Solutions To Improve Efficiency Of Import Operation Of Thanh Loi Company Limited.docx

ACKNOWLEDGEMENT NATIONAL ECONOMICS UNIVERSITY FACULTY OF FOREIGN LANGUAGES ENGLISH FOR BUSINESS DEPARTMENT o0o NGUYEN PHUONG THANH SOLUTIONS TO IMPROVE EFFICIENCY OF IMPORT OPERATION OF THANH LOI COMP[.]

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-NGUYEN PHUONG THANH

SOLUTIONS TO IMPROVE EFFICIENCY OF IMPORT OPERATION OF THANH LOI COMPANY LIMITED

HANOI, MAY 2011

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-NGUYEN PHUONG THANH

SOLUTIONS TO IMPROVE EFFICIENCY OF IMPORT OPERATION OF THANH LOI COMPANY LIMITED

Supervisor: Pham Thi Quynh Hoa, M.A

HANOI, MAY 2011

This report would not have been possible without the guidance and the help

of several individuals who in one way or another contributed and extended theirvaluable assistance in the preparation and completion of this report

First and foremost, I am heartily thankful to my supervisor, Pham Thi QuynhHoa, for the continuous support of my research, for her patience, motivation,enthusiasm, and immense knowledge Her guidance helped me in all the time ofresearch and writing of this report

I wish to express my warm and sincere thanks to all lecturers of BusinessEnglish Department for their encouragement and insightful comments

I would like to show my gratitude to Mrs Tran Thi Thuy Nga - ManagingDirector of Thanh Loi Co Ldt and Mr Pham Dinh Khanh - Sale Manager who gave

me opportunity to work in the Import-Export Division and gave me untiring helpduring my difficult moments My thanks also go to Thanh Loi staff for their greatsupport

Last but not the least, I owe my deepest gratefulness to my family and myfriends who always encourage and inspire me All of my progress belong to them

