1214 BUSINESS PLAN TO INVEST HONEYCOMB PAPER LINE IN HE VI TRADING PRODUCING COMPANY LIMITED

From the signals, the observation of the export and the development of wooden market, as a foreseeable, our company has planed to invest honeycomb paper line as a substitute for wooden,

(PART – TIME)

Tutor’s Name: Dr Prof TRINH THUY ANH

Ho Chi Minh City

(2010)

Ho Chi Minh City, 20 February 2011

Signed: TRAN DO HOAI BAO

ACKNOWLEDGEMENT

To carry out the success of final project, I owe a debt of gratitude to many people who helped me complete this thesis I would like to acknowledge the help of all First of all I would like to express my deepest acknowledgement to my tutor, Professor Trinh Thuy Anh from the Ho Chi Minh City Open University, for her guidance, valuable advice and I could not find out any word to express my heartfelt to thank her

My grateful acknowledgement is extending to the Université Libre de Bruxelles – Solvay Business School and Open University of HCMC, which provided me a a specialist knowledge in this part time MBA program

I would like to thank all my classmate, friends and colleague who support me during the study related to data collection

Finally, I am indebted to my parents and my wife, I would like to express my profound gratitude to my beloved parents thanks for their encouragement My greatest debt of gratitude is to my wife, Mrs Nguyen Thi Tuyet Trinh, who is always beside me during my study This thesis could not have been written without her daily encouragement

COMMENTS OF TUTOR

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Ho Chi Minh City, …… February, 2011

Tutor

Dr TRINH THUY ANH

TABLE OF CONTENTS

Certificate i

Acknowledgements ii

Comments of tutor iii

Table of contents iv

Glossary of terms and abbreviations viii

List of figures & chart ix

List of tables x

Executive summary xi

Chapter 1 INTRODUCTION OF THE PROJECT 1.1 Rational of the project 1

1.2 Research question 2

1.3 Objectives of the project 2

1.4 Research methodology and data collection 3

1.4.1 Methodology 3

1.4.2 Data required for this business plan 3

1.4.3 Scope and limitation of the research study 4

1.5 Project Process 5

Chapter 2 HONEYCOMB PAPER OVERVIEW & BUSINESS PLAN 2.1 Brief information on honeycomb paper 6

