LOGISTICS DEVELOPMENT IN SOME ASEAN COUNTRIES – LESSONS DRAWED FOR VIETNAM

In addition, in the conditions of globalization and regionalization in whichproduction and business activities related to multiple countries with differentdistance and time, logistics be

Vietnam Academy of Social Sciences

Graduate Academy of Social Sciences

VU THI QUE ANH

LOGISTICS DEVELOPMENT IN SOME ASEAN OUNTRIES

– LESSONS DRAWED FOR VIETNAM

Major: World Economics & International Economic Relationship

Major code: 62.31.07.01

Name of Supervisors: 1 Prof Dr Nguyen Xuan Thang

2 Asso Prof Dr Pham Thi Thanh Binh

Ha noi, 2014

1 Rationale of the dissertation

Logistics are operations to optimize the storage, to-way transportation ofresources (raw materials, semi-finished products, finished products and goods),finance, and information from the provider through the stages of the supplychain to consumers In the modern economy, logistics is more and more playingimportant role In the condition of production keep grows when the resourcesbeing scarce, logistics help manufacturers to optimize all operations to saveresources, save money and save time Moreover, in a competitive conditionswhere machineries, equipments, technology developed at an equal level, thesupplier who have lowest logistics cost and could fastest satisfy customerdemands will have an edges on others

In addition, in the conditions of globalization and regionalization in whichproduction and business activities related to multiple countries with differentdistance and time, logistics become more important because the efficiency oflogistics directly affect to the price of goods and ability to satisfy customer’sdemands The recent researches have pointed out that logistics operationsaccounted for 10-15% of GDP itself in most countries in Europe, North Americaand Asia-Pacific Therefore, improving the efficiency of logistics operations willcontribute to improve the socioeconomic efficiency of each country Thedevelopment of logistics systems will ensure to properly deal with issues oftransportation, warehousing services, transit, customs clearance and thereforeincrease the competitiveness of the goods and services

However, in Vietnam, logistics is a new sector and spontaneouslydeveloped with low efficiency, inadequacy and high cost (the logistics cost toGDP of Vietnam is 25% in compare with logistics cost to GDP of the US is only7,7%; Singapore is 8%, European countries is about 10%, Japan is 11 %, China

is 18 %,) High logistics costs is an important cause that reducedcompetitiveness and business performance of enterprises in particular and hinderthe growth of economic of Vietnam in general Therefore, if logistics are not to

be attached special important to development, Vietnam economy will not onlyhave to suffer from loss of benefits but the domestic manufacture sector willalso have to face difficulties to survive due to they could not compete withforeign companies So, the problem of the logistics systems establishment anddevelopment in Vietnam really needs to be answered Studying and learningexperiences of logistics development in the three ASEAN countries that havemore developed logistics system (as Singapore, Malaysia and Thailand) isnecessary in order to draw lessons for Vietnam This is a short and effectivemethod to help Vietnam to rapidly achieve goals of logistics development Thefellow has selected the "Development of logistics in several Southeast Asiancountries - Lessons for Vietnam" as research subjects.

2 Literature review

In about recent 20 years, logistics has attracted the attention ofresearchers There are plentiful logistics studies in the world and studies havebeen approached in variety of different point of view Almost general theoreticalresearches on logistics are in terms of microscopic focusing to issues that related

to the logistics in business In addition to the general theoretical studies, thereare some specific studies focusing to one or several aspects of logistics in acertain countries at middle and macro angle Some logistics studies ofSingapore, China, Thailand shows the fact that they interested in learningforeign experiences

In Vietnam, there are very few in-depth logistics studies, especiallyVietnam do not have in-depth study focusing to the experiences of go-aheadcountries In the national research, Prof Phd Dang Dinh Dao has published a

monograph about logistics services of Vietnam in the global integration process

(2012) The book is partly mentioned to logistics development experiences ofJapan, China, Singapore and Thailand but only at very generally view becausethis is not the main research purpose Therefore, it is necessary to have an in-depth study with more comprehensive research about this issue

3 Objectives and tasks of the dissertation

The overall purpose of the dissertation is to draw lessons from theexperiences of logistics development of Singapore, Malaysia, and Thailand andpropose recommendations for the logistics development of Vietnam To achievethis overall purpose, the dissertation have specific objective as:

development, with particular emphasis to the theoretical development oflogistics and logistics development in the macro perspective as thenational logistics system

and the causes of success as well as limitations in logistics development

of Singapore, Malaysia and Thailand

logistics development experiences of Singapore, Malaysia and Thailand

shortcomings, limitations and the cause of that situation

Vietnam

4 The scope and objects of the dissertation

The object of the dissertation is logistics development of Singapore,Malaysia, Thailand and Vietnam Dissertation approach the logisticsdevelopment of 4 countries in macro perspective based on national logisticssystem (includes 4 elements: logistics infrastructure, logistics institutionalframework, logistics service providers and the logistics services user) in a period

of 10-20 years depends on each country The recommendations are proposed tohelp to develop the logistics system of Vietnam in the short and medium term(10 years)

5 Methodology

The dissertation, together with using dialectical materialism and historicalmaterialism methodology based on secondary data sources and data from the

survey results of the existing research and statistics, focus on clarifying thestudying issue by analyzing the high reliability Logistics Performance Index (LPI)issued by World Bank (WB The method of qualitative data analysis is the primarymethod to be used, including analysis, synthesis, case study, and comparativeanalysis method In addition, the dissertation uses SWOT analysis method to assessthe logistics situation of target countries also.