TABLE OF CONTENTS

EXECUTIVE SUMMARY

INTRODUCTION

CHAPTER 1: INTRODUCTION OF THANH LOI CO.LTD AND ITS

IMPORT BUSINESS 1

1.1 Introduction of Thanh Loi Co.,LTD 1

1.1.1 The establishment and development 1

1.1.2 The organizational structure 2

1.2 Introduction of Thanh Loi’s import business 3

1.2.1 Thanh Loi is an agency of Icom Inc 3

1.2.2 Business area 4

1.2.3 Typical foreign suppliers and customers of the company 4

CHAPTER 2: THEORETICAL FRAMEWORK 6

2.1 Import basic theory 6

2.1.1 Definition of import 6

2.1.2 Features of import 6

2.1.3 Roles of import 7

2.1.4 Types of import 7

2.1.4.1 Commission import 7

2.1.4.2 Temporary import for re-export 8

2.1.4.3 Direct import 8

2.1.5 Import procedures 9

2.1.6 The Incoterms (International Commercial Terms) 10

2.2 Factors affect businesses’ import efficiency 12

2.2.1 External factors 13

2.2.1.1 Political environment 13

2.2.1.2 Exchange rate 13

2.2.1.3 Tariff 13

2.2.1.4 Transportation and communication system 13

2.2.2 Internal factors 14

2.2.2.1 Human Resource 14

2.2.2.2 Capital 14

2.2.2.3 Organizational structure 14

2.3 Import business efficiency and criteria of evaluation 15

2.3.1 Import business efficiency 15

2.3.2 Criteria of evaluation 15

CHAPTER 3: ANALYSIS AND FINDINGS 17

3.1 Analysis of performance outcome 17

3.1.1 General view 17

3.1.2 Revenue 18

3.1.3 Profit ratio 18

3.1.4 Return on equity (ROE) and Return on assets (ROA) 19

3.1.5 Total Turnover (TAT) 20

3.1.6 Value of Icom’s import equipment 21

3.2 Analysis of factors affect Thanh Loi’s import efficiency 21

3.2.1 Political environment 21

3.2.2 Exchange rate 22

3.2.3 Human Resource 22

3.2.4 Capital 22

3.3 Drawback 23

3.4 Causes of the drawback 24

CHAPTER 4: RECOMMENDATIONS TO IMPROVE IMPORT OPERATION EFFICIENCY OF THANH LOI CO., LTD 25

4.1 Recommendations for the company 25

4.1.1 Improving efficiency of raising and utilizing capital 25

4.1.2 Perfecting import operation 26

4.1.3 Establishing a marketing department and boosting marketing activities26 4.1.4 Training import-export executives 27

4.1.5 Practicing employee motivation 28

4.2 Solutions for the government 28 CONCLUSION

REFERENCES

LIST OF TABLE AND CHARTS

Table 1: Profit ratio of Thanh Loi Co Ldt in 2007-2009 19

Table 2: Return on Equity (ROE) and Return on Assets (ROA) 20

Table 3: Total Assets Turnover 21

Table 4: Value of Icom’s imported equipments in 2007 – 2009 22

Chart 1: Thanh Loi Co., Ltd organizational structure 2

Chart 2: Import procedures 9

Chart 3: The value of trade in 2007 – 2009 18

Chart 4: Evolution of exchange rate between Vietnam Dong and USD 22

from 2007 to 2009 22

of return from equity and return from assets That’s the reason why the author chose

“Solutions to improve efficiency of import operation of Thanh Loi CompanyLimited” as the subject of this report

The purpose of this report is to give a detail analysis of factors affect importoperation efficiency and import performance outcome of the company in 3 yearsfrom 2007 to 2009 Through the analysis, the author will draw out the achievements

as well as weaknesses in import operation of the company Based on result of theanalysis, the author suggests some solutions to enhance efficiency of importbusiness of Thanh Loi

Apart from the introduction and conclusion, the report is divided into fourchapters Chapter one is an introduction of Thanh Loi Co Ltd which includes theestablishment and development, the organization, business area and factors thataffect the company’s import efficiency The second chapter is theoreticalbackground, which mentions basic theory about import (definition, features, rolesand types of import), criteria to evaluate import efficiency Chapter three deals withanalysis of Thanh Loi’s import efficiency The last chapter presents some solutions

to improve import efficiency of the company

1 Introduction of the research topic and rationales

In the age of global economic integration, Vietnam economy was more closelyinterwined with the global economy than it had ever been Among foreign tradeoperations, import operation is of paramount important It supplies raw materials, aswell as consumables which can’t be produced by domestic manufactures

Founded in 1993, Thanh Loi Company Limited focuses on developingapproaches and solutions in the field of high technology electronics,telecommunications and information technology One of its activities is importingradio communication equipment, monitoring equipment and data analysis for thevarious purposes of national defense and security, etc After 17 years of operation,Thanh Loi Co.ltd gained many achievements but it faced so many difficulties aswell That’s why the author choses “Solutions to improve efficiency of importoperation of Thanh Loi Company Limited” as the subject of my report

2 Purpose and scope of the research

This report mainly aims at:

 Analyzing import operation efficiency of Thanh Loi Co Ltd from

2007 to 2009

 Analyzing factors affect import operation of the company

 Suggesting some solutions to improve import efficiency of thecompany

This report studies import operation of the company in the row of 3 years from

2007 to 2009

3 Research questions

 How does the import business operate during period of 2007-2009?

 What are the causes of drawback?

 What are the best solutions to improve Thanh Loi’s import efficiency?

4 Sources and methods of the research

Data for this report came from books about International Trade, Import-exportbusiness, current articles, journals online resources and documments of thecompany such as financial reports, quotation,etc

The study is primary based on analysis of figures which reflect the company’simport efficiency Through results of the analysis, the author point out achievementsand shortcomings in import operation of the company From that, some criticalsolotions are recommended to enhance the import operation efficiency of Thanh Loi

Co Ltd

CHAPTER 1: INTRODUCTION OF THANH LOI CO.LTD

AND ITS IMPORT BUSINESS

1.1 Introduction of Thanh Loi Co.,LTD

1.1.1 The establishment and development

 Trading name: Thanh Loi Company Limited

 Head office: C5/25 Lang Ha Street, Ba Dinh District, Hanoi

 Tel: +84 4 3856 2387

 Fax: +84 4 3856 1356

Founded in 1993, Thanh Loi Company Limited focuses on developingapproaches and solutions in the field of high technology electronics,telecommunications and information technology