2.2 Honeycomb paper application 8

2.3 Opportunity assessment 10

2.4 Market research 12

2.5 Business plan 13

2.6 Financial appraisal 13

2.6.1 Payback period (PBP) 13

2.6.2 Net Present Value (NPV) 14

2.6.3 Internal Rate of Return (IRR) 14

2.6.4 Break-even point (BEP) 15

Chapter 3 MARKET ANALYSIS 3.1 HE VI TPC overview 3.1.1 HE VI TPC profile 17

3.1.2 Management team and structure 18

3.2 Paper packaging market overview 18

3.3 Market analysis 3.3.1 Local market 20

3.3.2 Oversea market 21

A Wood & Furniture export 23

B Electric & electronic 24

C Food & beverage 25

D Handicraft 26

3.3.3 Opportunities A Macro economic 26

B Legislation 27

C Opportunities 28

3.3.4 Analysis of Five Forces Forter A New entrants 30

B Substitutes 30

C Power of buyers 31

D Power of suppliers 31

E Industry competitors 31

Chapter 4 BUSINESS PLAN

4.1 Market and sales

4.1.1 Input factors 32

A Place 32

B Construction and facilities cost 33

C Cost of honeycomb paper line and transportation 35

D Payroll and other expenses 36

E Annual Cost & Expenses Estimation 37

F Honeycomb capacity and Sales 40

4.2 Financial Analysis 41

4.3 Action plan 46

4.3.1 Capital 46

4.3.2 Human resources 46

4.3.3 Materials 47

4.3.4 Marketing Plan 47

Chapter 5 CONCLUSIONS AND RECOMMENDATIONS 5.1 Conclusions 49

5.2 Recommendations 50

Glossary of terms and abbreviations

BEP Break-even point

FDI Foreign Direct Investment

F&B Food & Beverage

IRR Internal Rate of Return

NPV Net Present Value

ROsH Restriction of Hazardous Substances Directive

USA The united state of America

USD United States Dollar

LIST OF FIGURES & CHART

Figure 1.1: Project Process 5

Figure 2.1: Honeycomb paper panel process 8

Figure 2.2: Honeycomb paper 9

Figure 2.3: Honeycomb paper door 9

Figure 2.4: Honeycomb paper board and its shape 10

Figure 2.5: Honeycomb paper pallet 10

Figure 2.6: Product life cycle 11

Figure 2.7: The normal distribution of adopter 11

Figure 2.8: Business plan structure 13

Figure 3.1: Organization structure 18

Figure 3.2: Sale process 18

Chart 3.1: Paper packaging consumption (Unit: 1,000 tons) 19

Chart 3.2: Paper consumption in some countries in Asia 19

Chart 3.3: Paper consumption in Asia (Unit: million tons) 19

Chart 3.4: Capital and output growth rate 20

Chart 3.5: The density of plastic industry chart 20

Chart 3.6: Construction output value 20

Figure 3.3: Department in Vietnam 21

Chart 3.7: Export turnover rate per Vietnam’s GDP 21

Chart 3.8: Vietnam export turnover from 2006 to 2009 22

Chart 3.9: Export turnovers was divided into economic structure 23

Chart 3.10: 8 goods exported over 2 billion USD in 2008 23

Chart 3.11: Density of Wood & Furniture Export in Y2009 24

Chart 3.12: Wood & furniture export turnover at some countries in year 2008 &

2009 24

Chart 3.13: Wood & Furniture export turnover from 2006 – 2009 24

Chart 3.14: Electronic and electric component export turnover from 2006 -2009 25

Chart 3.15: Fruit export turnover of Vietnam nine months 2009 26

Chart 3.16: Handicraft export turnover from 2006 – 2009 26

Chart 3.17: Vietnam GDP by sector 27

Chart 5.1: Distribution Turnover 52

LIST OF TABLE

Table 3.1: Vietnam Plastic 20

Table 3.2: International comparison about economy growth rate 27

Table 3.3: Limitation of some chemical for producing packaging 28

Table 3.4: Total cost comparison for common packaging 29

Table 4.1: Area separation of the premises 33

Table 4.2: Cost of construction 34

Table 4.3: The facilities cost of factory 34

Table 4.4: The facilities cost of office and guard room 35

Table 4.5: Honeycomb paper line and truck cost 36

Table 4.6: Payroll for staff 36

Table 4.7: Total Investment and Apportionment Estimation 37

Table 4.8: Production costs through 10 years 38

Table 4.9: Management & sales cost, Payable annually 39

Table 4.10: Fixed and variable costs 39

Table 4.11: Price comparison with main competitor 41

Table 4.12: Thickness, Quantity and Price estimation 41

Table 4.13: Annual Profit and Loss 42

Table 4.14: PBP with discount rate, NPV, IRR 43

Table 4.15: Breakeven point in the project 44

Table 4.16: Estimate Market share and size for honeycomb paper packaging 45

Table 4.17: Evaluation for the sensitivity of project 46

Table 4.18: Investment capital prepaid 47

Nowadays, when human life is more and more developed, their needs are also increased One of them is to be live in the healthy environment that is often affected by

industrialization To minimize this status, Johannes Meier with the topic is ““Process

for the production of a honeycomb core from foil strip utilizing a position detector”, his patent number is 5277732 helps us improve this problem somewhat

“Using honeycomb paper for packaging” is the way he created to safeguard environment In terms of environmental efficiency, it helps to reduce the heavy air pollution In terms of economic efficiency, it makes the products were lighter 70% than those made of chipboard and so on

Until now, many countries and organizations have appealed everyone for using recycle material to protect our environment instead of the scarce wood resources and plastic is hard to disintegrate Therefore, honeycomb paper is the best choice as a solution reducing to cut woods and use plastic in the world The other hand, the developed countries such as America, European set up law as EU Directive 2002/95/EC, EU Directive 2002/96/EC to protect themselves from others The objective of these legislations is to increase the recycling and/or re-use of such products Or EU Directive 2004/12/EC and America on packaging and packaging waste aims to harmonize national measures concerning the management of packaging and packaging waste in order, on the one hand, to prevent any impact thereof on the environment of all Member States as well as of third countries or to reduce such impact, thus providing a high level of environmental protection

In addition, Vietnam is one of countries has grown rapidly and top of attracting FDI in the world So the new demand is shaping a new market of honeycomb paper in packaging market This project is to build a business plan for honeycomb paper line in Vietnam and in the South of Vietnam in particular In terms of structure, this thesis has five chapters Chapter one is to define the research problems and questions, and

paper and business plan Chapter three examines the economic background, and analyzes the market Chapter four is to focus on business plan analysis to understand costs and expenses for initial investment, to appraise its feasibility of the project through the financial indexes as NPV, IRR, PBP and so on The result of financial evaluation will help He Vi has an action plan appropriate for them And the final is conclusions and recommendations

Chapter 1 INTRODUCTION OF THE PROJECT

1.1 Rational of the project

Nowadays, development of the world economy has led to the development of many different industries With the strong and rapid growth of economy and industrialization process has influenced our earth Our planet is in trouble! Almost every day we seem to hear of yet another problem affecting the environment and what a list of problems! - pollutions, acid rain, climate change, the destruction of reinforest and other wild habitats, the decline and extinction of thousands of species

of the animal and plants and so on

Most of us know that these threatening exits have been caused Many people are very worried about the future of our planet So, some development countries (US, European Union, e.t.c) have found a way of solving those problems to protect our environment by green barriers They demand that one of goods imported in their countries should be used recycle paper for packaging, avoid using styro-foam, plastic products Using recycle paper is one of the ways that help us make the green barriers

The economic recession in 2007 and 2008 influenced more or less the activities of all Companies in trading, producing and servicing in general and HE VI TPC in particular In the end of the year 2009, Vietnam’s economy is gradually well, (especially, the export of Vietnam, total export turnover is around 56.5 billion US dollars in 2009 And the expectation export will rapidly increase in 2010, this is a potential market for the packaging industry development), most of companies have been prepared to plan themsefves for getting back their market including He Vi TPC Because of the establishing company, it has not have any plan to invest

machines for long term development yet To define what it should do invest in order

to serve the market better in future, it is demanded to have a business plan

HE VI TPC works in the packaging fields, its products are paper pallet, honeycomb paper which produced by semi-automatic There are few companies produce same our products in the Vietnamese market using honeycomb paper machinery From the signals, the observation of the export and the development of wooden market,

as a foreseeable, our company has planed to invest honeycomb paper line as a

substitute for wooden, iron, plastic pallet, and foam in the packaging field with some advantages as free fumigation, recyclable with environmental protection performance and to make high effective in environment protective process according to ROsH standard of European Union and USA, or IKEA ways This project is developed with those reasons above from the market demand, business objectives, finance appraisal and finally decide to invest or not invest this line for

HE VI TPC Hence, the project is very necessarily to carry out

1.2 Research question

Research questions are to answer for “problem” which needs to be solved The research problem leads to the research question as following:

• What is size of the honeycomb paper market?

