribution networks across the areas where the company conducts its business. Distribution networks in retail stores have helped the company cover all its target market segments. The company's success in the domestic market has been confirmed by the anual growth of import sales. - Appropriate marketing programs: Vinh Nguyen Phat company’s marketing programs have contributed to the results achieved in its import business. VNPhat Co., Ltd has implemented a marketing program, including: product strategy, brand strategy, distribution strategy and promotion strategy. The company's marketing activities involve doing market research to learn about the customer’s needs and structure of goods in the domestic market, building a network of suppliers in the world market. 2.2.5.2 Weaknesses Besides the successes VNPhat Co., Ltd has achieved, it still has limitations in the business of importing goods: - First VNPhat Co., Ltd. is a medium enterprise with limited capital doing business in the field of mechanical engineering and metal processing machines, so it faces with many difficulties when competing with big businesses with foreign investment in Vietnam. - Second, some problems exist in the import operation, such as late deliveries by exporters, leading to wastage of storage charges, demurrage and a few restrictions in the payment stage. These restrictions have led to wastage and increased import costs of the company, making its business operations inconsistent and causing lacks of goods. - Third, management difficulties: Vinh Nguyen Phat markets are scattered throughout the provinces and cities in Viet Nam, while the company’s branches are only located in Nha Trang, Da Nang, and Ho Chi Minh City, making it difficult for the company to control its overall operation. - Finally, human factors: the company's employees have not been satisfied with its policies towards employees, leading to high staff turnover. This causes wastes of training time and costs, and the employees do not have enough specialized skills. CHAPTER III: SUGESSTIONS TO IMPROVE MACHINERY IMPORT ACTIVITIES AT VNPHAT CO., LTD 3.1: Create more diverse sources of imports Sources of imports of a business are the total volume and the structure of goods appropriate to customers’ demand and the ability to mobilize goods during the plan period. To perform well the task of creating sources, Vinh Nguyen Phat should focus on the following tasks: - Research the local markets: the company must identify the specific needs of customers in terms of volume and structure of good, specifications and categories, time and prices. - Study the ability of production of producers in foreign markets: Unlike trading commodities in domestic market, importing goods is more difficult because the company has to learn about foreign markets. A lot of countries produce similar products; each country has different manufacturers, and each company produces many kinds of products. So the company should understand each producer well. - Strengthen relationships with traditional partners and expand to new suppliers at the same time. 3.2: Reduce the cost of imported goods The cost of imports is one of the factors constituting and affecting the selling price of the imported goods, revenue, profits and thus the company’s business performance. Therefore, reducing import costs is an indispensable goal for the company. It can implement the fowlling cost reduction measures to increase its efficiency in import activities. + Successfully implement every stage of the import process from finding reliable foreign suppliers to delivering the imported goods to local customers so as to reduce business risks. + Strictly supervise the import process to reduce the number of damaged goods due to transportation or poor quality goods. The quality of goods should be considered carefully when signing contracts and when conducting L/C payment. + Minimize the cost of insurance. Studing the itinenary of imported goods to capture the risks that it may encounter will help Vinh Nguyen Phat decide on appropriate levels of insurance (in case of FOB purchase). + Promote consumption of imported goods is also a way to reduce storage costs and storage of goods. + Determine suitable time and volume of imported goods to avoid storage of goods in stock. 3.3: Develop human resources To improve the human element, Vinh Nguyen Phat can apply some of the following measures: - Finding and attracting talent: through advertising itself in the media regarding its traditional business efficiency, and development prospects, the company can increase its ability to attract qualified people who wish to become members of the company. - Developing and implementing training plans: Vinh Nguyen Phat should develop comprehensive training courses, especially those related to import fields. It should train its staff in the necessary skills such as negotiation skill, presentation skill. It must equip its staff with appropriate knowledge about international trade and laws - Implementing human resources regime: employees will develop their intellectual resources and energy to complete the assigned tasks when being satisfied with working conditions as well as material and mental benefits. To satisfy the interests of both sides (business and employees), Vinh Nguyen Phat should have working regime and policies appropriate to each specific condition, such as working hours, breaks, income, bonuses and other incentives, health insurance, promotion apportunities etc. CONCLUSION After decades of implementing open-door policy and reform, Viet Nam has been continuously developing, accounting for an important position in international markets. Import business has contributed significantly to promoting domestic production as well as socio-economic development, speeding up industrialization - modernization of the country. Esp