With over 15 years experience, it not only provides customers with a singledevice but also consults and implements the overall integrated solution ortechnology transfer

Thanh Loi Co.ltd is a trading company that specializes in providing totalengineering solutions, system design consultancy, equipment supply, after saleservices and technical services in the areas enclosed information technology

At the early stage, the company had the start-up capital of 210 million VNDand the labour force of only 5 people Up to present, the capital of the companyreached 20 billion VND and the total workforce is 23 people 90% of Thanh Loiemployees have graduated university with the majors of Economic, Technology,and International Trading

In June 2006, the company established its branch in Ho Chi Minh City.Address: 27/6C Hau Giang, Tan Binh, Ho Chi Minh City

1.1.2 The organizational structure

As a small-scale enterprise, Thanh Loi’s management structure includes adirector, a deputy director of finance and administration and a deputy director oftechnique The director is the head of the company and is responsible for controllingall company’s activities The two vice-directors assist the director in running thecompany They are responsible to the director for the functioning of theirdepartment

Chart 1: Thanh Loi Co., Ltd organizational structure

The Director is legally responsible for the whole company as well as managesevery activities of the company In particular, the director’s missions are:

 Laying down the objectives and broad policies of the company

 Preparing strategic plans and policies for the company

 Controlling and cooperating the activities of all the department

The Deputy Director of Finance and Administration is in charge of allfinancial and fiscal management aspects of company operations Key duties ofDeputy Director of Finance includes staff management, cash and risk management,accounting and financial controls and budgeting

 Accounting Department: Tracks the assets, liabilities, revenue and expenses

of the company It provides not only current operating information formanagement but also track the historical transactions of the entity It alsoshows which products or assets of the company are most profitable and thosewhich are weak

 Administration Division: Records and manages number of staff, deals withpaper works, purchases and allocates stationery

 Import-export Division: sets up import plan, implements import procedures.The Deputy Director of Technique is in charge of the issues related totechnology He controls the following divisions:

 Telecommunication Division: In charge of selling equipments and providingafter sale services.

 Research and Development Division: Conducts promoting activities

 Ho Chi Minh City Branch: Operates under the control of the director

1.2 Introduction of Thanh Loi’s import business

1.2.1 Thanh Loi is an agency of Icom Inc.

Icom Inc is a company located in Osaka, Japan, and is a manufacturer ofwireless communication products Since Icom’s establishment in 1954, it has had along record as a trusted manufacturer of land mobile radio, amateur radio, marineradio, navigation products, aviation radio and communication receivers

Icom products are sold in over 80 countries in the world Icom has aninternational sales and service network around the world, including salessubsidiaries in the US, Australia, Germany, China and Vietnam

Thanh Loi has been one of the agencies of Icom Inc since its foundation in

1993 Value of Icom’s products makes up a large proportion of the total importvalue of Thanh Loi In order to enhance business operation, Icom provide ThanhLoi with technician training courses Besides, Thanh Loi conducts promotionactivities using the logo and trademark of Icom

1.2.2 Business area

According to the business license, the company operates in two fields: (1)Trading electronics and telecommunication devices; (2) providing technical service.Specifically:

 Providing solutions, systems of radio communication equipment for civil andprofessional (in-band H / V / UHF, Microwave ,etc.)

 Monitoring equipment and data analysis for the various purposes for nationaldefense and security

 Recording systems, digital video recording for professional use

 Systems, equipment and global positioning GPS DGPS for navigation in theair, at sea, cartography

 The navigation equipment used for scalar and Air Force aviation

 The equipment used for various satellite stations

 Equipment and electronic warfare support electronic warfare (radiomonitoring, navigation, positioning, insert jamming , )

 The measurement equipment Radio: R & S, Agilent, Tektronics

 The solution of the network and security controls to ensure the safety ofneighboring networks

1.2.3 Typical foreign suppliers and customers of the company

a Typical foreign suppliers

Thanh Loi serves as agent of, and has strong business relationship with, manymanufactures and companies around the world, including: ICOM Inc (Japan), ETI(Denmark), SAAB GROUP, SAAB Systems Grintek, Grintek Ewation (Pty) Ltd.,DataVoice, Reutech Defense Industries (PTY) Ltd in South Africa.

