Analysis of Vietnams Logistics Industry

digest of Vietnams Logistics IndustryVietnam has developed deliverance markedly after adopting economic reforms in 1986, becoming one of the fastest increment economies in Asia. The incessant lawsuits of the narrate towards world-wide economic integration much(prenominal) as the implements of bilateral trade agreements, achieving memberships of the ASEAN Free Trade Area (AFTA) and, well-nigh recently, entering to the World Trade Organization (WTO), has made further wet pitchs in Vietnams trade and economic regime. further, to plow impression by state economic appendage, Vietnam of necessity to pass challenges such(prenominal) as reforming its regulatory surround and good framework and, equally im lookant, improving the fundament for the be project gotation and logistics celestial spheres. pane and logistics allow significationant role in Vietnams preparedness. This study will counseling on Viet Nams logistics effort that can continue to be facilitators of countr ys economic progress, that there be a number of potential challenges that must first base be addressed.1. IntroductionVietnam is one of fastest- ripening sourcing and manufacturing locations in the world norm trade growth rate was the highest in the region during the last decade. The country has get going a focal point for off-shore purchase for orbicular manufacturers looking for dismantle lower cost locations than others in Area. By favorable conditions, there atomic number 18 opportunities as well as challenges for the transport and logistics orbit in Viet Nam.This look for will analyze Vietnam logistics fabrication by dint of models such as Porters cinque dollar bill force, PESTLE analysis and Product life cycle to introduce recommendations for development of logistics industry in Vietnam2. Porters five force analysisSource http//www.caneval.com/images/pictures/fiveforcesmodel.jpgThreats of natural entrants nobleThreat of naked as a jaybird entry can be chara cterized as high due to Vietnam must entirely bold the logistics commercialise for orthogonal companies in 2012 followers its commitment to the World Trade Organization (WTO). This is a big difficulty for Vietnamese logistics telephone circuites that make to compete with contradictory companies that pretend greater capital and better competitiveness.Threat of substitutes metierE-commerce will open a newfound market for players in the logistics field. Logistics and distribution systems that function expeditiously and effectively in all respects will be of import for the success of the companies involved. This implies that manufacturing companies, and especially logistics companies, must identify and nominate effective logistics solutions in order to compete on the marketplace.Bargaining power of suppliers MediumThe inefficiencies of the carry and ocean transportation system and a lack of supporting substructure on the landside, including wargonhousing and depot facil ities are hampering the growth of efficient logistics practices in the country. However, political relation initiatives to make better logistics infrastructure and increase affair of planetary operators are expected to improve the logistics landscape in Vietnam.Bargaining power of buyers Medium/HighThe Vietnamese logistics industry has great potential for development, which domestic pedigreees have non yet made the most of. At this meter, domestic companies impede just 18 percent of total import- trades, with the rest being catered for by extraneous logistics companies. Inadequate logistics infrastructure including incomplete road systems running to havens, warehouses, and airdromes has resultant roleed in increased logistics cost. This disadvantage has hampered the development of the Vietnamese logistics vault of heaven.Rivalry among alert firms HighThere are to a greater extent than 800 mostly small-sized logistics aires in Vietnam, and they remain nonaged in term s of capital, technology and manpower. In addition, logistics infrastructure is short, and there are many legal barriers hindering the development of logistics in Vietnam.Leading inter case logistics companies are expected to expand their presence in Vietnam through engineer investing and joint ventures. The operating environment for service providers is likely to improve as the on a lower floorstanding of the benefits of an integrated logistics system increases among policy makers and end-users.Presently, the Vietnam shipping industry is dominated by internationalist carriers who are able to provide global coverage and a wide regulate of services. The local carriers are by and large focuse on domestic and regional shipping services inwardly South East Asia. As a result of the terms for memory access to the WTO, Vietnam has allowed foreign shipping companies to establish joint ventures with studyity foreign ownership.2. Analysis on PESTLE of Vietnamese logistics industryP ESTLE analysis is used to identify factors of macro environments of Viet Nam in logistics industrial development relying on five basic elements such as Politics, Economy, Society, Technology, sanctioned and Environment.Political factorLaws and regulations set up within the logistics industry are dependent on the political environment which formulates such laws and regulations. Governmental policies and regulations of Viet Nam on the logistics industry are not agnize enough to create conditions for the countrys fledgling logistics industry to develop.Recently, favorable policies for industrial action at law have led to the growth of external Direct Investment (FDI) flows and the fundamental law of to a greater extent privately-owned Vietnamese enterprises. This has given great caprice to the nations industrial sector and resulted in the multi-fold growth of its international trade.Table 1 Strength of investor security measure index number (0-10)IndicatorVietnamEast Asia Pac ificOECD AverageExtent of revealing index (0-10)65.15.9Extent of director liability index (0-10)04.65.0Ease of shareholder suits index (0-10)26.36.6Strength of investor protection index (0-10)2.75.35.8Source http//www.doingbusiness.org/ExploreEconomies/?economyid=202Economic scaleThe businesses expanded beyond national boundaries and broad their global reach to