VIETNAM GENERAL CONFIDERATION OF LABOUR TON DUC THANG UNIVERSITY DEPARTMENT OF BUSINESS ADMINISTRATION Thesis submitted as a requirement for the degree Bachelor of Business Administrat
LITERATURE REVIEW
General literature review of entrusted export
There are several different ways to translate a terminology into English In some other documents, the other authors may use “entrusted import/export”,
In this context, the terms “authorized import/export” and “purchasing and selling commodities by a mandated dealer” are synonymous, both referring to regulated import and export activities For this research, the term “entrusted import/export” has been chosen, aligning with the English translations of the Commercial Law and Decree No 12/2006, as publicly provided by the Ministry of Justice.
The concept of entrusted import/export was stated specifically in the article
Entrusted import/export is a commercial activity where the trustee conducts purchase and sale transactions in their own name based on mutually agreed terms with the trustor The trustee is entitled to receive an entrustment commission for their services, ensuring a mutually beneficial arrangement This process facilitates secure and efficient international trade by clarifying roles and compensation.
There are two parties involved in this transaction: trustee and trustor
A trustee for the purchase and sale of commodities is a trader who specializes in handling goods that align with the entrusted commodities They conduct buying and selling activities under mutually agreed terms with the trustor, ensuring a transparent and compliant transaction process.
A trustor involved in the purchase and sale of commodities may or may not be a trader, as they can authorize a trustee to carry out these transactions on their behalf The trustee acts at the trustor’s request and receives a commission for their services.
About the scope of entrusted export:
Traders can outsource the import and export of various commodities or directly undertake these activities on behalf of other traders, excluding items listed as banned or suspended from import or export under Article 17 of Decree No 12/2006 Specific conditions regarding import and export regulations are detailed in Articles 18 and 19 of the decree, ensuring compliance with national trade policies.
About rights and obligations of parties involved:
“Rights and obligations of the trustor and trustee of import or export shall be agreed upon by the involved parties in entrustment or entrustment undertaking contracts.”- article 20, Decree No 12/2006 [18]
If two parties do not mention clearly about rights and obligation of each party in the contract, then they have to abide by the articles 162,163,164,165 of Commercial Law 2005 [17]
1.1.3 The roles of entrusted export
For general import/export operation of the country:
The scope of entities eligible for direct export has gradually expanded within the state-regulated market economy, allowing almost all registered firms engaged in import-export activities to participate However, many firms face challenges in effectively conducting import-export operations due to limited capital and lack of skilled personnel Conversely, some companies excel in import-export tasks, possessing expertise in clearance procedures and foreign markets As a result, trusting firms opt for entrusted export and import as outsourcing strategies, fostering the growth of entrusted import-export services within the economy.
Entrusted import-export boosts overall trade operations by facilitating efficient import and export processes This method enables the state to stimulate economic activity and create favorable conditions for the exchange of commodities and services, thereby promoting international trade growth.
Entrusted export is a form of exporting, hence, the role of entrusted export in the national economy is similar to the role of direct export, more clearly:
To facilitate sustained growth in export of the country, then achieve larger percentage shares in the global merchandise trade
To bring in the foreign currency income, create favorable conditions for transferring technology, and promote the process of restructuring towards industrialization and modernization
To promote a country's advantages, it is essential to select export commodities that possess a competitive edge over other nations—such as those utilizing abundant raw materials and cheap labor Focusing on commodities produced domestically can drive economic restructuring, support business growth, and enhance the country's overall export efficiency.
Entrusted export is a strategic method that enables the government to oversee export operations by partnering with leading enterprises specializing in entrusted export services This approach not only enhances regulatory control but also promotes economic diversification by expanding business activities and service sectors within the economy.
For firms participating in entrusted export:
In addition to above roles, entrusted export also plays an important role, directly to trustor and trustee
Enabling trustors to expand their business through entrusted export services is essential, especially for institutions lacking sufficient resources or export expertise This approach helps overcome challenges related to limited legal status or inadequate experience in direct exporting, ensuring they can effectively participate in global markets.
Minimizing risk is crucial for trustors with limited experience in direct export, especially when dealing with complex commodities and high technical requirements such as machinery and equipment To ensure product quality aligns with specific standards, trustors should consider authorizing a reliable trustee to oversee and verify the goods throughout the export process.
- Increase the revenue, create jobs for employees, improve the standard of their life and generate new employment opportunities
- Entrusted export is one of the business operations of trustee, as well as a good way to enable trustee to do business with the lack of capital
- Diversify business activities and improve competitiveness in export trade
Entrusted export serves as an effective strategy to enhance a company's credibility and visibility in international markets By collaborating with trusted partners, businesses can strengthen long-term relationships with foreign clients and expand their global presence This approach not only boosts brand reputation but also fosters sustainable growth and development for the company.