b Typical customers

 Military organizations: Communication High Command, Navy HighCommand, Air Force – Air Defense High Command, Armored – Tank HighCommand, Border Guard High Command

 Police Organizations: Professional Technical Department No 1 and 2,General Department No 4

 Airline organizations: Northern Aviation Group, Civilian AirlineControl Center, Noi Bai Commercial Enterprise, Southern Airline ServiceCompany

 Other state owned and private enterprises

Above is a complete introduction of Thanh Loi Co., Ltd It includes informationabout the foundation, the organizational structure, business area, suppliers andcustomers of the company

CHAPTER 2: THEORETICAL FRAMEWORK

2.1 Import basic theory

2.1.1 Definition of import

The term “import” is derived from the conceptual meaning as to bring in thegoods and services into the port of a country The buyer of such goods and services isreferred to an “importer” who is based in the country of import whereas the overseas

based seller is referred to as an “exporter” (Joshi, Rakesh Mohan, (2009) International

Business, Oxford University Press, New Delhi and New York, pp 178).

“Imports” consist of transactions in goods and services (sales, barter, gifts orgrants) from non-residents to residents (Lequiller, F; Blades, D UnderstandingNational Account, Paris: OECD 2006, pp.139-143) The exact definition of imports

in national accounts includes and excludes specific “borderline” cases A generaldelimitation of imports in national accounts is given below:

An import of good occurs when there is a change of ownership from a resident to a resident; this does not necessarily imply that the goods in questionphysically crosses the frontier However, in specific cases national accounts imputechanges of ownership even though in legal terms no change of ownership takesplace (e.g cross border financial leasing, cross border deliveries between affiliates

non-of the same enterprise, goods crossing the border for significant processing to order

or repair) Also smuggled goods must be included in the import measurement

Imports of services consist of all services rendered by non-resident to resident

In national accounts any direct purchases by residents outside the economic territory

of a country are recorded as imports of services; therefore all expenditure by tourists

in the economic territory of another country are considered as part of the imports ofservices Also international flows of illegal services must be included

2.1.2 Features of import

Import is a complex process, it has the following features:

 Import operation is controlled by many kinds of law such asInternational agreement on foreign trade, International trade customs,and national law

 Trading methods on international market are diversified: ordinarytransaction, mediated transaction or transaction at fairs

 Currency used in transaction: strong currencies (USD, Euro)

2.1.3 Roles of import

Import is one of the two elements of foreign trade It can be taken as thepurchase of goods and services from abroad to meet domestic needs or to reproducefor profit Import reflects mutual interdependence between one country’s economy

and the world economy Since nations prefer dialogue than confrontation, thenational economy integrate with the world economy, roles of import becomeextremely important.

 Import augments national consumption level, allows bigger consumption

 Import diversifies product in terms of class, specifications to meet thepeople’s need

 Import pushes up technique transportation which helps save time andmoney, as well as leads to development of national production

 Import creates competition between domestic goods and foreign goodswhich forces domestic producers to make innovation

 Import supplies consumers with special goods (scarce or high technologyproduct)

In this mode of import, entrusted company must not do market research or payany financial contribution The consignee must draw up two contracts One to buygoods from foreign manufactures, another is the written agreement between theconsigner and the consignee

2.1.4.2 Temporary import for re-export

Temporary import for re-export means a company import goods not fordomestic consumption but for export to the third country for profit Theimported goods are not treated or processed in the re-export country Therefore,

there are three countries participate in this import procedure: the import country,the re-export country and the export country.

