Methodology and framework of the study

This study will begin with a review of literature which concerns the strategic management process, particularly the process of strategy formulation

Chapter 1 Introduction

If we could first know where we are and whither we are tending, we could better judge what to do and how to do it.

Abraham Lincoln

The purpose of this chapter is to introduce the major problem of this study, formulating adevelopment strategy for Binh Minh Plastic Company in the long-term Research objectives,scope and limitations, methodology and framework, as well as organization of the study arealso presented accordingly

1.1 Background

Thanks to the “open door” economic policy, as other industries, the Vietnam Plastic Industryhas developed quickly in recent years Never before have household plastic products been soabundant and cheap This situation benefits the consumers but reduces the profit ofproducers Because of strong competition, profits drawn from plastic production haveplummeted from 5-7% of sales to 1-2% presently If this competition of prices keeps up, thecustomer may in turn be adversely affected if poor-quality and low-grade products are put onthe market Besides, there are signals of surplus of many plastic items: PP bags, foamedplastic containers and PET bottles, resulting in a wasted investment capital A few productshave large capital investment which has led to the overabundant production capacity in theshort-run Other products lines have not been affected The general conclusion of the PlasticIndustry’ s managers concerning this situation is that it is the logic consequence of thedevelopment of the open market resulting from lack of the management at the macro level.What needs to be done to correct and improve this situation? Clearly, the Vietnam PlasticIndustry needs a development strategy in the long-run This problem will be illustrated moreclearly through the case of Binh Minh Plastic Company

Although considered as one of the successful companies in the plastic industry, Binh MinhPlastic Company has also faced with various difficulties, particularly the lack of the vision for

a strategy in the long-term

1 To identify strengths and weaknesses as well as opportunities and threats that the BinhMinh Plastic Company has been faced with.

2 To assess the current strategic situation of the company in order to develop itscompetitive profile

3 To establish a strategy to develop the Binh Minh Plastic Company in the long term

1.4 Scope and limitations of the study

This study is about the Binh Minh Plastic Company, specifically about PVC pipes, the mainproduct of the company It focuses on the formulation the development strategy for thecompany in the long-term

The depth of this study depends partly on the availability of the key data of the Vietnameseeconomy and the Plastic Industry in general, especially of Binh Minh It also depends oncooperation from the company and faces resources constraints

1.5 Methodology and framework of the study

This study will begin with a review of literature which concerns the strategic managementprocess, particularly the process of strategy formulation It also mentions to the concepts andprinciples of the Porter Model to analyze the competitive environment of the industry

Necessary data for this study were collected from 2 main sources:

 Primary data: Interviews in-depth with managers, key persons of the Vietnam PlasticAssociation (VINAPLAST), Binh Minh Plastic Company as well as other specific plasticcompanies Annual reports and other relevant data were also collected

 Secondary data: Relevant data about the plastic industry and the Vietnam economy will

be collected from the National Statistics Office, Ho Chi Minh City Statistics Office, Ministry

of Industry, Ho Chi Minh City Department of Industry as well as from newspapers, media,etc

The framework of this study can be illustrated by Figure 1.1

2

GENERATION, EVALUATION, AND SELECTION OF THE BEST STRATEGY

CONCLUSIONS AND RECOMMENDATIONS

PROBLEM

STRATEGY FORMULATION PROCESS PORTER’ S INDUSTRY ANALYSIS MODEL

S I T U A T I O N A N A L Y S I SScan external

environment

Evaluate currentperformance results

Scan internalenvironment

Opportunities

Threats

StrengthsWeaknesses

Figure 1.1 Framework of the study

Analyze thecompetitiveenvironment

L I T E R A T U R E R E V I E W

1.6 Organization of the study

The study is organized as follows:

Chapter 1 provides an introduction including the rationale of the study, the identification of

the problem, the objectives, the scope and limitations as well as the methodology andframework of the study

Chapter 2 shows the literature review of the topic being considered This will encompass the

fundamental ideas on strategy, strategic management, strategy formulation process as well

as the Porter Model for analyzing industry

Chapter 3 provides an analysis of external factors that help to indicate the company’s

strategic position The main contents of the chapter will deal with the current situation andstrategic orientation for the Vietnam Plastic Industry in the future It also mentions about thestructural analysis of the pipe industry, the main area of competition of Binh Minh PlasticCompany

Chapter 4 deals with the current analysis of the Binh Minh Plastic Company in terms of

organizational structure, production, sales, marketing and finance The ultimate goal of thechapter is to identify strengths and weaknesses of the company in order to locate its presentcompetitive position

Chapter 5 is devoted to the expected outcome of the study to develop the strategic

alternatives based on the analysis from previous parts, that will help the company achieveoutstanding performance in the next few years

Finally, Chapter 6 deals with practical recommendations on the implementation of the

selected strategy

Chapter 2 Literature Review

Strategy is when you are out of ammunition, but you keep right on firing

so that the enemy won’t know.

Author Unknown.

The chapter mentions major theoretical bases to apply for analyzing practical situation of BinhMinh Plastic Company and then formulating the development strategy for it in the followingchapters The section consists of the strategy management process, structural analysis of thecompetitive environment and selection of development strategies

2.1 Strategic Management Process

Strategic management is a fast-developing field of study It looks at the corporation as awhole and attempts to explain why some firms develop and thrive while others stagnate and

go bankrupt Strategic management typically focuses on analyzing the problems andopportunities faced by people in top management Before mentioning in detail about theprocess of strategic management, specially the strategy formulation stage, firstly, we try toanswer the question: “What is strategy ?”

2.1.1 Definition of strategy

Starting from its military root, strategy, ever considered as “the science of planning anddirecting military operations”, is not a new term However, applications of this concept intobusiness area is a breakthrough idea took place in the later half of this century In thedecades of 1960s and 1970s, most management definitions of strategy by many authors wasemphasized on the planning theme as an important component Alfred Chandler has definedstrategy as “the determination of the basic long-term goals and objectives of a enterprise, andthe adoption of course of action and the allocation of resources necessary for carrying outthese goals” The main idea in Chandler’s definition is that strategy involves a rationalplanning process The organization is depicted as choosing its goals, identifying courses ofaction (or strategy) that best enable it to achieve its goals, and allocating resourcesaccordingly Similarly, Quinn defined strategy as “the pattern or plan that integrates anorganization’s major goals, policies and action sequences into a cohesive whole” Finally,Glueck defined strategy as “a unified, comprehensive, and integrated plan designed to

ensure that the basic objectives of the enterprise are achieved.” (Hill / Jones, 1989)

However, definitions of strategy based on planning have been criticised Hill and Jonesindicated a new approach based on Henry Mintzberg’s definition of strategy as “a pattern in a

stream of decisions or actions” (Hill / Jones, 1989), the pattern being a product of whatever

intended (planned) strategies are actually realized and of any emergent (unplanned)strategies Mintzberg’s concept of strategy suggests that strategy involves more than justplanning a course of action

In the decades of 1980s and 1990s, “strategy” becomes more and more essencial inbusiness domain Thereby, the concept of strategy has received a great attention by variousauthors.