1.1.4 Legal documents related to entrusted export
Regulations about entrusted export can be found in Commercial Law 2005 from article 155 to article 165 (appendix no 10) :
Article 155: Purchase and sale of commodities by entrusted dealers
Article 160: Sub-entrust to a third party
There are some other regulations stated in Decree No 12/2006/ND-CP issued on
Article 17: Entrustment of import and export of commodities and undertaking of entrusted import and export of commodities
Article 18: Entrustment of import and export and undertaking of entrusted import and export of commodities under permits
Article 19: Entrustment of import and export of commodities of organizations and individuals other than traders
Article 20: Rights and obligations of the trustor and trustee of import or export
Besides those regulations above, Customs Law 2005, Law on Import-Export Tax and other legal documents about purchase and sale with foreign partner also control entrusted export activity
1.1.5 Advantage and disadvantage of entrusted export
Entrusted export is an international business form, which is implemented through a middleman According to Vo Thanh Thu (2011), purchase and sale by middleman has some following advantages and disadvantages:
Middleman is often familiar with penetrated market, laws, and local commercial practices Therefore, middleman can promote trade and help trustor avoid some risks
Middleman, especially agent, often has good facility, hence, trustor do not have to invest much
By using middleman’s service in classifying and packing, trustor may save time and money
Trustor loses the direct connection with market
Trustee may keep trustor’s money for a long time
Trustor has to agree with several trustee’s demands
The profit has to be shared [5]
The process of entrusted export
Entrusted export follows a process similar to standard export procedures However, as noted in the research by Doan Thi Hong Van, there is no universally established standard process for entrusted export Consequently, the steps outlined are primarily based on the typical procedures of regular export, serving as a foundational guide for understanding the export process in this context.
1.2.1Negotiate and sign the entrusted export contract
Negotiation is an action or/and a process, in which two or more parties conduct negotiating and discussing about both common interests and disagreements, to come to a mutual agreement [7, p.196]
The negotiation process encompasses several key stages: preparation, initial contact, negotiation, contract signing, and post-negotiation learning Each phase plays a vital role in ensuring a successful outcome To achieve effective negotiations, exporters must thoroughly prepare in advance and apply suitable techniques adaptively throughout each step Proper preparation and strategic flexibility are crucial for successful international trade negotiations.
During negotiation process, negotiator should remember those rules:
Separate people from negotiated issues, be gentle with people, and be reasonable with issue
Focus on both parties’ benefit, and try to enlarge them
Have some different plans to conduct negotiation flexibly
Base on objective and accurate criteria to evaluate negotiation result
When negotiating successfully, two parties will move to next step - sign the entrusted export contract
An entrusted export contract is an international purchase and sale agreement for commodities, requiring compliance with specific legal regulations Its form must adhere to the provisions outlined in Articles 3, 24, and 27 of the Commercial Law 2005, ensuring proper contractual documentation Additionally, the contract’s content must meet the criteria specified in Article 104 of the Commercial Law 2005, which governs the essential terms and conditions of such agreements.
There are two types of entrusted export:
Full entrustment is a process used when the trustor has no direct relationship with the foreign partner and requires an intermediary to handle the export of goods In this arrangement, the trustor authorizes the trustee to manage all aspects of the export process, including negotiating with foreign importers and delivering goods to the carrier or importer The trustor is responsible for paying the trustee an entrustment fee for their services.
Partial entrustment involves a trustor who has an existing relationship with an importer and negotiates all export contract terms in advance However, since the trustor cannot directly export their commodities, they seek a skilled trustee to handle the export process The trustee then signs the export contract on behalf of the trustor based on the pre-agreed terms, ensuring a smooth export operation.
IMPORTER agreements In this case, trustor is in charge of looking for and negotiating with foreign partner, and entrustment fee for trustee is often lower than full entrustment
After reaching all agreements, trustee, on behalf of trustor, signs an export contract with importer The relationship between three parties is described as below:
Figure 1.1 The relationship between trustor, trustee and importer
1.2.3Ask for export license (if needed)
Securing an export license is a crucial step in the export process, as it enables businesses to proceed with subsequent procedures The application process for an export license varies by country and has evolved over time; in Vietnam, recent changes have simplified this process significantly Currently, according to Article 4 of Decree No 12/2006/ND-CP, exporters do not need an export license for most commodities unless they are managed by the Ministry of Trade or other specific agencies, or are listed among banned export items Instead, exporters can directly conduct customs procedures at border-gate customs without obtaining an export license, provided their goods are not subject to special restrictions.
1.2.4Prepare for payment process (if needed)
There are several common payment methods applied in export contracts Depending on which method is applied, this step can be implemented differently:
Letter of Credit (L/C) method: make sure that importer opened appropriate L/C After checking L/C, should there is any adjustment needed, inform importer and issuing bank to adjust L/C
Ensure that the importer has opened a trust account as required before using the Cash Against Document (CAD) method Once the trust account is established, contact the bank to confirm payment terms, the specific documents needed for presentation, and the required number of copies.