2.1.4.3 Direct import

A company applies direct import mode when it directly perform everysteps of import procedure (finding partners, negotiating, writing contracts,completing customs procedures) This type of import may contain more risks but

it also provides greater benefit than other types

In a direct-import program, the retailer bypasses the local supplier(colloquial middle-man) and buys the final product directly from themanufacture, possibly saving in added costs This type of business is follows thetrends of the global economy

2.1.5 Import procedures

Chart 2: Import procedures

(Source: Airlinklebanon.com/Internaional Trade)

Import procedures include 11 steps as follow:

Step 1: Seller and Buyer conclude a sales contract, with method of paymentusually by letter of credit (documentary credit)

Step 2: Buyer applies to his issuing bank, usually in buyer’s country, for letter

of credit in favor of Seller (beneficiary)

Step 3: Issuing bank requests another bank, usually a correspondent bank inSeller’s country, to advise, and usually, to confirm, the credit

Step 4: Advising bank, usually in Seller’s country, forwards letter of credit toSeller informing about the terms and conditions of credit

Step 5: If credit terms and conditions conform to sales contract, Sellerprepares goods and documentation, and arranges delivery of goods to carrier

Step 6: Seller presents documents evidencing the shipment and draft (bill ofexchange) to paying, accepting or negotiating bank name in the credit (the advisingbank usually), or any bank willing to negotiate under the terms of credit

Step 7: Bank examines the documents and draft for compliance with creditterms If complied with, bank will pay, accept or negotiate.

Step 8: Bank, if other than the issuing bank, sends the documents and draft tothe issuing bank

Step 9: Bank examines the documents and draft for compliance with creditterms If complied with, Seller’s draft is honored

Step 10: Documents release to buyer after payment, or on other terms agreedbetween the bank and Buyer

Step 11: Buyer surrenders bill of lading to carrier (in case of ocean freight) inexchange for the goods or the delivery order

2.1.6 The Incoterms (International Commercial Terms)

Incoterms or International Commercial terms are a series of international saleswith terms, published by International Chamber of Commerce and widely used ininternational commercial transactions These are accepted by governments, legalauthorities and practitioners worldwide for the interpretation of most commonlyused terms international trade This reduces or removes altogether uncertaintiesarising from different interpretation of such terms in different countries Scope ofthis is limited to matters relating to rights and obligations of the parties to thecontract of sale with respect to the delivery of good sold They are used to dividetransaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices

The Incoterms were first published in 1936 and have been regularly up datedfollowing the changes in international trade needs, till their latest version in 2010.The international trade terms are grouped in four categories: E, F, C and D, eachone indicated by the first letter of the acronym Bellow is a list of the most commonused Incoterms

EX-WORKS (From factory to warehouse): The term EXW is commonly used

between the manufacturer/ seller and export-trader/ buyer, and is considered to bethe minimum obligation of the seller among all other Incoterms Under EXW, the

seller is not even responsible for the cost of loading the goods on the vehicleprovided by the buyer, unless otherwise agreed in advance Therefore, the buyer has

to bear the full cost and the potential risks involved in bringing the goods from theEXW location to the ultimate destination

FCA (Free Carrier): In Free Carrier, the seller/ exporter/ manufacturer clears

the goods for export and then delivers them to the carrier specified by the buyer atthe “named place” If the named place is the seller’s factory, the seller will be incharge of loading the goods onto the transport vehicle If the named place is anyother location, the seller will not be responsible for the transportation of goods Acarrier can be a shipping line, an airline, a trucking firm, a railway or sometimes afreight forwarder

FAS (Free Alongside Ship): Under this term, the seller clears the goods for

export then places them alongside the vessel at the “named port of shipment” Thebuyer will be responsible for the loading fee, the main carriage, the cargo insuranceand other costs implicated Letters of credit can also be used in the payment terms

of FAS transactions

FOB (Free On Board): In Free On Board, the seller clears the goods for

export, takes charge of the costs and risks involved and delivers the goods on boardthe vessel This term is used only for ocean or inland waterway transport Once thecargo has crossed the “ship’s rail”, the buyer bears all costs and risks The maindifference between FAS and FOB is that under FAS term, the buyer is required toclear the goods for export and pay the cost of loading them

CFR (Cost and Freight): Under CFR, the seller clears the goods for export and

is responsible for delivering the goods past the ship’s rail at the port of shipment

He also takes charge of the costs associated with transport of the cargo to the namedport of discharge However, once the goods pass the ship’s rail at the port ofshipment, the buyer assumes responsibility for risk of loss or damage, as well as anyadditional transport costs

CIF (Cost, Insurance and Freight): CIF and CFR are similar with one

difference: the seller is also responsible for procuring and paying marine insurance