take advantage of new markets and cheaper resources, so the movements of goods created new demands for the transportation and logistics industry. Rising inflation and global competition gave rise to greater pressures on businesses to minimise the costs of operation, including implementation of just-in-time blood line management systems, etc., and in like manner created demands for speed and accuracy in all aspects of business.Vietnams imports and exports have been consistently change magnitude and the economy has shown a healthy growth rate of on average 7.6 percent per annum between 2001- 2006. The countrys exports and imports for the year 2008 totalled US$ 144 one million million, a 21 percent increase from 2007. The increased trading application had created strong demand and huge opportunity to the logistics service providers, especially in the freight transport sector.Figure 1 Viet Nam total exports and imports 1990 2008(Unit Millions of USD)Source command statistics office of Viet NamMoreover, foreign investment has besides been rising steadily in the Vietnamese logistics sector and is expected to increase further with the countrys entry to the WTO. There are a large number of foreign logistics companies which are in the process of obtaining or have already obtained their licences to operate as a wholly foreign owned companies or joint ventures in Vietnam. With the increasing penetration of multinationals, the market is expected to grow during the adjacent five years, with service levels reaching international standards.In Vietnam, the Government aims to invest as much as 10 percent of its GDP on infrastructure including the transport, energy and telecommunications sectors. The private sector is expected to play an expanded role in financing the highway, seaport and airport projects. Improved infrastructure developments and ancillary services such as warehousing, depots and distribution centres will further boost the demand for logistics services and create huge business opportunities for the existing logistics service providers.Figure 2 Foreign direct investment projects licensed in period 1988 2008Source prevalent statistics office of Viet NamSocial forceThe inadequate human resources for logistics services have not been well-trained and enterprises suffer a shortage of qualified logistics experts. In an effort to keep pace with these demands, as well as cater to the call for of the worlds 13th largest population, the Vietnamese Government has invested heavily in upgrading its transport infrastructure.However overall, its record of success can best be descr ibed as mixed. While Vietnams vast profits of inland peeways transport goods efficiently end-to-end the country, an inadequate road mesh topology less than 20% paved and peculiar(a) railway capacity have prevented Vietnam from meeting its full transport potential.On the other hand, Vietnams rapidly growing air and seaport industry has facilitated a high volume of trade, lending hope that improvements crosswise all transport ne twainrks will have a similar effect.Technological forceThe inadequate information system of Viet Nam logistics industry isleading to be ineffective. Vietnam is legging can buoy others countries in the Region in EDI and E- Commerce applications. A number of ASEAN countries have made substantial efforts to build up a public- private EDI, inter- ministry network to share the logistics information and to improve the industrys operations.VICT (Vietnam Internal of Commercial Technology) system of Vietnam is the however port operator using the EDI system, o n standalone tush, which processes automated container billing, automated inventory management (container yard operation), automated gate operation (truck arrival and spillage check), automated vessel operation (container loading and unloading management), and CFS stock management.Legal forceIn Vietnam, the regulatory and legislative standards such as usance clearance, ground handling, and terminal operations are highly complicated and not always consistent. The multiple layers of administration at district and provincial levels have also led to some reports of corruption and subsequent increase in both lead times and the cost of processing freight. Many seaports and airports also lack supporting logistics distribution centres, which can result in increased inventory and idle time for trucks, ships and planes.Currently, the boundaries between the operations of various businesses such as freight forwarders, warehouse operators, fleet operators and integrated logistics companies ar e not well defined. They are often fragmented and do not largely complement each others business offerings, which can lead to duplication of effort, higher costs and lead times.The lack of information sharing, clarity on roles and responsibilities nettle great challenge and can further hamper the growth of the logistics industry in Vietnam.Environmental factorThe Vietnamese logistics industry also lacks undergo logistics professionals. This is a major challenge and drawback for the local as well as multinational logistics companies since they find it difficult to hire the right talent. Insufficient training and education in the field of logistics is also a major subscriber to the scarcity of skilled personnel.The transport infrastructure is actually in heavy(a) condition and a corridor for multimodal transport has not been created while the needs for part transport of goods between various means of transport are growing increasingly.Figure 3 Cargo transport of Viet Nam in 200 9Source General statistics office of Viet Nam4. The Drivers of change of the Logistics industryThe regulations of government, national transportation and infrastructure system, business environment, cost and time of services are defined main forces that dives change of logistics industry in Viet Nam.Regulations of governments relevant policiesVietnam had acquired about US$ 80 billion (2008 state est.) in FDI, directed towards more than 6,000 projects. The FDI inflow will continue as more investors realise the potential opportunities that the country has to offer. However, the complex legal and regulatory environment, arising from an uncoordinated model of policy implementation, is a major business organization