• How many percents of market share can He Vi TPC get from this

investment?

• How long will this project get payback?

• What is the profitability this project brings in?

1.3 Objectives of the project

The above information is considered as a problem about the environment protection

by using more proper products to protect our planet To find some solutions for reducing use plastic & wood products and increasing use honeycomb paper products

so the project has to be implemented to find out what this project brings in and assess the market to look for opportunity In answering the research questions mentioned previously, objectives of the project are:

(1) To collect informations in the export and domestic contruction market (2) To deep understand the market tendency and customer’s expectation (3) To appraise the honeycomb paper investment and build the action plan in Vietnam market (4)

To find the opportunities from the market and to bring the competitive advantage for HE VI TPC

These objectives explain the purpose of the project and problem–solving research

1.4 Research methodology and data collection

1.4.1 Methodology

Based on the books as Claire Gruslin (2008, slide 29, ULB) and Tran Xuan Kiem, Nguyen Van Thi (2004, pape 20, Marketing Research), there are three types of research design: exploratory, descriptive, and causal

To chooose research design, we have to depend on research questions which the researcher wants to be answered This research is designed to looking for honeycomb paper market and its application in Vietnam Therefore, exploratory research was chosen as a fit research in this study This one belongs to qualitative research

1.4.2 Data required for this business plan

After selecting research design, the next step is to choose types of study There are three types of research from which selected by researcher: interview with experts, desk research, and qualitative, Claire Gruslin (2008, slide 29, ULB), Because this is

a new research in the market and few people understand about honeycomb paper product so we will apply qualitative research to explore/collect more ideas insight of

this problem The research will be implemented by depth interviews to the

selective interviewees This method will help to collect and classify data to become

a report and recognize the problem The research is mainly made via in-depth interviews, which were directly made by the researcher (writer) towards the customers (B2B) who are mainly the owners, directors and vice directors of their company and deep interview is made with each respondent separately at their factory or home depend on interviewees Each interview time is around 1 to 2 hours

The secondary data method, the researcher needs to collect the primary data

which is collected via desk research, was used to analyze the market situation in Viet Nam Some informations such as growth of timber and handicrafts, foreign direct investment (FDI) will conduct for developing of paper packing industries After collecting data and start to analyze and appraise them to find market needs The secondary data is sourced from Statistical Office in HCMC on the import & export, and focus on export market Another data source of collection is derived the actual reports from Vietnam Forest Corporation (Vinafor), Handicraft and wood industries association of HCMC (HAWA), Vietnam association of handicraft exporter (Vietcraft), and other ones is from some website on internet

1.4.3 Scope and limitation of the research study

Limitations of time, funding and scope of the study required the research study to focus on a limited number of objectives So, the research is conducted to learn about the customers who are willing to try and apply honeycomb paper for substitute wood and plastic in packaging

Because of limited access to scarce resources, this study could not research in all exporter and domestic of Vietnam but only selected interviewees located in Ho Chi Minh City and Binh Duong Province as the target population and this study is applied for the business of honeycomb paper, not for other kinds of paper Most of figures are collected from year 2006 to year 2009 for analyzing in this study And this project focus on analyzing financial plan to make clear that project is feasiable

or not to support for Board of Management with the correct investment

1.5 Project Process

This research is structured into 5 chapters Chapter 1 introduces overview of research including research background, research problem, research questions, research objectives, scope and limitation of the research study Chapter 2 provides brief information of honeycomb paper, development of honeycomb paper in the world and a literature review of market research, business plan and especially financial appraisal for this project Chapter 3 discusses market of honeycomb paper

in Vietnam, research process and research analysis Chapter 4 analyses business plan Chapter 5 points out conclusions and recommendation for theses Figure 1.1 shows the project process and the relationship between chapters

Chapter 2 HONEYCOMB PAPER OVERVIEW & BUSINESS PLAN

This chapter is to provide some informations about honeycomb paper helps us to understand what honeycomb paper is and some previous researches as well as review theories which support of business plan It gives a foundation to research and assess the market, to set a business plan and to lead us in the right way

2.1 Brief information on honeycomb paper

Honeycomb paper is a structure of hexagonal cells constructed similar to honeycomb It has advantage of light weight, high rigidity, resistance to shearing force and pressure And it also has good performance on thermal isolation, acoustic isolation, shock and vibration absorption

¬ History of honeycomb paper

After the secondworld war, honeycomb paper was introduced for the airplane industry

as a cost and material saving product for the reconstruction of Europe Because at that time there was a shortage of building material (wood, bricks, etc.) honeycomb paper was an excellent alternative for solid materials like wood In the sixties honeycomb paper was mainly used in inner doors, partition and furniture such as kitchen cabinets However chipboard was becoming cheaper and cheaper in the 1970s, honeycomb paper was pushed out of many applications Since then it was mainly used in inner door or as

a packaging material for protecting all kind of items which anti-shock, drop test and so

on In the eighties, honeycomb paper was used again by producing as a constructive filling, the products were lighter 70% than those made of chipboard, for example This was convenient for clients purchasing cabinets or bookshelves assembled at home In the nineties and 2000s paper honeycomb was introduced in the automotive industry It

is often used as a substitute for a wooden plate with a steel frame for the trunk plate Most of them was used in furniture was greatly increased and diffused in US and EU Until now, it is necessary to protect our environment in the future The government from many countries force people has to use honeycomb paper as a solution to make green environment to reduce cutting wood and using plastic in the world Therefore, honeycomb paper will be used more and more