By 1991, Hax and Majluf pointed out that strategy can be seen as a multidimensional conceptthat involves all of the critical activities of the firm, providing it with a sense of unity, direction,

and purpose, as well as facilitating the necessary change caused by its environment (Glueck / Janch, 1986)

In 1993, Johnson and Schole have stated the nature of corporate strategy by thecharacteristics usually associated with the word “strategy” or “strategy decision”

In summary, according to them, strategy is a unified, comprehensive, and integrated plan thatrelates the strategic advantages of the firm to the challenges of the environment and that isdesigned to ensure that the basic objectives of the enterprise are achieved through proper

execution by the organization (Glueck / Janch, 1986)

The concept of strategy has become one of the everyday words of managers during the pasttwenty years, and the practice of strategic planning is now widespread among large andmedium-sized companies This interest in strategy was caused by growing realization that thecompany’s environment has become progressively changeable and discontinuous from thepast and that, as a result, objectives alone are insufficient as decisions rules for guiding thecompany’s strategic reorientation as it adapts to changing challenges, threats andopportunities

Applying corporate strategy concept to Vietnamese business conditions now is extremelyimportant in order to enhance the building up of a strategic vision for the managers who areoperating all the domestic companies, especially for manager of state companies Businessenvironment in Vietnam now is likely different from that of the previous planned-economywhere all of the resources and the output were set up by central government and where thepredetermined yearly plan was merely a subjective compulsory without any environmentconsiderations Actually, the managers today are faced with the uncertainty and the fastchange of the business environment as well as with the competitive forces surrounding theircompanies

2.1.2 Process of strategic management

Strategic management is a stream of decisions and actions which leads to the development

of an effective strategy or strategies to help achieve corporate objectives The strategicmanagement process is the way in which strategists determine objectives and make strategicdecisions

However, strategic management is not simply the management of the process of strategicdecision making According to Chakrvarthy (1986), strategic management is the processthrough which managers ensure the long-term adaptation of their firm to its environment Itshould be also emphasized that strategic management process is continuous - it never reallystops within the organization Certo and Peter (1990) defined strategic management as “acontinuous, integrative process aimed at keeping an organization as a whole appropriatelymatched to its environment”

The process of strategic management involves 3 basic stages: (1) strategy formulation, (2)strategy implementation, and (3) evaluation and control Different stages of the strategicmanagement process at business level are visualized by the Strategic Management Model inFigure 2.1.

Task

Environment

Societal

Environment

Figure 2.1 Strategic Management Model

Based on the context of this study, the focus will be on the strategy formulation process Strategy formulation is often referred to as strategic planning or long-range planning.

Regardless of the term used, the process is primarily analytical, not action-oriented Asshown in the Strategic Management Model, the formulation process is concerned withdeveloping a corporation’s mission, objectives, strategy, and policies In order to do this,corporate strategy makers must scan both the external and internal environments for neededinformation on strategic factors

The first six steps commonly found in strategy formulation are a series of interrelatedactivities:

1 Evaluation of

a the corporation’s current performance results in terms of return oninvestment, profitability, etc., and

b the corporation’s current mission, objectives, strategies, and policies

2 Examination and evaluation of the corporation’s strategic managers - board of directorsand top management

3 Scanning of the external environment to locate strategic opportunities and threats

Evaluation

& Control

Performance Mission

4 Scanning of the internal corporate environment to determine strategic strengths andweaknesses.

5 Analysis of the strategic factors from step 3 and 4 to

a pinpoint problem areas, and

b review and revise the corporate mission and objectives as necessary

6 Generation, evaluation, and selection of the best alternative strategy appropriate to theanalysis conducted in step 5

(Source: Wheelen / Hunger, 1988)

The above strategy formulation process can be divided into 2 substages, as illustrated inFigure 2.2:

 The first substage is the situation analysis Beginning with an evaluation of currentperformance and ending with the review and possible revision of mission and objectives,this substage includes step 1 through 5

 The second substage is the process of generation, evaluation, and selection of the bestalternative strategy This substage is step 6

In order to construct an appropriate competitive strategy, a “picture” of the competitiveenvironment is always a useful basic In other words, there is clearly a need for competitiveenvironment analysis, an industry structure analysis

2.2 Structural analysis of the competitive environment

Competitive environment analysis or Industry analysis is an important skill related to theenvironmental scanning step in the strategic management process Periodically, managersneed to develop a formal comprehensive analysis - a strategic industry analysis The analysisincludes an overview of strategic forces affecting a target industry, an analysis of variouscompanies in the industry, forecasts and recommendations

A formal strategic industry analysis is useful in management and planning positions It helpsmanagers understand their company’ s current strategic position Specifically, it should definethe scope and direction of competitor actions so that the company could focus and target Itshould pinpoint and analyze the general threats and opportunities facing all the companies in

an industry This can provide an advantage for managers to respond appropriately, to catchtimely the available opportunities while minimizing or avoiding the threats facing firms in theindustry The strategic industry analysis aids managers in deciding whether to enter or leave

a particular industry Finally, it aids managers in understanding the strategies and behavior ofspecific competitors

A useful guide for strategic industry analysis is provided by Porter He created a model,calling it the five forces model of competition, as a strategic management technique forestablished profit-seeking companies, as shown in Figure 2.3 This is essentially a structuralmethod of examining an organization or industry in order to provide a clear understanding ofthe factors that affect a business Porter argues that “competition in an industry is rooted in itsunderlying economics, and competitive forces exist that go well beyond the established

combatants in a particular industry” (Porter, 1980) He further suggests that to compete

effectively a company should strive to find a position where it is best able to defend itself

against these competitive forces or can influence them in its favour So, the task of thestrategist is to determine which of these forces are of greatest importance to the organizationand which can be influenced by the strategic decisions of management Each of these forces

is now considered in greater detail

1 The Threat of Entry

New entrants to an industry tend to make it more competitive The additional competitivenessmay be due to a number of factors including: the additional capacity which they bring withthem, their attempts to build market share, or increased costs due to the building up of thecosts of the factors of production

However, the effects of new entrants materialize, it is frequently in the interests of existingcompetitors to deter potential new entrants by making their prospects look as unattractive aspossible This can be done in two major ways - through the erection of barriers to entry and orthrough the threat of severe retaliation

Clearly, it is in the interests of existing firms to have as high entry barriers as possible Porter

(McNamee, 1987) lists major barriers to entry which are:

 Economies of scale

 Product differentiation

 Capital requirements

 Switching costs

 Access to distribution channel

 Cost disadvantages independent of scale, for example: proprietary knowledge, etc

 Government policy

Figure 2.3 A model for Industry Structural Analysis

By way of contrast, an “industry” that has grown rapidly in the early 1980s and which facescontinuous threats from new entrants, because of the extremely low entry barriers, is retaildomestic video rental libraries In this industry, many small independent entrepreneurs withlimited resources have opened such business They have been able to do so because of thelow entry barriers: low capital requirements, low switching costs, immediate distribution and

no major economies of scale being possible

(Source: Johnson / Scholes, 1993)

COMPETITIVE RIVALRY

Threat of Substitutes

POTENTIAL ENTRANTS

Threat of Entrants

In the Vietnam plastic industry, the majority of plastic companies is small-scale productionwith low level of product differentiation At present, the Vietnam plastic industry is stillcharacterized with low technology and obsolete equipment and the majority of plasticproducts produced in Vietnam is household plastic wares So, entering the field of producingplastic products does not require so much capital In addition, the Vietnam plastic industry stillhas been let to develop spontaneously, lack of the management at the macro level.Therefore, it is possible to say that, in general, entry barriers for the Vietnam plastic industryare low

2 The Power of Buyers

Buyers can be viewed as a competitive threat when they force down prices or when theydemand higher quality and better service (which increases operating costs) Whether buyersare able to make demands on a company depends on their power relative to that of thecompany According to Porter, buyers are most powerful in the following circumstances:

 Buyers are few in number and large relative to sellers

 Buyers purchase in large quantities

 The supply industry depends on them for a large percentage of its total orders

 Buyers can switch orders between supply companies at a low costs, thereby playing offcompanies against each other to force down prices

 It is economically feasible for them to purchase the input from several companies at once

 Buyers have the potential for backward integration

 The buyers’ product is not strongly affected by the quality of the suppliers’ product

 The buyer has full information

(Source: Hill / Jones, 1989)

As mentioned earlier, the main product of the Vietnam plastic industry is household plasticwares In this field, there are many small producers that compete strongly against each other

As a result, there is a variety of plastic products in the market and the customers have manyoptions in choosing plastic products So, it can be said that the buyers are quite powerful

3 The Power of Suppliers

Powerful suppliers can have the same adverse effects upon profitability as powerful buyers.The big difference is the sources of their power - it is really the opposite of the sources ofbuyer power Thus suppliers tend to be powerful when the following conditions obtain:

 There are few of them

 There are few substitutes

 The industry supplied is not an important customer

 The suppliers’ product is an important component to the buyer’ s business

 The supplier’s product is differentiated

 Suppliers can integrate forward

Presently, Vietnam can not produce raw materials for its plastic industry Thus, the Vietnamplastic industry depends completely on sources of raw materials from abroad Therefore, it isclear that the supplier power is so strong

4 The Threat of Substitutes

Substitutes, or alternative products that can perform the same function, limit the price that anindustry can charge for its products Substitutes are not always perceived by an industry to bepresent, and indeed may only be noticed when it is too late to arrest their dominance Onetypical example, which illustrates the rise of a substitute product, is the current increasingproliferation of low cost microcomputers plus low cost easy to use business packages in suchareas as accounting, data base management and word processing This “product” hasadversely affected the “industry” of specialist programmers and specialist computer bureaux.

It seems likely that this trend will continue

It is possible to say that we are living in the era of plastic products which can be seeneverywhere and used in various fields: construction, decoration, serving other industries, etc.Clearly, with regards to plastic products, the threat of substitutes is very low

5 The Extent of Competitive Rivalry

Competitors will also be concerned with the degree of rivalry between themselves in theirown industry How intense is this competition? What is it based on? Is it likely to increase ordecrease in intensity? How can it be reduced? All these are questions which need to bethought about in the process of strategic analysis The degree of rivalry is likely to be based

on the following:

 The extent to which competitors in the industry are in balance What ever their number,where competitors are of roughly equal size there is a danger of intense competition asone competitor attempts to gain dominance over another Conversely, the most stablemarkets tend to be those with dominant organizations within them

 A market in slow growth - particularly one which is entering its maturity stage and wherecompetitors are keen to establish themselves as market leaders - is likely o be highcompetitive

 High fixed costs in an industry, perhaps through high capital intensity or high costs ofstorage, are likely to result in competitors cutting prices to obtain the turnover required.This can result in price wars and very low margin operations

 If the addition of extra capacity is in large increments then the competitor making such anaddition is likely to create at least short term over-capacity and increased competition

 Again the importance of differentiation is clear If a product or service is not differentiatedthen there is little to stop customers switching between competitors, which in turn raisesthe degree of rivalry between them This is sometimes referred to as a “commoditymarket” situation

 Where there are high exit barriers to an industry, there is again likely to be the persistence

of excess capacity and consequently increased competition (Source: McNamee, 1987)

As mentioned, there are a lot of producers in the Vietnam plastic industry at present Productproduced in Vietnam is not differentiated so much, so customers have many choices for acertain plastic product Moreover, the Vietnam plastic industry still develops so spontaneouslyresulting in the oversupply of many products such as household plasticwares, PP bags, PETbottles, etc Consequently, the competition between competitors in the industry, particularly in

the field of producing products that the demand for them has been at the saturation point,becomes more and more aggressive

In summary, the current structure of the Vietnam plastic industry can be depicted throughPorter model as in Figure 2.4

Figure 2.4 The Porter model applied for the Vietnam plastic industry

A reflection on the combined impact of exit and entry barriers on the profitability of an industry

is presented in Table 2.1

COMPETITIVE RIVALRY

Threat of Substitutes

Threat of Entrants

EXIT BARRIERS Low High

High and stable profit

High but possibly unstable profit

Low and stable profit

Low and unstable profit

Table 2.1 The impact of entry and exit barriers over industry profitability

(Hax / Majluf, 1991)

In conclusion, it is in the context of the above five dimensional competitive environment thatstrategic decisions should be made The context for each firm and industry tends to bedifferent and therefore the types of strategic action necessary for success will be shaped bythe overall industry structure Therefore, one of the first steps in strategic analysis should be

an industry structure analysis, with the objective of locating the firm in its competitive

environment Henderson (Ansoff, 1987) made a similar point about the importance of the

competitive environment when he talked about Competitive Mapping He has suggested thatcompanies will only be able to evolve effective strategies after they have plotted their ownand their competitors’ locations on a competitive map Once an individual company has donethis, then its strategy should be to move against the weakest sectors in its competitive map

2.3 Selecting development strategy

As soon as completing the tasks of identification of the most relevant competitors, of selection

of the critical success factors and of developing a competitive profile, companies have toselect a strategy that is most appropriate for their development Options about developmentstrategies involve decisions about three elements that are depicted in Figure 2.5

Figure 2.5 Development strategies

(Source: Johnson / Scholes, 1993)

ENTRY BARRIERS

DEVELOPMENT STRATEGIES

High

ALTERNATIVE METHODS

Internal development Acquisition

Joint development/alliances

Consolidation Market penetration Product development Market development Diversification

What basis?