for private and foreign investors. This is a significant reason for the low participation of private investors in critical sectors such as infrastructure development. discipline transportation and infrastructure systemThe road, rail and air transportation network lag signific antly behind international standards and hence account for a low share of the overall transportation market. The improvement of these networks will greatly enhance the countrys ability to develop its domestic and international fall inivity. This will beget significant benefits to its trade growth as well as the transportation, logistics and touristry industries.Trade environmentVietnam has good potential to develop into a major Asian shipping hub. However, the lack of world-class deep water port facilities is limiting its potential to fully develop shipping and related industries. supporting the participation of international shipping and port operators would add great momentum to the sector. However, there will be a need for greater enhancer in policy making and to place greater emphasis on economic considerations over political expediency.In the past decade, Vietnams containerized volumes have grown every year by almost 20 percent, but the delay in upgrading and expanding of ports has resulted in continued inefficiency and potential congestion problems. Weak landside infrastructure is another major concern for both service providers and users.Table 2 Trading across borders in 2009Region or EconomyDocuments to export (number)Time to export (days)Cost to export (US$ per container)Documents to import (number)Time to import (days)Cost to import (US$ per container)East Asia Pacific6.723.1909.37.124.3952.8Eastern Europe primaeval Asia6.526.81,581.87.828.41,773.5Latin America Caribbean6.818.61,243.67.320.91,481.0Middle East North Africa6.422.51,034.87.425.91,221.7OECD4.310.51,089.74.911.01,145.9South Asia8.532.41,364.19.032.21,509.1sub-Saharan Africa7.833.61,941.88.839.42,365.4Viet Nam622756821940Source http//www.doingbusiness.org/ExploreTopics/TradingAcrossBorders/Costs and timeLastly, the development of its logistics industry will significantly enhance Vietnams competitiveness through the reduction of transportation and inventory costs, shorter lead ti mes for delivery to ending markets and an overall improvement in the efficiency and security of the movement of goods and materials. Currently, logistics costs are a significant contributor to the high cost of doing business in Vietnam. Over the last 10 years, increased competition and the change level of logistics services has significantly reduced this cost.5. The life-cycle modelSource http//alife4info.co.uk/images/stagesInTheIndustryLifecycle.jpegVietnams economy is expected to continue to grow at above 6% for the next five years and between 5 and 6% in the following five years. The share of the industrial and services sectors within GDP musical composition will continue to grow. Vietnamese logistics industry is considered stand between growth and shakeout stages (X). The experience of its neighbours (Singapore, China, and Hong Kong) will serve as useful examples of how to develop logistics industry.Government policies focus on transforming Vietnam into a market economy and c ontinuing international economic integration. There is an opportunity to improve this further through investment in new infrastructure as well as new processes and technology to meet international standards. This will support for main national industries, including transportation and logistics to continue growth in the future.6. Scenario AnalysisRedesigning of regulations and business laws base on association of small units to facilitate trade operations faster, cheaper and more effectiveThe industry is highly fragmented with an estimated 800 operators competing for business. Most operate on a small scale and have limited coverage, service range and information technology (IT) capabilities. Service providers face several challenges, including inconsistent regulations across various levels of administration and a lack of skilled manpower. It is necessary to go on members to work in collaboration with each other on the basis of utilising enterprises advantages (physical facilities, information systems, and others) for one-stop shop provision ofservices, and expanding domestic and overseas range of business operations.Improvement of technology, the national transportation system as development of roads, infrastructure, landside and international airport.There is a critical need, however, to develop road and landside infrastructure in order to facilitate the efficient movement of the increased volume of goods. Upgrading of the existing airports at Ho Chi Minh City and Hanoi to support big volumes of cargo is also urgently required.The increased emphasis placed on developing the electronics and hi-tech sectors by the Government will give re-create impetus to further develop its air facilities, as these products require more sophisticated and secure modes of delivery and shorter transit times.Proposed new ports around the two major economic centres of Ho Chi Minh City and Hanoi could result in a significant improvement of infrastructure. The development of deep water ports is also likely to significantly boost international cargo activity linked with Vietnam and decrease overloaded flows of goods at two bigger ports as Ho Chi Minh and Hai Phong.The earlier development of the new international airport at Long Thanh, in the province of Dong Nai next to Ho Chi Minh City will bring about much call for additional capacity. Again, the concurrent development of an improved road network to connect to the new airport will be required to avoid the universe of new bottlenecks.Training and human resourcesThe process of getting aware of the splendour of logistics, building logistics management skills and enhancing the ability to translate logistics theory into logistics practice needs some amount of time. The Government is to have a policy to give ear enterprises and schools in order to step up the task of training under various flexible forms, providing human resources for the industry. On their part, enterprises need to seek financing and cooper ation in human resource training from foreign countries.