Advanced Telegraphic Transfer (T/T) method: make sure that importer transferred complete money on schedule
Other methods such as deferred T/T, clean collection, Documents against Acceptance (D/A), Documents against payment (D/P): only when exporter has delivered commodities to importer is payment process begins [8, p 452]
Manufacturers must conduct thorough market research to develop high-quality products that align with customer preferences After production, rigorous quality control checks—covering barcode accuracy and packaging standards—are essential to ensure products meet customer requirements and satisfaction.
Those manufacturers who do not want or cannot export directly may entrust another firm to export their products This issue is stipulated in the article 17,
With import/export specialized enterprises
Those firms should not just wait to be entrusted by other firms, but should look for the source of commodities by:
- Invest to manufacture export commodities
The Government encourages firms to conduct import/export business This is stipulated clearly in Commercial Law 2005 and other legal documents [8, pp 453 – 454]
Before delivering, exporter is responsible for checking commodities about quality, quantity, weight… If export commodities are animals, plants, or foods, exporter is also responsible for quarantining commodities
Commodity inspection and quarantine are conducted at two levels: the factory and the border gate Factory inspections are the primary method for ensuring compliance, while border gate checks serve to verify the results obtained earlier This two-tier approach ensures effective quality control and quarantine measures for imported and exported goods.
In several situations, according to Government’s regulations or customer’s requirement, commodities must be inspected by an independent organization such as Vinacontrol, Foodcontrol, Cafecontrol, Davicontrol, etc [8, pp 455 – 456]
According to the article 16 Customs Law about customs procedure: when carrying out customs procedures, the customs declarers shall have to:
Fill in and submit the customs declaration forms; submit, produce documents of the customs dossiers;
Take commodities and/or means of transportation to the designated sites for inspection of their actual conditions;
Pay taxes and fulfill other financial obligations as prescribed by laws [8, p
Under export contracts specifying delivery terms such as CIF, CFR, CPT, CIP, DES, DEQ, DDU, DDP, or DAF according to Incoterms 2010, the seller is responsible for shipping the commodities to the designated destination The exporter must arrange and hire the appropriate means of transportation to ensure timely and compliant delivery Understanding these Incoterms is essential for clearly defining the seller's shipping obligations and ensuring smooth international trade operations.
If the deliver term of export contract states that delivery place is in exporter’s country, importer is in charge of hiring means of transportation (EXW, FCA, FAS, or FOB)
Chartering a ship or booking ship space is a complex process that requires extensive experience, freight knowledge, and understanding of charter-party terms Therefore, many import and export companies entrust freight forwarders to handle transportation arrangements, ensuring efficient and reliable shipping solutions.
Exporter can choose one in those methods below:
Liner terms: Ship-owner is also the carrier The relationship between carrier and shipper is controlled by ocean bill of lading (B/L)
Liner terms, also known as booking ship space, refer to the process where a shipper either works with a broker or directly approaches the shipowner to secure a portion of the vessel for transporting cargo This arrangement allows the shipper to reserve space on a ship to move goods from one port to another efficiently.
- The volume of commodities is not big
- Most of commodities are dry cargo
- The route of ship is fixed
- There is no negotiation between two parties; shipper just follows all advanced terms on the back of B/L of carrier
- This procedure is simple, but the ocean freight is high
A voyage charter involves the ship-owner lending the entire vessel to a charterer to transport cargo from one port to another This arrangement is governed by a Voyage Charter Party (C/P), which outlines the contractual terms and obligations between both parties.
- The ship is often full of cargo (90 – 95%) The cargos’ volume is often big such as grain, mineral or fertilizer…
- Two parties involved have to sign a voyage charter party
- B/L of voyage charter is often used
- Broker’s service is often used
- Low rate of freight, but complex procedure
A time charter involves the ship-owner leasing the vessel to the charterer for a specific period, during which the owner remains responsible for ensuring the ship's seaworthiness The ship-owner transfers the right to use the ship to the charterer, who is responsible for paying the agreed-upon rental fees At the end of the charter period, the charterer must return the ship in good condition This arrangement facilitates efficient cargo transportation by providing a flexible leasing option for shipping companies.
Most export commodities are shipped by sea, requiring shippers to prepare a detailed cargo list that includes consignee details, marks, B/L number, cargo descriptions, package counts, gross weight, measurements, and the designated port of destination Afterward, shippers need to issue a shipping order and create a cargo (stowage) plan to calculate shipping costs Although the cargo plan is typically not shared with the shipper, it is essential for safety reasons that shippers request access to this plan to understand where and when their cargo will be loaded, ensuring proper oversight during the shipping process.