¬ History of technology

At technology’s part, we will understand about how to produce honeycomb paper from paper roll and some of last honeycomb paper researches with its development in the world

In the sixties of last century, they have invented 2 basic methods for producing honeycomb paper as follow:

1The first is using from 2 paper rolls the paper is guided on a glue roller which brings glue lines in the length direction on the paper The distance between the gluing lines defines the cell sizes of the honeycomb The 2 paper layers are winded on a big winding drum The drum shall continuous wind whenever layers is nearly full and then the paper layers are cut in big block, after this process the big block will be cut into small blocks of the exact thickness of the desired honeycomb thickness

The second is call “cascading technology” from 2-4-6-8 or 12 paper rolls the paper is guided on a glue roller which brings glue lines in the length direction on the paper They will be stacked to become a block after that this block is guided through a cutting knife which cut the paper layers directly on the correct thickness of the desired honeycomb

Both researches above are to make honeycomb paper became a product which saving cost and light material for using in inner doors, separate wall and furniture such as kitchen cabinets and so on, but honeycomb paper was pushed out many applications by chipboard because of the cheaper price since the 1970s

1   www.paper honeycomb.com   

However, via the development of the market, Johannes Meier, Neuhausen, Switzerland, have innovated honeycomb paper core with two face was laminated by paper or composite plate to make honeycomb paper turn back market in 1994 Johannes Meier invented a machine to produce honeycomb paper panel to serve for packaging or

light panel with topic is “process for the production of a honeycomb core from foil

strip utilizing a position detector” and his patent number is 5277732 (code: US005277732A)2 The patent is tell us about how to produce honeycomb paper panel, Figure 8 from patent illustrate the application of the stack produced by process of the invention, preferably using the equipment of the invention for the production of composite plate with an expanded honeycomb core and covering layers The honeycomb paper sandwich(40,fig2.1) passes through an expander device consisting essentially of two rollers arranged on either side of the stack, the surfaces of these rollers being covered with brushes (49,50,fig2.1) The brushes will keep honeycomb for expanding process after passing through the rollers (84,85,fig2.1) the honeycomb paper sandwich has been stretched to an expanded honeycomb core This expanded honeycomb core is covered on front edges of the honeycomb cells on both sides with an adhesive, preferably in the form of adhesive foil (84,85,fig2.1) and the covering layers are

laid on the top of this as figure 2.1 shows in appendix 1

This radical invention gradually honeycomb get back the market and become a product support for packaging effectively and substitute for wood and plastic nowadays

2.2 Honeycomb paper application

As we know, many countries have asked their citizen reduce to use plastic and wood in their life in the world, Vietnam in there Vietnam has appeal to citizen for reducing plastic in packaging through “green environment campaign” by using paper bag or disintegration bag and so on So we can recognize that the important of recycle paper in       

2  US patent US005277732A 

our life to protect our planet as USA, EU and e.t.c have done To reduce using plastic and wood, they have found which products are fit for those problems are honeycomb paper and its panel to support for packaging without wood and plastic

¬ Honeycomb paper and its panel

Paper honeycomb are used in the furniture industries Because the panels have a very low weight it is easy for the take away furniture, but also for high quality furniture it is and can be used by using a small honeycomb cell size (15 mm) and for example 3 mm

MDF/chipboard you will have a very stable sandwich construction (figure 2.3)

Ü Honeycomb paper panel

Honeycomb cardboard is manufactured according to honeycomb structure principle and conglutinated by glue-water into numerous hollow stereo regular hexagons It is formed through conglutination of tissues in the two sides and made up a sandwich plate with many different size of panel This one is to make honeycomb paper panel is increasingly popular and used in packaging to replace for foam, wood and so on With the flexibility of honeycomb panel, it helps producer easy to produce many shape to serve packaging market nowadays

The main characteristics of honeycomb cardboard are as follows:

Light, low consumption for material, light in weight

• Not easy to deform Its outstanding pressure resistance and bending resistance are the most important properties that case packaging materials require

• Good shock resistance and cushioning performance Honeycomb cardboard is made of flexible paper cores and tissues with favorable toughness and rebound elasticity The unique honeycomb sandwich structure provides excellent cushioning performance It is endowed with high unit volume energy absorption value Honeycomb cardboard with high thickness can be used as a substitution for EPS plastic foam cushion used popularly now

• Sound absorption& heat insulation Inside the honeycomb sandwich structure is

a closed space full of air, thus it is endowed with favorable sound insulation and heat preservation performance

• Pollution free in accordance with modern environmental protection requirement All honeycomb cardboard are made of recyclable papers, 100% recycled after use

• Honeycomb cardboard is an environmental paper packaging material with high strength, light weight and wide application popular in recent years Thicknesses from 1 cm to no limit are available It can be applied to various packing boxes, pads, furniture, floors, car inner decorations, and so on Heat & sound insulation, light, low in price, it can be used as a substitute for wood, plastic etc in many

occasions (Figure 2.4 & 2.5)

2.3 Opportunity assessment

Through the course of Prof François Faelli, the evaluation of a business opportunity is

based on some main factors The first point is the market size as market size, market growth and potential market share Those elements are concerned with type of market, geography, economic The second is how to assess customer needs, that is the question which many Managing Director need to answer It relates which values we will bring to our customer as distribution channel and their convenient The third is profit margin, it

is an indicator of a company's pricing strategies and how well it controls costs Then, the speed and competition are product lifecycle, adoption speed, competitor reaction as know-how, trade mark, intellectual rights and so on If we clearly understand product lifecycle, it helps new venture to get opportunities to invest their business on time and

we know in today's turbulent economic climate, it's vital to fully exploit systems data Our systems are no longer an overhead, they are a valuable asset Used correctly, the information they contain helps reduce costs and increase revenues

Figure 2.6: Product life cycle

Source: www.quickmba.com 

Figure 2.7: The normal distribution of adopter

(Source: Lectures of Prof Aldo Geuna)

Number of

adopters in

time period

According to Prof Alexandre Schmitz and Prof François Faelli in “Writing a good business plan should answer the following questions:

• Who is in the management team?