2.3.1 Generic strategies

According to Porter, the competitive strategies will be designed based on the choice from

three basic competitive approaches: cost leadership, differentiation, and focus (Porter, 1985).

These strategies are shown in Table 2.2

A cost leadership strategy, where “a firm sets out to become the low-cost producer in itsindustry a low-cost producer must find and exploit all sources of cost advantage Low-costproducers typically sell a standard product and place considerable emphasis on reaping scale

or absolute cost advantage from all sources If a firm can achieve and sustain overall costleadership, then it will be an above-average performer in its industry provided it can

command prices at or near the industry average” (Porter, 1985)

A differentiation strategy, which Porter defines as seeking “to be unique in its industry alongsome dimensions that are widely valued by buyers It is rewarded for its uniqueness with apremium price A firm that can achieve and sustain differentiation will be an above-averageperformer in its industry if its price premium exceeds the extra costs incurred in beingunique The logic of the differentiation strategy requires that a firm choose attributes in

which to differentiate itself that are different from its rivals” (Porter, 1985)

Cost leadership Differentiation

Cost focus Differentiation focus

Table 2.2 Generic strategies

(Source: Porter, 1985)

These two generic ways can be combined with the market scope in which the firm try toachieve competitive advantage This leads to the focus strategy, according to Porter, which isbased on “the choice of a narrow competitive scope within an industry The focuser selects asegment or group of segments in the industry and tailors its strategy to serving them to the

exclusion of others.” (Porter, 1985) There are two variants here, “in cost focus a firm seeks a

cost advantage in its target segment, while in differentiation focus a firm seeks differentiation

in its target segment” (Porter, 1985)

Broad target

Narrow target

COMPETITIVE

SCOPE

COMPETITIVE ADVANTAGE

Each of the above generic strategies results from the company’s making consistent choices

on product, market, and distinctive competences - choices that reinforce each other Table2.3 summarizes the choice appropriate for each generic strategy

Low (principally

by price) High (principally

by uniqueness)

Low to High(price oruniqueness)

Low (massmarket)

High (manymarketingsegments)

Low (one or fewsegment)

Manufacturingand materialsmanagement

Research andDevelopmentSales andMarketing

Any kind ofdistinctivecompetence

Table 2.3 Product / Market / Distinctive competence choice and generic

competitive strategy

(Source: Hill / Jones, 1989)

2.3.2 Strategic development directions

Based on sets of “product/market” choice, there are different directions for companies’strategy development These directions are shown in Table 2.4

PRODUCT Present New Withdrawal

Consolidation Market penetration

Chapter 3 External Environment Analysis

Strategic management is trying to understand where you will sit in

tomorrow’s world, not where you hope to sit; assessing where you can be and deciding where you want to be.

John F Welch, JR, Chief Executive

Officer, The General Electric Co

This chapter focus on the issue of identifying opportunities and threats for Binh Minh PlasticCompany (BPC) in the future First, it begins with an analysis about the macro-environment inwhich BPC operates This section concentrates on the purpose of analyzing the currentsituation as well as showing strategic orientations and investment opportunities for theVietnam plastic industry in the coming years It also mentions about the trend of investment ofthe plastic industries in Asian nations Next, the chapter moves on to apply the Porter modelfor examining the pipe industry environment, the main business that BPC is being involved.Finally, the chapter is ended with the findings on opportunities and threats for BPC

3.1 Macro – environment analysis

3.1.1 Overview of Vietnamese economy

Political & legal factors

Political and legal factors have a major effect on the level of opportunities and threats in theenvironment Vietnam is considered as a peaceful and stable politic environment.Implementing the “renovation and open door policy”, Vietnam has expanded andconsolidated its political and economic relations with many countries in the world Along withthis, the lifting up of US embargo in 1994 and the participation of Vietnam in ASEAN in thelast year have improved the restoration and development the economy in Vietnam to be morefavourable This also facilitates the VN’s international trade, encourages foreign and domesticinvestors as well as creates chances and challenges for domestic businesses

To support the economic liberalization and encourage the private sector, the VietnameseGovernment has promulgated a series of economic laws such as Law of Foreign Investment,Company Law, Law of Private Business, etc This has formed a quite favourable environmentfor doing business

With regards to the plastic industry, the investment environment is now more favourable andattractive to both domestic and foreign investors The legal system is now much refined,procedures are simplified, the level of knowledge of the management organizations andofficers in charge of investment are now improved The consolidation of the former SCCI andSPC into one Ministry, which is now the Ministry of Planning and Investment of Vietnam, isaimed at coordinating and processing effectively foreign and domestic investments In

addition, a development strategy for the Vietnam Plastic Industry to the year 2005 has beenapproved by the Ministry of Industry in the middle of 1995

Year by year, the competition in the plastic industry has became fiercer and fiercer However,this has not been the big problem yet The problem now is the control of plastic products’quality Many plastic products with bad, unstandardized quality have been marketed withcheap prices Inability to assess precisely the quality between different brands of a certainproduct, price becomes the main criterion used by customers to evaluate the product, thusthey often prefer brands with cheaper price Usually, that is a poor quality product This isclearly unfair competition resulting in the losses of customers and genuine producers BinhMinh Plastic Company has also been faced with the similar situation occurring in the field ofproducing PVC pipes Therefore, on the legal aspect, one of the problems for the Vietnamplastic industry now is issuing documents for standardizing and controlling the quality ofplastic products As Mr Pham Gia Duoc, Director General of Vietnam Plastic Corporation,said “Standardization of the local plastic production is a major problem that we will have toovercome in order to increase our output and improve our products The Vietnam PlasticManufacturers Association will have to issue rules banning all production of plastic that do not

meet national standard.” (Vietnam Investment Review, 1 August 1994)

Economic growth

The rate of growth in the economy also has a direct impact on the level of opportunities andthreats that companies face The Vietnamese economy has gained remarkable results in thefirst half of the decade 1990 With the annual growth rate of 8.67%, as presented in Figure3.1, GDP has increased from USD 12.8 billion in 1990 to USD 19.4 billion in 1995 Especially,

in 1995 GDP has marked a 9.5% increase from 1994 This is the highest growth rate in theperiod 1990-1995 (see Figure 3.2) which enables Vietnam to be ranked in the group ofcountries that achieved the highest growth rate in the world According to economic experts,the Vietnamese economy still grows highly in years ahead - in 1996, the growth rate of GDP

is predicted from 9.5-10% It is believed that this expected high economic growth rate actuallycreates opportunities for industries to develop, especially for the plastic industry, a “core”industry to provide the impetus for growth of the manufacturing sector as well as of the entireeconomy

shows that although gained high growth rate, actually the Vietnamese economy has not beenstable In an inflationary environment, it may be impossible to predict with any accuracy thereal value of returns that can be earned from business Such uncertainty makes companies

less willing to invest (Hill / Jones, 1989) Thus high inflation is a threat to businesses in

general, to Binh Minh Plastic Company in particular, in their plans of investment