The environments influencing the efficiency of entrusted export
Understanding both the external and internal environments is essential for enterprises across all industries Analyzing external factors provides valuable insights that, when combined with internal knowledge, form the foundation for shaping the company's vision and mission This comprehensive understanding enables firms to identify strategic actions that drive growth and success.
The external environment of a firm is complex and challenging, significantly impacting its performance To succeed, companies must develop the ability to identify opportunities and threats within this environment It comprises three main parts: the general environment, which includes broad societal elements affecting industries; the industry environment, which involves factors influencing a firm's competitive actions and industry profitability; and the competitor environment, where firms analyze competitors’ objectives, strategies, assumptions, and capabilities to stay ahead in the market.
Source: P 37, Hitt Ireland and Hoskisson (2011), Strategic management – competitiveness and globalization, 9 th edition, South-Western Cengage Learning
Recent research indicates that the general environment consists of seven key segments—demographic, economic, political/legal, sociocultural, technological, global, and physical—that collectively influence industries and the firms operating within them Understanding these environmental dimensions is essential for strategic planning and maintaining competitive advantage in today's dynamic market landscape.
Vrontis and Pavlou define the economic environment as the nature and direction of the economy in which a firm operates or plans to compete Generally, companies aim to compete within stable economies that offer strong growth potential Since nations are interconnected through the global economy, firms need to continuously scan, monitor, forecast, and evaluate the economic health of their host country as well as other foreign markets to sustain successful operations.
Government policies, economic growth rates, inflation, and per capita income directly impact businesses A high national growth rate encourages government policies that support investment and production expansion, while stable currency fluctuations and manageable inflation foster a favorable environment for firms Additionally, increasing per capita income enables consumers to spend more, boosting demand and enhancing manufacturing efficiency.
The sociocultural segment focuses on a society's attitudes and cultural values, which form the foundation of social behavior and norms These attitudes and values influence and shape demographic, economic, political/legal, and technological developments Understanding the sociocultural environment is essential for analyzing how societal beliefs impact various societal changes and trends.
Unemployment rate, academic standards, lifestyle, habits, and customs significantly influence a firm's operational efficiency, either positively or negatively A low unemployment rate means workers have more job options, leading to higher labor costs and potentially reduced manufacturing efficiency Conversely, high unemployment can boost operational efficiency but may decrease consumer demand and cause political instability, which can negatively impact business performance Additionally, academic standards impact workers' training, professional skills, and ability to acquire essential knowledge about products, directly affecting a firm's productivity and overall efficiency.
The political and legal segment is a competitive arena where organizations and interest groups vie for attention, resources, and influence over laws and regulations that govern interactions between nations and local government agencies This segment highlights how organizations attempt to shape government policies and understand both current and future governmental influences on their strategic decisions.
According to Le Thanh Tung (2010), stable politics serve as a fundamental prerequisite for the growth and expansion of investments by firms, as well as domestic and international organizations This political stability positively impacts the efficiency and performance of businesses, fostering an environment conducive to sustainable economic development.
The legal environment comprises laws, legal documents, processes, and norms that establish a regulatory framework for firms Every business operation must adhere to relevant legal regulations, including duties towards the government, society, and employees These legal requirements can either encourage or discourage firm growth, significantly impacting their overall efficiency Consequently, the legal environment plays a crucial role in shaping business development and operational success.
Technological changes are pervasive and diverse, impacting various aspects of society through innovative products, processes, and materials These developments primarily occur within institutions dedicated to generating new knowledge and transforming it into valuable outputs The technology sector encompasses activities that drive innovation, resulting in the creation of novel products and improved processes that shape modern society.
The industry environment comprises factors that directly impact a firm's strategic actions and competitiveness, as highlighted by Short et al (2007) According to the Five Forces Model, industry profitability is shaped by the threat of new entrants, supplier power, buyer power, product substitutes, and rivalry among competitors Successfully positioning within an industry—either by influencing these five forces favorably or defending against their effects—can lead to above-average returns Therefore, a firm's ability to leverage or mitigate these industry forces is crucial for achieving sustained competitive advantage and improved profitability.
Figure 1.3Michael E Porter’s five forces of competition model
Source: Page 52, Hitt Ireland and Hoskisson (2011), Strategic management – competitiveness and globalization, 9 th edition, South-Western Cengage Learning
Identifying new entrants is crucial because they can threaten the market share of existing competitors New entrants often bring additional production capacity, which can lower consumer costs and reduce revenues for established firms unless overall demand increases These newcomers typically aim to capture a significant market share, compelling existing companies to become more efficient and innovate, such as adopting new distribution channels like the Internet Recognizing these threats helps firms adapt strategically to maintain competitiveness.
Suppliers can exert significant power over firms in an industry by increasing prices and decreasing product quality When a company's pricing strategies cannot absorb these cost increases, its profitability declines as a result of supplier actions Supplier groups are considered powerful when they are able to influence prices and product quality, thereby impacting the financial health of competing firms within the industry.