• What is impact of the economic environment?

• What do you sell? Why is it unique? To what needs do you answer?

• Who are the customers and competitors?

• What are your goals (the strategy)?

• What are the main risks?

• What are the development stages of the venture? What need to be done (the

action plan)?

• How do you sell?

• How and when go you make profits (the financial plan)?

2.4 Market research

Market research is any organized effort to gather information about markets or customers Market research is for discovering what people want, need, or believe It can also involve discovering how they act Once that research is completed, it can be used to determine how to market your product

Market research consists of testing the market to determine the acceptance of a particular product or service, especially amongst different demographic It is used to establish which portion of the population will or does purchase a product, based on age, gender, location, income level and many other variables Market research allows companies to learn more about past, current and potential customers, including their specific likes and dislikes

Based on market research data, businesses can develop a “target customer." A target customer is a specific group of customers that has a distinct need or desire for a product

or service Market research is used to determine how often the target customer will buy

a particular item, how much they are willing to pay for it, and their overall satisfaction with it By analyzing market research information, manufacturers and service providers learn where to focus their resources most effectively and understand what competitors does and their strategies

of implementing the plan and prove the quality of the entrepreneur who drew the plan (Prof François Faelli, Solvay- HOU)

Business plan is to help keep us on track and help us expand It helps us to answer questions about management, economic environment, risk analysis, core business, sales and marketing plan, and so on (Figure 2.8)

2.6 Financial appraisal

No matter what your role in corporation, an understanding of why and how financial appraisal is made is essential It will help Board of management to make optimal corporate financial decisions To make optimal decisions, a decision maker needs information through assessing the value of net cash flows that result from its activities

2.6.1 Payback period (PBP)

The simplest investment rule is the payback investment rule, which is based on the notion that an opportunity that pays back its initial investment quickly is a good idea To apply the payback rule, we first calculate the amount of time project takes to pay back the initial investment, called the payback period The payback period is as little as well and fit Board of management pre-specified length of time for payback It is useful to

assess the risk associated to an investment, to be used as a double check rather than the ultimate tool to assess the value of a company

We have two kind of PBP are PBP with discount rate and PBP without discount rate But herein we only focus on PBP with discount rate, a pay-back period is calculated by

a simplified method based on the following equation:

Invested capital Net profit + Depreciation

2.6.2 Net Present Value (NPV)

Net present value index is one of the most index is often used for investment effectiveness assessment The method of NPV calculation is equal to the difference between amounts of the present value of the cash flow generated by the investment during the whole period of the project with the initial amount of money invested

Formula for NPV calculation has the following view:

NPV = PV benefits – PC costs

Where PV benefits is cash flow to represent benefits refer to the present value, PC costs is cash flow to represent costs refer to the present value (Jonathan Berk, Corporate finance, 2007)

2.6.3 Internal Rate of Return (IRR)

Through lecture of Prof Alexander Aschmitz, it is necessary to fix a rate of discounting while using NPV method It is the value of the cost of capital (r) bringing the NPV of the project to exactly zero The following formula corresponds to this condition:

If: The projects with IRR higher than cost of capital are financially interesting

n

PBP =

NPV= C 1 /(1+IRR) + C 2 /(1+IRR) 2 +……+ C n /(1+IRR) n – C 0 = 0

n   t=0    t=0 

The projects with IRR lower than the cost of capital are financially uninteresting

IRR < r: do not invest in the project

Like the payback rule, the internal rate of return is based on intuitive notion: If the return on the investment opportunity you are considering is greater than the return on other alternatives in the market with equivalent risk and maturity, you should undertake the investment opportunity We state the rule formally as follows:

IRR investment rule: take any investment opportunity where IRR exceeds the opportunity cost of capital Turn down any opportunity whose IRR is less than the opportunity cost of capital

2.6.4 Break-even point (BEP)

The break-even point is the point at which revenue matches expenditures Typically, initial expenditures are high It takes time for the revenue to reach the same level The break-even point can apply to a product, an investment, or the entire company's operations So it is the intersection point between revenue and expenditure function There is three type of BEP: BEP of profit and lost (theoretic BEP), BEP of currency, BEP of the debt

• Theoretic BEP is the point at which expenses and turnover are equal: there is no loss or gain

Revenue– Variable cost

Chapter 3 MARKET ANALYSIS

In recent year, Vietnam had high economic growth rate by developing according to market economy Based on the correct government’s guidelines have led Vietnam became one of countries have strong developing economy in the world in general and

in ASIA in particular This chapter, we will look for and assess Vietnam’s economy development about some fields for finding honeycomb paper potential market in Vietnam

3.1 HE VI TPC overview

3.1.1 HE VI TPC profile

He Vi TPC, limited was founded in June 05th, 2009 number is 4102073609 at department of planning and investment of Ho Chi Minh City with the head office in Ho Chi Minh City and a factory located in Cu Chi District He Vi TPC’s products focus on these products is produced by paper At present, it has three (3) key products as follow:

• Honeycomb paper

Honeycomb paper is not only used as main raw material for producing light wood and steel door, but also used as protection packaging for furniture, handicraft and electric products It is applied for other kind of paper packaging such as paper pallet; paper corner protector; paper box and so on

• Paper pallet

Paper pallet nowadays is chosen to substitute for wooden, iron and plastic pallet It is especially preferred as packaging material for electronic products; foods; and garment The demand for paper pallet is increasing because of new regulation of EU of using recycle paper packaging instead of wooden, plastic, foam, which is applied in 2012 In

addition, using honeycomb paper pallet helps saving transportation & cost for exporters thanks to reducing the weight of package

• Edge protector

The paper edge protector helps protecting the product inside the box to avoid damage during transportation; loading and/ or unloading It could be used as protector for all kinds of products; and can replace for solid plastic corner protector, which is less flexible, not environmental-friendly, and higher cost

3.1.2 Management team and structure

He Vi TPC is a SMEs in Vietnam, as said above, was founded in June 2009 So it set up

a simple structure organization for their management (Figure 3.1)

Looking this structure, we can recognize that the director is the top management, there

is no connection exits among these departments All of them are controlled by director and support for him in business And director is charge of his duty to board of directors Currently, the company has 10 staffs with their position and over 30 skilled employees work for He Vi and continue to expand more in 2011 thanks to high growth of the

demand Through the expansion, He Vi set up a sale process as figure 3.2

3.2 Paper packaging market overview

We know that a key element of the product is the packaging Indeed, without a way to attract the attention of the consumer at the point of sales Packaging protects products from damage during shipping It also provides detailed product information So that is why packaging is told in here

Before Vietnam joined to WTO, paper packaging growth was around 16%/years put the capacity from 100,000 tons/years to 959,000 tons/years in year 2006 However, it is too low to compare with Indonesia produced 6 million tons/years and only printing paper of China obtained 2.5 million tons/years, so this problem make paper industry lag behind and less competitive when Vietnam join to WTO Vietnam has 300 companies work for

producing paper packaging, their size is around 3,000 tons per year per factories so it cannot take the advantages and get efficiency According to the experts, small size of Vietnam Companies will cause serious consequences, because the scale of several thousand tons per year, lack of management then product quality will be very low, the cost is high, environmental pollution will be very heavy Next, Vietnam lacked of pulp Companies that is main raw material to produce paper According to Vietnam packaging association, paper was consumed 1.12 million tons in year 2007 increasing nearly 20% via-a-via last year However, Vietnam is one of countries was influenced

by the financial crisis from year 2008 to the end of year 2009, therefore, paper consumption in year 2009 is few higher than year 2008 is about 2% Paper consumption reached more than several thousand tons in the year 2008 got 1.31 million tons in year

2008 and 1.35 million in year 2009 increased 2.7% Vietnamese company could produce 736,000 and 642,000 tons in year 2009 and 2008 increased 15%, the import was 614,000 and 668,000 tons decreased by 10%

With draft paper is used for laminate cardboard, consumption reached 609,000 and 591,000 tons so it is up 3% in year 2009 and 2008, draft paper production in year 2009 reached 420,000 tons and in year 2008 372,000 tons so it is up 13% The import was 190,000 and 219,000 tons decreased by 13% in both two years

In 2009, Vietnam has two major events, that was an investment for producing paper with capacity is 220,000 tons per year by Vina Kraft Paper Co., and other one was the investment form Chanh Duong Co., is 100,000 tons per year At the beginning of the year 2010, production is stabilized and reached 140,300 tons, up to 76.3% over the same period last year For packaging paper, Vietnam is one of development country in Asia so most of goods for exporting are increase, it tend to rise a demand for paper packaging Therefore, paper packaging is forecasted to increase rapidly from this year

to year 2012 when the “green environment barrier” is available for exporting goods to

EU, USA and so on (Chart 3.1, 3.2 & 3.3)

Ü Plastic packaging

Plastic industry contributed to the economic development of Vietnam in recent years In the last ten years, Vietnam Plastics industry has rapidly grown with annual growth rates reached 15-25% It can be said is an impressive level of development for this industry There are 2000 plastic companies and have 704 companies work for packaging in Vietnam, the output is 22kg/person in 2009 and estimate to get 32kg/person in year

2010 Vietnam plastic industry develops their products in almost of fields, including plastic packaging reached 37%, plastic for contruction reached 15%, household plastic reached 40% and high-tech plastic reached 8% (Table 3.1, chart 3.4 & 3.5)

3.3 Market analysis

3.3.1 Local market

After the financial cricis, many countries are going to serve for their market including Vietnam Despite suffering heavy financial crisis but the average growth rate of the Construction enterprises is over 20% per year in 2006-2010, contributing significantly to increased stability country's economic growth Because of the developing construction have brought about some auxiliary industry grow and honeycomb paper in there

According to Industry and Construction department, the six months beginning of the year 2010, construction output value is relatively high growth rate is to 23.8% over the same period So construction field has a highest growth rate compare with other fields According to department of planning and investment, industry output value increased 13.6%; agriculture, forestry and aquatic product only increased 5.3% in the six months beginning of year 2010 At the second quarter of year 2010, construction output value reached 114 thousand billion VND, increased 27.3% in the same period in 2009 and reached about 215.8 thousand billion VND, obtained 25.2% GDP in the same period in the six months beginning of year 2010 and increased 23.8% compare with the six months beginning of year 2009 (chart 3.6) These figures above, the state companies obtain 26.2% in total and increase 18.8%; Vietnamese private companies obtain 71.3%

in total and increase 25.9%; forein direct investment (FDI) obtain 2.5% in total and increase 20.4% Some of big city in Vietnam had rapid growth rate as follow: Ha Noi and Bac Ninh (25.2%), Thanh Hoa (31.6%), Thua Thien – Hue (50.1%); Quang Ngai (75.9%); Ho Chi Minh City (26.1%); Long An (34.4%) and so on