Figure 3.1 GDP during the period 1990-1995

(Source: Vietnamese Statistics Office)

Figure 3.2 GDP growth rate in the period 1990-1995

(Source: Vietnamese Statistics Office)

Interest rate

Interest rates also determine the cost of capital for a company This cost can be a major

factor in deciding whether a given strategy is feasible (Hill / Jones, 1989) In recent years,

interest rates are relatively stable Moreover, in the early of 1996, the Vietnamese CentralBank had just issued the decision of decreasing interest rates The current rates are 1.75%per month for short-term loans, 1.7% per month for long-term loans (the former rate was2.1% and 2.2%) and 9% per year for loans in USD This decreased interest rates aim to bring

a more favourable environment for companies, particularly companies operating in the plasticindustry which often have large loans from banks to afford their businesses that often requiresignificant capital

3.1.2 Current situation and Trend of investment of Plastic Industries in Asian nations

Plastic is still the high growth industry

In 1994, except Philippines and Japan, most of the plastic industries belonging to the AsianPlastic Association achieved high growth rates In Philippines, the decline of the plasticindustry is entirely objective, because of the electricity deficiency up to 10 hours per day InJapan, the recession has begun since 1993 In 1993, the Japan’s plastic output was 5.27million tons, decreasing 1.8% compared with that of 1992; the output of raw materials is12.17 million tons, marking a 3.3% decrease from 1992 The reasons of this recession arethat the demands for plastic materials of the other industries such as car, electronic industry,etc have considerably decreased and the markets for export have been shortened Inaddition, according to the Japan Plastic Association the reason of the continuous decline inthe past two years is likely due to the overinvestment in production in the period before 1993.Vietnam is still the country that its plastic industry achieves the highest growth rate, with theannual growth rate of 27% One VN’s neighbour, Thailand, also has a strong plastic industrywith the annual growth rate up to 15% The increasing demand for plastic has created acrowded investment in plastic production Thailand has about 3,000 plastic enterprises,increasing 2 times compared with the middle of the decade 1980s According to the ThaiPlastic Association, the annual growth rate of the Thai plastic industry will be 15% within thenext 5 years The investment in production is still continuous, with the trend of concentration

to the large capacity enterprises

Malaysia also has a plastic industry that has developed very quickly, the growth rate was20% in 1993 This fast development has been indicated by the fact that the size of theMalaysian plastic industry has been multiplied by 10 times within only 20 years In 1993, theturnover of the plastic industry in Malaysia is USD 800 million and the reinvestment for plastic

is also up to USD 500 million at the same time In 1994, with the total output of 827,000 tons,marking a 15% increase from 1993, the Malaysian plastic industry reached the turnover ofUSD 1.8 billion Malaysia has begun to export plastic since the early of 1980s The exportturnover is about USD 200 million in 1992

It is worth to mention about Singapore, a nation that the population is only about 3 million butits output value in the plastic industry rose to USD 2.63 billion in 1993, increasing 31.5%compared with that of 1991, in which the part devoted to export is up to USD 1.22 billion.Singapore mainly exports raw material for plastic production, accounted for 80% raw materialproduced in this country; while this rate in the finished products is 20%

Raw materials for plastic industry

Among the members of the Asian Plastic Association, up to now only Vietnam still has toimport 100% raw materials for its plastic industry In other countries, the Government hasmuch concerned with the investment for producing raw materials Many projects valued atbillions and billions of USD have been carried out Japan is an exception, it seems that theinvestment to produce raw materials for plastic industry has been halted after a period of wildincreases resulting in the superabundant production capacity

In Malaysia, since 1972 the raw material industry has been installed with 2 enterprises thatproduce about 6,000 tons PVC/year In the late 1980s, the Malaysia Government has carriedout many projects to develop the petrochemistry industry with investment capital up to USD 2billion These projects have been finished or planned to be finished at the end of 1995 Withthis large investment, Malaysia will be able to produce about 1 million tons of raw material peryear, consisting of 320,000 tons ethylene, 200,000 tons PP, 200,000 tons PE, 60,000 tonsPVC, 60,000 PS, 50,000 tons EPS Most of these projects are in the form of joint-ventures.Also in the 1980s, with an investment of over USD 1.3 billion Singapore has established alarge group of petrochemistry enterprises This was a start for projects that will produce rawmaterial for plastic industry later The main raw materials produced in Singapore are LDPE,

PP, HDPE, PVC, PAC, PF, UF At the beginning of 1994, Singapore has established aproject of expanding the group of petrochemistry enterprises valued at nearly USD 2.3 billion

Up to now, this is the largest project of foreign investment in Singapore that consists of known companies: Shell, Philips Petroleum, Singapore Chemicals, Denka Singapore, SerayaChemicals Singapore and other Japanese companies The purpose of this project is toincrease the enterprises that currently produce raw materials in Singapore, leading to thedouble of its production capacity

well-In well-Indonesia, many enterprises are planning to invest largely into production PE, PP, PET The capacity of producing raw materials for plastic industry in Indonesia now is over 1 millionton per year Up to 1995-1996, the raw material output of this country has been planned toincrease 1 million tons more The majority of raw materials to be produced are to satisfy thedemand of the domestic plastic industry

The petrochemistry industry in Thailand is on the way to development The first petrochemicalenterprise of this country began operating in 1989 A second one has also been established.Thailand now produces 10 kinds of main raw material and in case of full capacity the outputwill be over 2 million tons in 1995

In Philippines, up to now although the petrochemistry industry has not been installed yet theGovernment is still pursuing the aim of establishing some large enterprises There has been 4projects to be passed, in which 3 projects are devoted to the production of polyolefin and therest deals with the enlargement of producing PVC

Products for the future

In Vietnam, packages and building materials made by plastic are products that seem to be ingreat demand Similarly, in Thailand the demand for plastic packages and building materialswill be as high as that for PET bottles and plastic spare parts for electrical, electronic and carindustry; this demand is estimated to be increased by 15%/year Even in Japan, where the

plastic industry is in recession, the demand for plastic products such as joints, pipes stillincreases, especially the demand for PET bottles which has increased up to 7.1% in 1993

In Indonesia, the development is concentrated on PET, PP, spare parts for the electrical,telecommunication and electronic industry At the end of 10/1994, an enterprise with thecapacity of 30,000 tons PET/year has been operated In the next few years, the PET output

of Indonesia will raise up to 180,000 tons The Indonesia authorities also much concern aboutthe electrical and telecommunication industry, millions and millions of electrical meters andcommunication devices will be produced each year