- It is dominated by a few large companies and is more concentrated than the industry to which it sells
- Satisfactory substitute products are not available to industry firms
- Industry firms are not a significant customer for the supplier group
- Suppliers’ commodities are critical to buyers’ marketplace success
- The effectiveness of suppliers’ products has created high switching costs for industry firms
- It poses a credible threat to integrate forward into the buyers’ industry Credibility is enhanced when suppliers have substantial resources and provide a highly differentiated product [14, p 55]
Firms aim to maximize returns on their invested capital, while buyers seek to purchase products at the lowest possible price that still ensures the industry earns an acceptable rate of return To reduce costs, buyers negotiate for higher quality, better service levels, and lower prices These competitive dynamics are driven by encouraging rivalry among industry firms Buyer power becomes particularly strong when customers leverage their ability to demand higher quality, improved service, and lower prices, thereby influencing the industry's profitability.
- They purchase a large portion of an industry’s total output
- The sales of the product being purchased account for a significant portion of the seller’s annual revenues
- They could switch to another product at little, if any, cost
- The industry’s products are undifferentiated or standardized, and the buyers pose a credible threat if they were to integrate backward into the sellers’ industry
ENTRUSTED EXPORT OPERATION AT SADACO
Overview about SADACO
Name: Saigon Trade Production Development Corporation (SADACO)
Address: 200 bis Ly ChinhThang Street, ward 9, district 3, Ho Chi Minh City
Email: Hd.office@SADACO.com
( Source: SADACO official homepage ) 2.1.2 History and development of SADACO
SADACO, a state-owned company, was established in 1987 to cooperate and develop about social economy between Daklak Province and Ho Chi Minh City
In 1992, under decree 388/HĐBT, Daklak joint-venture company was renamed SaiGon-DakLak Manufacturing Company
In 1993, rapid growth of economic integration attracted more foreign investment into Vietnam, hence, the Ministry of Commerce allowed SADACO to export directly under the license number 407 – 1 – 063/GP
In 2005, the company restructured into a joint-stock company with a charter capital of VND 14.9 billion, with the government owning a 20% stake The company officially commenced operations as a joint-stock entity on November 1, 2006.
The company is a member of SATRA group - one of the biggest commercial corporations in Vietnam
Thanks to continuous efforts of the whole SADACO staff in the past 20 years, the company has set up 17 subsidiaries so far
To enhance product quality and build customer trust, the company has implemented the ISO 9001:2000 quality management system Additionally, SADACO has received prestigious awards including the Vietnam Gold Star, Top Ten Vietnam Trademark, Trusted Business, and Strong Brand, recognizing its excellence and credibility in the market.
“Typical Saigon Business” and some more Therefore, the brand name SADACO is now more and more popular [4]
- Manufacture and do business in registered fields
- Improve both the quality and design of products
- Pay off debts and pay tax for the government
- Comply with the Trade Ministry’s policies and management about economy, finance, import, export and foreign transactions
- Make efficient use of the capital
- Ensure safety at work, preserve the environment, protect public property
SADACO trades in general fields, which facilitates the company to develop available potential and makes it dynamic [4]
Being a general export/import trade company, SADACO’s operational functions are various:
- Exploit, process, manufacture, and export agriculture and forestry products (for example bamboo chopsticks, processed wood furniture…) and invest in facilities for new-economic area in DakLak province
- Import and trade those following products: raw materials, chemicals, supplies and equipment for domestic production and consumption
- Export labor in limited time
- Together with other economic units, invest in building an open-economic area in order to encourage households to settle and create agriculture and forestry material source for import/export [4]
(Source: Human Resources Department) Figure 2.2 Organization Structure at SADACO
Management board Management council Board of supervisors Board of directors Human resources
Marketing Import/ExportProcessed Forest Product Forest Products Processing Enterprise 1
Management structure of SADACO is online-function management mode
The advantage of this model is:
avoid overlapping functions and mission between departments
foster specialization in skills at work, enhance solve-problems skill
low-risk decisions, compared to online structure management mode
This organizational model has notable drawbacks, including confusion and conflicts among employees due to subordinates receiving orders from multiple same-level superiors Additionally, managers tend to specialize narrowly in specific fields, which can limit overall coordination and efficiency within the organization.
For SADACO, a small-to-medium business, adopting the popular online-function management model is both suitable and strategic To maximize its effectiveness and mitigate potential drawbacks, SADACO must foster strong inter-departmental consensus and proactively prevent conflicts.
SADACO specializes in the exploitation, processing, and export of agricultural and forestry products, handicrafts, and construction materials, which significantly influences its human resources The company's workforce is shaped by factors such as the number of employees, their education levels, and the age distribution within the organization.