Due to the development of Vietnam, Vietnam has a lot of buildings, departments was built to serve for domiciliary needs Nowadays, we have few woods to produce wood door, table and so on so that is why honeycomb paper is used to support for these companies to produce honeycomb door with the advantages are light, cheap price, heat resistant, e.t.c

3.3.2 Oversea market

The increasing of global economic and trade liberalization requires countries have an appropriate integration strategy into the world economy and region The world economy integration allows Vietnam to take advantage of huge global markets, helps to attract more fund, capture technology, engineering and management, and gradually creating team of workers have an appropriate level with the modern industry development In recent year, the level of Vietnam economic integration into the world economy is becoming more deeply Specifically, in 2007, Vietnam became a member

of the World Trade Organization, in 2008 and 2009, along with multilateral integration, Vietnam has negotiated and signed agreements of bilateral free trade with many countries and territories in the region and the world During the process of integration into the world economy, Vietnam's exports have been become an important role in the national economy According to statistics, the proportion of exports to GDP has steadily

risen about 30% since the early 1990s up to 70% by 2008 (chart 3.7) A whole in 2008,

export turnover of goods was 62.9 billion US dollars, up 29.5% over 2007, in which the foreign-invested (including crude oil) was 34.9 billion US dollars, up 25.7%, accounting for 49.7% of total export turnover of goods The local conpanies reached 28 billion US dollars, up 34.7%, accounting for 50.3% In total exports in 2008, groups of heavy industry and mineral resources accounting for 31%, group of agricultural products

accounting for 16.3% Overall, export turnover of goods in 2008 increased in

comparison with 2007 because of the increasing price in the world market (Chart 3.8)

Deeply integration into the global economy also means that Vietnam's economy will depend on the world economy more, both in positive and negative The financial crisis

in 2008-2009 had no small impact on the economy of Vietnam, especially for exporting Chart 3.8 Vietnam’s export turnover showed that Vietnam’s export turnover has actually decreased compared to previous years According to the Vietnam Customs, Vietnam’s export turnover reached 56.58 billion US dollars in 2009, down 9.3% compared with 2008 because of the financial crisis

After turning back from financial crisis, Vietnam’exports became better in 2010 In the first quarter in 2010, export turnover in most of the market increased over the same period in 2009 ASEAN export turnover reached 2.6 billion US dollars, up 3.4%, the EU reached 2.3 billion US dollars, up 3.6%, The USA reaching 2.8 billion US dollars, up 22.5%, Japan reached 1.6 billion US dollars, up 28%, China reached 1.4 billion US dollars, up 52% Export turnovers in April 2010 were estimated to reach 5.7 billion USD, up 1.9% from the previous month and up 33% over the same period last year In Four months of the year, export turnover of goods reached 20.2 billion USD, up 8.9% over the same period last year, in which the domestic company reached 8.9 billion USD, down 10, 7%; foreign investment (including crude oil) reached 11.3 billion USD,

up 31.9%, if it leaves crude oil, export turnovers of foreign investment reached 9.5 billion USD, up 44.2% in the four months of year 2010, export turnover of many goods increased over the same period last year, including textiles and garments reached 3 billion USD, up 18.9%, footwear reached 1.4 billion USD, up 5.7%, aquatic products reached 1.3 billion USD, up 20.2%, wood and wood products reached over 1 billion USD, up 31.6%, electronic machines and components reached 985 million USD, up 39.1%, machinery, tools and spare parts reached 910 million USD, and so on

According to new statistic of Vietnam customs, export turnover reached 6.23 billion USD in October 2010 up 2.1% comparison with last month; in which forien direct

investment (FDI) exported 3.2 billion USD, increased 8.2% Taking to account in the end of October 2010, total export turnovers of Vietnam reached 57.83 billion USD, increased 23.4% over the same period last year, in which forien direct investment (FDI) exported 27.1 billion USD, increased 40.5% over the same period last year and reached

46.9% per total export turnovers in Vietnam (Chart 3.9)

A Wood & Furniture export

In recent years, wood processing industry in Vietnam reached an average growth rate is 20% -21% per year However, Vietnam joined WTO, besides the advantage is a lot of difficulties if there is no preparation

3In 2000-2006 stages, Vietnam’s wood has grown both in scale, volume and exports Wood export turnover increased 10 times, for example In year 2007, wood export turnover reached 2.5 billion USD Vietnam’s wood products is available in over 120 countries in the world, including America, Japan and EU are three main market In addition, China, Korea and Middle East are potential market well Vietnam joined WTO means that the step into a "playground" big, exciting but also challenging In

2007, wood product is ranked fifth out of 11 items reached the biggest export turnover WTO accession is a great opportunity to reach potential markets The companies are easier to attract foreign investment, high-technology investment, and enjoy tax incentives from the member states e.t.c As a member of WTO, the timber industry enterprises will bear the impact of the WTO

Wood products export has marked the success of the wood industry eventhough the global economy was difficult in year 2008 This is one of goods have export turnover is

over 2 billion USD (chart 3.10) According to GSO, Vietnam’s wood export turnover

reached 269.4 million USD in December, 2008 increased 17.1% compare with November and increased 3.1% over the same period year 2007 In year 2008, wood export turnover reached 2.8 billion USD, up 16.6% in comparison with the same period last year and reached 93.3% beside the plans