In Malaysia, up to now the consumption market still concentrates on packages, accounting for35% of the turnover in 1993 Electrical and electronic devices get the second position,accounted for 25 % Household plasticwares and building materials, each kind accounts for10% In the future, packages still plays the important role, but the demand for plastic products

of the constructions and other industries such as electricity, electronics and car will raisequickly The reasons are:

 The Government has decided to implement many projects on infrastructures, airports,industrial zones and these projects will be accompanied by water facilities systems

 Foreign investment in electrical, electronic and car industry have increased rapidly

In Singapore, at the present as well as in the future, plastic products serving for otherindustries have always been the first requirement They have accounted for nearly 50%.Packages, building materials and household plasticwares have been the next major category

On environmental issues, in Vietnam, most of the scraps of the plastic industry are treated bythe regeneration method This is not the advantage of Vietnam in treating scraps but thereason is quite simple: scraps in Vietnam are still little in quantity In other countries, recyclingscraps is the first concern of the Government and producers In Philippines, the plasticpackage industry has been faced with strong oppositions from environment protectionorganizations In Thailand, Malaysia, Japan there is also the same situation though theopposition are less vigorous Therefore, in addition to the investment to develop the plasticindustry, many Asia countries have done researches to reuse scraps in the most efficient wayinstead of burning them as usual In Vietnam, this issue has not been a concern yet.However, if the Vietnamese plastic industry is not prepared for this problem now, it will faceenvironment challenges in the near future

(Source: Saigon Economic Times, July 1944, p.44,48)

3.1.3 The update of Vietnamese plastic industry

Current situation of Vietnam plastic industry

Up till today, Vietnam plastic industry has not had yet the capability to manufacture plasticmaterials, equipment and machinery, all are mainly imported Thus it is still a plastic productsprocessing industry In order to encourage the fast development of the plastic industry, theGovernment applied a favourable tax incentive for the import of plastic materials, equipmentand machinery

The Vietnamese Plastic Industry came into being half a century ago It quickly developed inthe South, mostly in Saigon and Cholon Many small and large establishments mainlyinstalled with capitalist countries’ equipment, chiefly to produce household appliances such

as basins, baskets, buckets, slippers In 1970s there were some large factories with relativelymodern machines in comparison with the ones in the Southeast Asia The durablefashionable household products of these factories monopolized most of the domestic market

at that time In 1975, the plastic output reached about 50,000 tons with a capita of 0.4 kg.Following was a lasting recession, the plastic industry started to develop again in 1988.However, until the end of 1989, the capacity reached the same level as of 1975 and then itbegan to be a booming sector in line with the highly developed plastic industry in manycountries Since 1990, with the renovation policy, Vietnam plastic industry has developedstrongly with an annual growth of 25% - 30% In 1994, the output reached about 220,000tons, increased 4 times compared with that of 1989, with a per capita of 2.8 kg In 1995,based on the uncompleted statistics, Vietnam plastic industry achieved around 250,000 tons(3.3 kg per capita) The development of the Vietnam plastic industry in the period of 1990-

1995 and the plan for 2000 and 2005 are depicted in Figures 3.3 and 3.4

Although Vietnam’s plastic industry has gained high development, because of its low start,the per capita of 2.8 kg is still not comparable with that of 100-200 kg in developed countriessuch as US, Japan, Germany, or in developing countries like Taiwan - 70 kg, South Korea -

36 kg, Malaysia - 28 kg, Thailand - 16 kg and Indonesia - 8 kg

Not only is the per capita too low but the product structure indicates the low level of Vietnamplastic industry in comparison with other countries The major quantity of plastic products isthe household and consumer products (about 65%), the high technology plastic productsserving for other industries such as electrical, electronic and vehicular industries are notsufficient

Figure 3.3 Total output of the Vietnam plastic industry in the

period 1990-1995 and the plan for 2000 and 2005

(Source: Vietnam Plastic Association)

0 2 4 6 8 10 12 14 16

1990 1991 1992 1993 1994 1995 2000 2005

Year

Figure 3.4 Plastic output per capita of the period 1990-1995

and the plan for 2000 and 2005

Table 3.1 shows the comparison on product structure between Vietnam, Thailand andMalaysia.

(%)

Thailand(%)

Malaysia(%)

Electrical&Electronic Industries not many 9 20

Table 3.1 Plastic product structure in Vietnam, Thailand and Malaysia

These figures reveal that VN’s plastic industry lags far behind even its neighbour such asThailand and Malaysia

At present, the distribution of plastic production in Vietnam is not equally located with 80% in

Ho Chi Minh City, 15% in the northern provinces and 5% in the central region Most of thesemanufacturers are of small and medium size and the number of large manufacturers are veryfew

In summary, the features of VN’ plastic industry can be listed as follows:

1 It is nearly capable of processing consumer goods and not producing plastic materials.

All plastic materials used in Vietnam is imported from Japan, France and Germany, fromnewly industrialized countries such as Taiwan, South Korea, and Singapore as well as fromdeveloping countries like Thailand, China, and Indonesia Due to the present shortage of hardcurrency, the biggest problem facing plastic goods producers is the availability of rawmaterial Any fluctuation in the world’s plastic market has an immediate impact on Vietnam’splastic industry

The import of raw materials means that plastic goods processed by VN cannot be exportedfirst because production cost is high and second because they have to pay twice theshipment and insurance fees, which can run as high as 15% of the value of the exportedgoods

2 Vietnam’s plastic industry is exclusively concentrated in one geographical area.

It can be said that Vietnam’s plastic output is processed almost entirely in Hochiminh City, formost plastic establishment of the central government as well as of private concerns arebased in Hochiminh City This concentration can be explained by several reasons, the mostfundamental of which is the important position of Hochiminh City in the country’s economy.The producer in Hochiminh City has easy access to raw materials, skilled labour andsophisticated moulds as well as new technology from abroad Hochiminh City also has alarge consumer market for its products For these reasons, the concentration of plastic

industry in HCMC has been achieved over the past years despite some disadvantagesincluding being distant from markets in the other parts of the country as well as Cambodiaand Laos.