Figure 2.3 Human resources structure at SADACO 2012
There is a big difference between numbers of employees by education levels:
Unskilled workers constitute the largest workforce, accounting for five times more than those with university, college, or vocational education This is primarily because the company specializes in manufacturing and exporting, where the main workforce comprises direct workers who do not require advanced qualifications.
Most of the company's workforce consists of young employees, reflecting a significant shift in labor demographics This youthful labor force offers advantages in boosting productivity due to their energy and adaptability However, it also presents challenges, such as a lack of experience and job stability, which can impact overall operational efficiency.
University or upper level College or vocational schoolOther levels
Table 2.1 Human resources structure by age at SADACO in 2012
31 – 45 years old over 45 years old
Amount (person) Proportion (%) Amount (person) Proportion (%) Amount (person) Proportion (%) Amount (person Proportion (%)
To maintain stable human resources and ensure consistent production, SADACO must implement effective solutions Additionally, the company needs to enhance the quality and specialization of its workforce to meet the increasing demands of the market These strategies will be discussed in greater detail in the next chapter.
Entrusted export operation at SADACO
2.2.1 Introduction about import/export department
At SADACO, the import/export department, consisting of 15 employees, handles entrusted export operations with each team member assigned specific responsibilities Most staff are young recruits from the SADACO Internship Program, equipped with essential import/export knowledge and the ability to work independently, enabling cost-effective training for the company While employees frequently participate in additional training courses to enhance their skills and stay updated with industry changes, these are voluntary and lack a structured approach, limiting their overall effectiveness in improving performance.
2.2.2 The importance of entrusted export operation at SADACO
2.2.2.1 The importance of export operation
The period 2010-2012 was a tough and changing period to world economy Vietnam could not avoid the influence when having integrated into world economy
SADACO, a manufacturing company, has experienced significant changes influenced by market dynamics between 2010 and 2012 According to the latest revenue statistics for this period, these figures provide an up-to-date and objective assessment of SADACO’s operational performance, highlighting its growth trajectory and financial stability within the manufacturing industry.
Total revenue of SADACO includes revenue from sales of commodities and services, financial activities and other incomes
Table 2.2 Revenue at SADACO during the period 2010 – 2012
(%) Sales of commodities and services
Between 2010 and 2012, SADACO's revenue structure consistently showed that income from sales of commodities and services accounted for over 98% of total revenue each year This indicates that import and export operations are the primary source of SADACO's income, reflecting their dominant role in the company's financial performance during this period.
More details about import/export operation’s turnover are shown in the table below:
Table 2.3 Import and export turnover during the period 2010 – 2012
Turnover ( 1000 US D ) Proportion (%) Turnover (1000 US D ) Proportion (%) Turnover (1000 US D ) Proportion (%)
Export proportion makes up a large proportion (77% - 78%), while import proportion remains a low percentage (21.9 – 22.8%) in total turnover This explains the main operation field of SADACO is export
Despite fluctuations over the years, the export value shows an overall upward trend In 2012, the export value increased by $823,620 USD (9%) compared to 2011, and by $303,290 USD (3%) compared to 2010 Although the growth rates are moderate, these positive increases signal resilience and potential expansion opportunities for companies amid challenging market conditions.
In 2011, the value declined due to factors such as the global economic crisis, high domestic inflation, and rising costs amidst unchanged prices However, in 2012, the economy gradually recovered, leading to significant and positive changes in the market.
In 2011, the import value saw a slight increase of $107.51 USD (4%) compared to the previous year and $98.67 USD (3.7%) compared to 2010, indicating stable import trends SADACO primarily imports raw materials; however, during challenging economic times, the company is planning to reduce import volumes and explore more affordable raw material options available domestically to optimize costs.
2.2.2.2 The importance of entrusted export operation
Figure 2.4 Proportion of entrusted export during the period 2010-2012
Entrusted exports constitute over 50% of the company's total export revenue over the past three years, indicating their significant contribution to overall business The proportion of entrusted exports has been steadily increasing each year, highlighting their growing importance This consistent growth underscores the vital role entrusted export plays in the company's export strategy and its potential as a reliable source of income.
The process of entrusted export operation at SADACO
SADACO has extensive experience in providing entrusted export services for various companies, with MAICO being its primary partner in these operations This article highlights the process of executing entrusted export contracts, using MAICO as a representative example to illustrate best practices and procedural steps.
The chart below describes the process of executing entrusted export contracts at SADACO:
Figure 2.5 The process of entrusted export at SADACO
Negotiate and sign No entrusted export contract
Book ship space with shipping line
Deliver commodities to carrier at port
Make full set of documents for payment
Adjust claims and liquidate contracts
During the process above, the relationship between parties can be described as below:
Figure 2.6 The relationship between SADACO and trustor, importer, carrier, customs
(1) Negotiate and sign entrusted export contract
(4) Book ship space with shipping line
(7) Deliver commodities to carrier at port
(8) Make full set of documents for payment
(9) Adjust claims and liquidate contracts
2.3.1 Negotiate and sign entrusted export contract
Establishing a partnership with SADACO involves initial negotiations, which may take time as both parties discuss terms via mail or telephone While these negotiations require effort at the beginning, trustors typically become long-term partners, reducing the need to find new customers frequently Contract terms are usually negotiated annually, with agreements renewed each year to maintain the business relationship.