3  Source: http://vinanet.vn 

About Market, in 2008, the U.S is maintaining key export markets for Vietnam’s wood

& furniture (chart 3.11); however, exports growth to this market has showed signs of

slowing and more evident than in the last months Japan is an importer of wood products

of Vietnam's second largest with growth in turnover in 2008 increased significantly, thus exporting wood products to this market has gradually recovered In December, exports of wood products to Japan reached 36.6 million, up 13% compare with November and up 57.1% in comparison with the same period last year In 2008, total exports of wood products to this market reached 371.7 million, up 21% over the same period last year In 2008, exports of wood products to EU rather well, reached 730.15 million USD, up 15.23% over 2007 In December 2008, export turnover to EU rather well too, over 100.5 million USD, increased 45.8% compare with last month and up 24% over the same period last year In particular, exports of wood products to the UK reached the highest, but was down compare with December 2007; wood products exported to Germany, France, and Netherlands – this is some of large importer of Vietnam; also exported to a small market but full of potential as Sweden, Finland,

Greece increased strongly (chart 3.12)

In six months of the beginning in 2009, although export value was consecutive decline, but up to July 2009, the market of timber and timber products have shown signs of recovery By the end of 2009, wood export turnover reached 2.55 billion USD, down 10% over the same period in 2008 USA., EU and Japan are still three largest importer

of furniture from Vietnam (chart 3.13) Vietnam wood products have been exported to

120 countries and territories in the world, they focus on key markets are the U.S (accounting for 43.35%), Japan (accounting for 13.68%) and so on

B Electric & electronic

Nowaday, after 20 years of attracting foreign investment, Vietnam electronic industry has contributed to the development of economic and social of the country with export sales increasing 15 times in the past 10 years and is becoming one of the branches in the strength of export products of Vietnam The international economic integration

when Vietnam is actually becoming an official member of WTO has brought opportunities for the electronics industry, reflected in the rapid growth of exports turnover of this goods, it reached 1.5 billion USD in 2006, reached 2.1 billion USD in

2007 and reached 2.64 billion USD in 2008 (up 28.2% in comparison with the same period last year), make electronic devices and electronic components became the sixth export goods of the major export products of Vietnam In 2009, electronic export turnover reached 2.774 billion USD, increased 5.1% copare with 2008 Some of countries import electronic and eclectronic components of Vietnam is the US, Japan, Thailand, China, Singapore and Netherland and so on Electronic and electric component is a potential developing goods, this is a promising goods will get high export turnover for Vietnam, because Vietnam has a lot of forien investment invested electronic and electric component fields with many big projects as Intel, Midea,

Olymbus, Canon and so on (chart 3.14)

C Food & beverage

Fruit export market of Vietnam reached over 10 million USD in 9 months 2009 (chart

3.15)

D Handicraft

Handicraft product has a long tradition in Vietnam, which exports relatively early compared to other commodities, it has positively contributed to total Vietnam's exports and has an important role in solving some social and economic problems in rural areas These commodities have an average growth rate so high over 20% per year, export turnover reached 300 million USD in 2004 and reached over 790 million USD in 2007, increased 30% compare to 2006 It reached nearly 1 billion USD in 2008 and reached

880 million USD in spite of impaction of the financial crisis In recent years, the Vietnam's handicraft export market have been expanded, in addition to the major markets such as Germany, France, Korea, Japan the fine art crafts of Vietnam

present in 163 countries and territories worldwide (chart 3.16)

A Macro economic

Nearly 20 year developed (1900-2008), Vietnam‘s economy growth rate was maintained in high level, the average GDP growth rate was 7.56% year year in period 1900-2008 High economic growth rate but population growth rate was inhibited, led to GDP per capita increased year by year The stability of the economic - society in the period 2007 - 2009 is an important factor to help Vietnam achieve the developing achievements in over time Economic growth in 3 year 2007-2009 but has declined due

to the economic crisis, but still maintain economic growth at a high level In 2007-2009, Vietnam has economic growth was 8.46%, 6.18% and 5.2% in turn This growth was assessed at a high level by the international organization, was the great achievement if

it was considering in the difficult conditions of the world economy over time Economic growth is maintained, so that income per capita has been significantly improved Three

years after joining the WTO, GDP per capita reached 835 USD, 1.034 USD and 1.109

Source: Economist Intelligence Unit

In the area of attracting foreign direct investment (FDI), after three years of joining WTO, FDI invested into Vietnam was more than 114 billion dollars (registered capital), 4.5 times higher than target for the whole five-year in 2006-2010 Similarly, capital done in the past three years, 2007-2009, reached 29.5 billion dollars, well beyond the set targets for five years This result shows that business investment environment in Vietnam has more advantages, more business opportunities

B Legislation

Nowadays, to protect our environment, many countries have set up some rules to protect their countries to avoid environment damage from other country or some exporter want to sell their good to them The highlight of these countries are America and European, they set up law to protect themselves from others as EU Directive 2002/95/EC (commonly referred to as the Restriction of Hazardous Substances Directive or RoHS) restricting the use of hazardous substances in electrical, and electronic equipment, EU Directive 2002/96/EC promoting the collecting and recycling

of such equipment - will be in force in February 2003 The objective of these legislations is to increase the recycling and/or re-use of such products It also requires heavy metals such as lead, mercury, cadmium, and hexavalent chromium and flame retardants such as polybrominated biphenyls (PBB) or polybrominated diphenyl ethers