3 VN’s plastic processing machinery is quite obsolete.

Since the renovation policy and the shift to a market system were implemented, VN’s plasticindustry has made great efforts to develop but is still obsolete by international standards Incomparison with Thailand, the VN’s plastic industry is a decade behind It is still incapable ofproducing plastic material It has only concentrated on processing goods from commonplastics such as PE, PVC and PP with 20-year-old technological processes like extension,injection and calendering It is still stranger to other plastics like PU or thermosetting materialwhich are state-of-the-art products in the plastic industry As a result, Vietnamese plasticgoods are mainly consumed on the local market or can only be exported to Laos andCambodia Due to outdated machinery, the majority of Vietnamese plastic goods are still notable to be exported to other countries and compete with foreign products

4 VN’s plastic industry lacks investment

Vietnam’s outdated processing machinery in the plastic industry needs to be modernized andupgraded, with advanced production lines, in order to be able to develop But this has proved

to be very difficult for the following reasons:

 Equipment and know-how in this industry are very expensive A complete calendering linemay cost as much as USD 5,000,000; a medium sized injector costs many hundreds ofthousands of US dollars Until now no establishment in VN has been able to afford a newadvanced assembly line

 No scientific and technological institutions have undertaken extensive studies into thetechnology of the plastic industry The limited know-how the city producers have gained

so far has been acquired through the purchase of equipment

5 VN’s plastic industry is characterized by small-scale production

Apart from Rang Dong company which is equipped with medium-sized processingmachinery, all plastic producing establishments in VN are small-scale industrial units This is

a significant disadvantage because the industry requires an enormous investment of capitalwhich small producers cannot afford

Through the above analysis it is clear that Vietnam with a population of more than 70 million

is a new emerging and potential market for the plastic industry However, we cannot exploitand develop this potentiality unless there is a development of the strategy with properinvestment

Strengths and weaknesses of the Vietnam plastic industry

In summary, the strengths and weaknesses of the Vietnam plastic industry can be found asfollows:

Strengths

 The Vietnam plastic industry has inherited an important fortune - capital, equipment, andhuman resource - of the plastic industry in the South before 1975 Especially, experience,technical degree and the dynamic of Chinese-Vietnamese capitalists have contributedconsiderably for the restoration and development of the Vietnam plastic industry

 The Vietnam plastic industry has achieved remarkable performance recently and nowdeveloping at high growth rate It promises a bright prospects in the future

 The social and investment environment are favourable for the Vietnam plastic industry.The Vietnamese Government has much concerned about the plastic industry whichindeed has an important role to play in the overall development of VN’s manufacturingsector and the national economic growth

 Vietnam has potential of labour and market for the development of its plastic industry

 At present, mould technology of Vietnam plastic industry is too obsolete Vietnam plasticindustry cannot approach hi-technology of plastic industry unless the mould technology isinvested considerably

 The industry of producing raw materials for the plastic industry is still at its embryonic

stage Up till now, Vietnam still has to rely 100% on the import of raw materials,

chemicals, plastic processing machinery

3.1.4.Orientations in development of Vietnam plastic industry to the year of 2005

In the next 10 years, according to the predication of economic specialists, Vietnam economycan grow stably at a rate of 7-8% per year or more The plastic industry will developaccordingly at 20-25% per year If the growth rate is at 25% per year by the year of 2005, theplastic output of Vietnam will reach 1.5 million tons or 6 folds from its current rate with a percapita output of 16 kg

Clearly, this goal is quite modest - it is only equivalent to the current per capita of Thailandand at present, only the plastic accessories produced by Japan for its car industry alone (acar contains approximately 100 to 150 kg of parts made of plastic) is up to 1.5 million tons.However, to achieve the growth rate of 25% per year from now to the year of 2005, theVietnam plastic industry will encounter plenty of challenges due to the near saturation ofdemand for household plastic products, higher demand of product quality and fiercercompetition in the domestic market

In order to sustain its development, the plastic industry has to adjust its trend of investmentwith the orientations in manufacturing plastic products for constructions, packaging and otherindustries In addition, at this stage, beside investments for increasing quantity of plasticproducts, the important problem is to develop manufacturing raw materials, semi-finishedproducts, moulds and equipments for the plastic industry.

To enhance the development of plastic industry, Vietnam Plastic Manufacturers Associationtogether with Vinaplast and other organizations have compiled a strategic plan to develop theVietnam plastic industry to the year of 2005, which has been approved by the former Ministry

of Light Industry, now known as Ministry of Industry

According to this strategic plan, orientations on the development of the Vietnamese plasticindustry are summarized as follows:

 In order to fulfill the function of being a satellite industry, strongly supporting otherindustries, the ratio of high quality and hi-tech plastic products such as variety ofpackages, plastic building materials, plastic technical components for assembly ofelectrical and electronic products, automobiles, motorcycles, high-tech equipment, etc.must gradually increase This will lead to the structural change in product lines Table 3.2shows the expected structure of plastic products for the year of 2005 (see figures 3.5 and3.6, the current and expected structure of plastic products)

Packaging (including packaging for food, fertilizer, chemicals, cement

and other industry sectors)

30%

Building materials (including plastic materials for construction such as products

for interior decoration, sanitary, pipes, etc.)

20%

Hi-tech products (including plastic products serving for electrical, electronic, automobile, mechanical industries)

15%

Table 3.2 Expected product structure

Figure 3.5 Current product structure

Household products 65%

Packages

20%

Building materials 8% Other products 7%

Figure 3.6 Expected product structure

 To increase the industry’s production capacity and to step up investment in order toensure a reasonable regional distribution and get use of labour effectively The structure

of plastic output of the whole country after the year of 2000 is projected as follows: (seefigures 3.7 and 3.8, the current and expected structure of product on region)

of the whole country This is expected to increase to 65% by 2000 and 80% by 2005

 To improve the quality of plastic products to meet the demand of high quality consumerproducts of the country, then to increase the quantity and expand varieties of exportplastic products in order to absorb the abundant supply of local labour and to earn moreforeign currency for reinvestment The expected target is that by the year of 2005, thevalue of exported plastic products should come to USD 120 million and the share ofexports in the total plastic production should increase from 0.5% as it is now to 5% bythen

 To invest in producing plastic materials, plastic semi-finished products, plastic mould andproduction equipments At present, there are two joint venture projects on producing PVCplastic powder (totally about 160,000 tons per year) and two projects on DOP with thewhole capacity of 80,000 tons per year which have been approved by the Governmentand in the next few year, domestic-produced plastic materials will appear in the localmarket for the first time Besides, several projects on producing plastic products likeBOPP membrane for packaging, PS, PVC, PMMA, multiplamen PP and Polyester arebeing studied for development as well as projects on making mould in Vietnam are alsobeing worked out

The Vietnam plastic industry has been identified by the Ministry of Industry as a “core” toprovide the impetus for growth of the manufacturing sector as well as the nationaldevelopment To sustain the industry’s growth, a total investment of USD 1 billion would berequired in the next decade Of this, state-owned enterprises are expected to invest aboutUSD 300 million, with the rest coming from foreign and other sectors Investments in rawmaterials, equipment and moulds are expected to hit USD 150 million

With the industry poised to expand vigorously, the future prospects for the industry remainsextremely bright for both foreign and domestic investors

Figure 3.7 Current product structure on region

Figure 3.8 Expected product structure on region

T he North 30%

T he Central 10%

Up to present (December 1995), the foreign capital invested in the plastic industry is nearlyUSD 300 million, including projects of big invested capital that have materialized, such asthose in the production of PVC Resin, DOP Oil, etc.