Most of SADACO's entrusted exports are partial entrusted export services, where the trustor negotiates all contract terms—such as products, price, and quantity—with the importer beforehand The trustor then instructs SADACO to act as a trustee, signing the export contract on their behalf based on the pre-agreed terms, ensuring seamless coordination and compliance.
The fact that trustors are usually SADACO’s regular partners and the kind of entrusted export is usually partial entrusted export brings SADACO some advantages and disadvantages:
Reduce the time and cost to negotiate,
Have trust in each other, can negotiate more to adjust if needed,
Be familiar with operation of each other, make sure a good cooperation
Take less responsibility than full entrusted export
Have to maintain long-term relationship That may restrict the bargain
Restrict the number of customers (SADACO just expects to receive contracts from old partner without looking for new customers)
The earned profit per each container is less than full entrusted export
As a trustee, SADACO is responsible for signing export contracts on behalf of the trustor According to the entrustment contract, the trustor holds the obligation to search for and negotiate with foreign partners This means the trustor manages all the necessary steps to finalize an export agreement, while SADACO's role is to sign the contract with the trustor’s customer on their behalf.
Since the trustor is responsible for sourcing foreign importers, SADACO does not incur costs or bear risks related to market research, customer acquisition, or product development to meet changing demands However, this approach may limit SADACO’s profit margins If SADACO actively sought out customers for the trustor, the entrustment fee per exported container would be higher, reflecting the additional effort and resources invested.
As a trustee, SADACO is responsible for exporting commodities on behalf of the trustor, who holds the obligation to prepare the goods SADACO's role is to ensure that the commodities are ready on time and fully meet all importer requirements, facilitating a smooth and reliable export process.
Although SADACO does not have to bear all cost to produce products, SADACO may have some troubles with shipping line or customs office due to trustor’s carelessness in production
2.3.4 Book ship space with shipping line
As soon as receiving the notice about all necessary information of the commodity, SADACO begins to prepare the procedure to export the commodity on behalf of trustor
In Vietnam, the two primary delivery terms are FOB and CIF according to Incoterms 2000 At SADACO, approximately 90% of export contracts, including this one, utilize the FOB term This means SADACO relies on the foreign importer to provide all essential shipping information, such as the shipping line and vessel schedule, ensuring smooth coordination for export shipments.
In the other hands, there are some export contracts applying CIF term, whereby, SADACO will directly deal with shipping line
SADACO partners with prestigious shipping lines such as PIL of France, FESCO of Russia, WANHAI, OOCL, and SINOCO of Asia, as well as MERSK and NYK of Europe, to ensure reliable transportation and competitive freight rates These collaborations guarantee the safe delivery of customers' products while providing the highest quality shipping services.
At SADACO, vessels are the primary mode of transportation used for shipping, as they offer a cost-effective solution The company infrequently contracts airline transportation due to its higher costs, and thus, air freight is not included in their logistics discussions.
Exporting under FOB terms can lower SADACO's obligations and risks, but it may also limit potential profits Conversely, exporting under CIF terms allows SADACO to manage shipping arrangements directly, offering greater flexibility and control over the delivery process.
Figures 2.7 Process of doing customs procedure 2.3.5.1 Preparing customs documents:
Entrusted export contract: 1 copy (Appendix 1) In particular shipment, entrustment export contract is used along with a subcontract (appendix 2)
Packing list: 1 original (and 1 copy in case the commodities are not homogeneous) (Appendix 4):
Customs declaration (form): 2 originals (Appendix 5)
There are two methods for declaring import and export commodities: submitting customs documents directly at customs ports or customs bureaus, and electronic customs declaration Most contracts at SADACO now utilize electronic customs declaration due to its convenience, as this new method significantly reduces time and costs Consequently, electronic customs declaration is becoming increasingly popular among enterprises.
2.3.5.3 Receiving feedback from Customs Office
If the declaration is valid, SADACO will receive receipt number, declaration number and result of inspection level of commodities:
SADACO’s employee submits two customs declaration forms to the customs office and pays a fee of 20,000 VND, as there are no document checks or cargo inspections at Level 1 (green stream) The customs officer stamps “clearance” in box “30” and returns one customs declaration form to SADACO’s employee, completing the clearance process.
Level 2 (yellow stream) involves document checking without cargo inspection SADACO’s employee submits the customs documents and two customs declaration forms to the customs office for verification Once the documents are validated, the employee pays a customs fee of 20,000 VND The customs officer then stamps "clearance" in the designated box, indicating successful clearance.