Besides their direct investment in Vietnam, the foreign companies have also contributedindirectly to enhance the plastic industry to develop faster through cooperative and businessprograms like exchanging of information, training, trading of materials, equipment andmachinery with favourable terms Furthermore, other forms of cooperation are granted such

as processing and manufacturing of products for export, renting of mould and equipment, etc.Local investment develops in line with that of foreign investment for projects that have beenclearly oriented However, the local investment focus mainly on small and medium projects,traditional and low-tech products with small capital

The investment environment for plastic industry has been much improved VietnameseGovernment has promulgated “The Law on Foreign Investment” in Vietnam and supportinglaws to guide state run companies, local and overseas partners to carry out promptly andeffectively the procedures according to the regulations for investment

Basically, there are three forms of investment cooperation with foreigners, which are:

1 Contractual business cooperation venture

2 Joint-venture enterprise or company, both referred to as joint-venture

3 Enterprise with 100 per cent foreign capital

Besides, foreign companies can have cooperation of investment with Vietnamesebusinessmen by way of subcontract, rental of equipment, supply of mould, etc

Based on groups of plastic products with priority (as mentioned above) in the coming years,Vietnam plastic industry is calling for foreign investments into the following projects:

 Projects on production of raw materials, chemicals for plastic industry with prior usage ofdomestic material sources which are the produce of Vietnam petrochemical industry in thefuture

 Projects on production of plastic parts for automobile, motorcycle, electrical and electronicand other industries

 Projects with high labour employment or projects directly and indirectly to produceproducts for export

 Projects with big investment capital

 Projects for designing, making moulds and producing spare parts, equipment andmachinery for the plastic industry

Opportunities for the Vietnam plastic industry in the future

The Vietnamese economy is becoming more and more attractive to foreign investors, and alot of giants have come to do business in Vietnam In the first five months of the year 1995,the State Committee for Cooperation and Investment (SCCI) granted licenses for investmentprojects with a total invested capital amounting to USD 3.1 billion, and Ho Chi Minh City alone

in the same period attracted an investment capital of around USD 1.4 billion The Vietnam

petrochemical industry has been established with the setting up of two oil-refinery zones inthe South This will be the source of production for plastic materials The accelerating pace ofinvestment in such fields as auto, motorcycle and electrical and electronic industries havealso opened up quite a few development opportunities for the local plastic industry

As of now, there are around ten foreign investment projects having been approved or beingconsidered by SCCI in the field of automaking industry Foreign investors to this regardinclude such big name as Ford, Toyota, Mitsubishi, Honda, Suzuki, Chrysler, Mercedes Benz,Daewoo, and Daihatsu In addition, several other giant auto makers such as Mazda, BMWand Kia have cooperated with a Vietnamese partner, Hoa Binh Automobile Enterprise, toassemble cars for the Vietnamese market Regarding the motorcycle manufacturing industry,besides the Taiwanese-invested VMEP which has been operating successfully in Vietnam,recently there was a race between three Japanese companies namely Honda, Suzuki, andYamaha Also involved in this competition are the Italian-based Vespa, the French- basedPeugeot, and recently the Australian-based Buick have came back to Vietnam to look forinvestment opportunities As for the Vietnamese side, the Government has promulgatedseveral new policies to limit the import of complete motorcycle and cars by raising the tariff onimported motorcycle to 60%, and to encourage the on-the-spot production of spare parts andcomponent The Vietnamese Government also does not accept those projects on assemblingcars and motorcycles with all the spare parts imported, but required the foreign investor toproduce in Vietnam 5% of the total components in the first year of operations, and this ratioshall be raise to 30% by the end of the tenth year of operations As the technical level ofVietnam’s engineering sector is still rather backward as compared with that in neighbouringcountries, the trend of investing in the manufacturing of plastic components for auto andmotorcycle industries as encouraged by the Vietnamese Government is the most feasibleone Moreover, the expansion of the plastic industry to this orientation does not require hugeinvestment capital, and according, technical solutions for this trend of production are morepossible Therefore, many foreign companies have come to work with Vietnam PlasticCorporation on cooperation projects to produce plastic components for the auto andmotorcycle industries

Since 1994, Vietnam has embarked on a project to link the national electricity network toprovide better power supply to the whole country In the coming years, with the installation ofnew thermo-electric and hydro-electric plants, power supply will reach the most remoteregions of the country, thereby creating opportunities and challenges for the plastic industry inorder to cater the energy and communication sectors

In such electrical and electronic items as refrigerators, air conditioners, washing machines,

TV sets, radio cassettes, telephone receivers, cameras, video and cassette tapes, the ratio ofplastic components is fairly high Moreover, the investment in the production of theseproducts in Vietnam is increasing rapidly Several famous investors from the Republic ofKorea such as Samsung, Daewoo, and Gold Star are going to build large-scale factories inVietnam Especially, Daewoo President has recently announced that his group has had aplan to invest in Vietnam up to USD 2 billion, a considerable part of this investment will gointo the production of electrical and electronic industries Of course rivals of those Koreaninvestors in Japan, Europe, the United State do not stand still Such famous names as Sony,Matsushita, Carriers, etc have officially entered, and thus activating the Vietnamese market.The booming development of the civil and industrial construction is another foundation forgrowth of the plastic industry Besides the demand of plastic products for interior decoration,drainage, plastic packaging for cement is another much demanded products In the next five

years, cement industry will need about 300 million bags per year, that means there must be

20 plants manufacturing PP woven bags with the capacity of 15 million bags per year foreach plant and the total estimated investment is USD 100 million Vietnam presently only hasone plant manufacturing PP woven bags in Hau Giang province with the capacity of 14 millionbags per year

The Vietnamese footwear industry is also using materials from the plastic industry, such asupper parts and soles of shoes, but the larger part of these materials has to be imported Thefootwear industry is now challenged by a requirement to use in-country materials in theirproduction, if the producer wants to take advantage of tariff incentives when his products areexported to the United State and other advanced countries

The plastic industry also has to serve the growing demand both in the quantity and quality for

a population of nearly 100 million by the end of the century as well as to support theproduction of agriculture, industrial plants, husbandry, packing for domestic consumption andexport, infrastructure, etc

Currently, what Vietnam’s plastic industry urgently needs is technology transferred fromforeign countries to be able to produce items meeting strict standards on quality andprecision Re-investment in new machinery and equipment is not so difficult for manycompanies, but very few companies have earmarked their investment to buy newtechnologies and know-how, an intangible asset which is vital to the success of the company.That is one among several reasons accounting for the fact that Vietnam-made plasticcomponents for motorcycles, TV sets, etc cannot compete against imported products

(Source: Vietnam Plastic Review, No.7, June 1995, p.11)