“30” and return 1 customs declaration to SADACO’s employee
At Level 3 (red stream), cargo undergoes thorough document checking and inspection SADACO’s staff submits customs documents and two customs declaration forms to the customs office, pays the required fee of 20,000 VND, and registers for cargo inspection to ensure compliance and smooth clearance.
If the result of inspecting cargo is red stream, the cargo will be inspected There are three levels of inspection:
Level 3a: inspect the entire cargo
Level 3b: inspect 10% of cargo If no violation is detected, the inspection will be ended Otherwise, customs officers continue inspecting until the level of violation is identified
Level 3c: inspect 5% of cargo If no violation is detected, the inspection will be ended Otherwise, customs officers continue inspecting until the level of violation is identified
Commodity inspection can be performed using specialized machinery like X-ray machines and electronic scales, or through manual methods This process primarily ensures the accuracy of quantity, adherence to specifications, and the proper packaging and sealing of products Proper inspection guarantees product quality, compliance with standards, and reduces the risk of shipment delays Using advanced equipment streamlines the inspection process, while manual checks provide detailed assessment when necessary Overall, commodity inspection is essential for maintaining quality control and customer satisfaction.
After inspecting cargo, SADACO’s employee prints out the valid declaration and submit the set of customs documents to the Customs registration section The customs stamps “accepted declaration” in box “30”
Finish this step, SADACO’s employee submit a photocopy of customs declaration form to customs supervisor Then customs supervisor stamps
Some features of the process of entrusted export at SADACO
At SADACO, the entrusted export process is streamlined into only nine essential steps, compared to the standard twelve steps outlined in the initial chapter This simplified approach involves omitting certain steps to enhance efficiency while maintaining effective export procedures.
Under new export policies, companies no longer need to obtain an individual license for each shipment; instead, they only require a valid export license issued by an authorized government body This license grants the right to export a wide range of general commodities listed in the decree However, for certain specialized commodities, companies must secure a specific permit for each shipment Since both SADACO’s and the trustor’s commodities—such as terrAWares and ceramics—are common goods, SADACO can use its export license number 407 – 1 – 063/GP to legally export goods on behalf of the trustor.
Most export contracts with SADACO specify the payment term TT, where the importer transfers the payment to SADACO’s Eximbank account after receiving the commodities This crucial step is often overlooked but is essential for ensuring smooth and secure transaction completion Properly understanding and preparing for the payment process helps facilitate successful exports and maintains good business relationships.
In export contracts, the term "hire of transportation" is typically FOB, meaning the importer is responsible for chartering the vessel The importer must provide essential details such as vessel information, voyage specifics, and estimated time of departure (ETD) to ensure SADACO can prepare and deliver commodities on time.
When purchasing insurance, it is important to note that delivery terms are typically FOB, meaning SADACO is not responsible for insuring the goods However, under CIF or CIP terms, SADACO must acquire insurance for the commodities in accordance with the sales contract or letter of credit (L/C), with the expenses borne by the trustor If the L/C or sales contract does not specify the insurance rate, SADACO should obtain insurance according to Clause C, which represents the minimum coverage level.
- Adjust claims: Up to now, SADACO has not received any claims from customers This contributes to create a good reputation for entrusted export operation at SADACO
Most of SADACO’s customers are repeat clients, highlighting strong customer loyalty The majority of entrustment contracts at SADACO are partial, which streamlines the process by making it faster and simpler This approach helps reduce both time and unnecessary costs, ensuring efficient service delivery.
- Employees at SADACO are familiar with customers and tasks, which helps to avoid mistakes during the process
- SADACO does not pay attention to look for new trustors
In SADACO’s process, a single employee is responsible for completing all documentation for a specific customer, which can limit efficiency due to the small number of staff handling entrusted export tasks With fewer employees than customers, assigning tasks without specialized roles reduces productivity and increases the risk of errors, highlighting the need for streamlined processes and role specialization to improve accuracy and efficiency.
SADACO currently does not possess its own fleet of forklifts, trailer trucks, or van trucks for loading, unloading, and transporting containers at the warehouse Instead, the company relies on external transportation providers to move containers from the warehouse or port, which increases operational costs This dependence on external logistics limits SADACO's flexibility and responsiveness in delivery timelines, affecting overall efficiency.
1 SADACO has operated mainly in export business for a long time and got a good reputation in customer’s eyes
2 Export operation in general and entrusted export operation in particular play an important role in revenue of SADACO
3 There are nine steps in the process of entrusted export operation at SADACO They are: negotiate and sign entrusted export contract, sign export contract, prepare commodities for export, book ship space with shipping line, do customs procedure, receive commodities from trustor, deliver commodities to carrier at port, make full set of document for payment, and adjust claims and liquidate contracts This process is different from the process mentioned in chapter one, which adapts with reality of SADACO.