6 The new findings of the dissertation

First, the dissertation created a basic theoretical about logistics inhistorical and comprehensive perspective, understandable explanations of basicissues such as the essence of logistics, needs to develop the logistics, theformation and development of logistics services, the elements of the nationallogistics system and national logistics development context;

Second, the dissertation analyzed the current comprehensive situation oflogistics development in the three ASEAN countries (Singapore, Malaysia,Thailand) with rich content while pointing out the strengths, weaknesses and thecauses of that limitations in logistics development in these countries;

Third, the dissertation drawn some lessons from the experiences oflogistics development in three studied countries and link to Vietnam case;

Fourth, the dissertation pointed out the weaknesses and cause of problems

of logistics development of Vietnam Based on drawn lessons, the dissertationproposed some recommendations for the development of logistics in Vietnam

7 Layout of the dissertation

Beside the preface, conclusion, list of tables, list of abbreviations,references and appendices, the dissertation consists of three chapters:

+ Chapter 1: Basic theoretical matters of logistics and national logisticsdevelopment

+ Chapter 2: Current situation of logistics development in Singapore,Malaysia and Thailand

+ Chapter 3: Lessons from experiences of studied ASEAN countries andproposed recommendations for logistics development of Vietnam

CHAPTER 1

BASIC THEORETICAL MATTERS OF LOGISTICS AND NATIONAL LOGISTICS DEVELOPMENT

1.1 Logistics theoretical:

1.1.1 Origin and Essence of logistics

Logistics term has been used very first in military After the WWII, thelogistics term has been used in economy by American and by half-end of XXcentury the logistics term has been used all over the world with the appearance

of “Logistics” companies In fact, the logistics activities did not appear fromhalf-end of XX century (as many people think) but it appeared along with theappearance and development of production and the essence of logistics is group

of activities support for production, distribution and goods circulation Over thetime, more developed production, more improved that activities and thatactivities developed to higher level, more diversify, more plentiful andspecialized as separated sector of economy with the name as “Logistics”

1.1.2 Concept of logistics

There are many concept and definitions of logistics The reason is thatlogistics is not a single activity but includes strings of activities support wholeprocess of production, distribution and circulation Moreover, over the time,activities are expanded and caused concept of logistics to be changedaccordingly to time and location so that many logistics concept have beendefined as different time and location

Now a day, the definition of US Council of Supply Chain Management

Professionals (CSCMP) 2011 is most widely acknowledged As that definition,

logistics are defined as a part of supply chain process, includes planning,performing and controlling goods, services, information in two-way flow

between starting point to end using point to get high efficiency, high profit tomeet customer demands.

1.1.3 Main activities of logistics

Logistics activities in business normally include customer services,transportation, reserve management, warehousing, material supply, purchasingand hiring services, packaging, connecting production and operation,information management

1.1.4 Role of logistics

In business view, logistics play a role of optimizing the production andbusiness process from input to customer; support for managers to make properlydecisions; ensure to provide right goods at right location just in time (JIT),satisfy customer’s demands Therefore, logistics become important factor thatadd value to business’s profit, create competitiveness as well as stabilize thebusiness development In fact, 98% of manufacturers realized that logistics isimportant in satisfying customer’s demands, 85% of manufacturers aware thatlogistics is main factor of competitive advantage of business, 62% ofmanufacturer know that logistics is top priority in management (Finland, 2009)

At the macro view, logistics role in national economy to impulse or hinderthe development of the manufacture industry and whole economy, to impulsethe circulation of goods and to expand market in international business; toincrease competitiveness of domestic goods on the international market; to be aneffective tool to link the activities of various chain in the global value chain andhelp to reduce costs, improve and standardization documents in internationalbusiness

1.1.5 Classification of logistics

Logistics can be classified according to criteria as approach way, personwho operates logistics activities, characteristics of operation or according todirection of material flow depending on purpose of research

1.2 Foundation and development of logistics in the economy

The popular emergence of third party logistics supplier (3PL) marks thefoundation of new sector as logistics In developed economy, logistics sectorappeared sooner and fast grown with logistics supply- demand more and moreraising up.

1.3 National logistics development

1.3.1 Elements of the national logistics system

National logistics system is composed from 4 basic logistics elements

with closed relationship as: (1) Logistics infrastructure including physical

infrastructure (ports, airports, roads, railway, waterway, pipeline, warehouse,

transportation, customs clearance inland ports, hubs, logistics centers ) and

Information technology infrastructure (2) Logistics Institutional Framework

including laws and policies relating to the economic environment in general andlogistics activities in particular such as management regulations, tax incentives,

logistics investment encourage policy, customs policy, (3) Logistics service

provider ( LSP ) including company provide logistics services for customers (4) The logistics user including manufacturer, import and export companies,

wholesalers, retailers… who have demand for logistics services

1.3.2 Context of national logistics development

Based on the concept of economic development, national logistics

development process could be understood as process to improve all aspects,increasing both quantity and quality, of elements constituting the nationallogistics system That process includes development of logistics infrastructure,creating conductively institutional framework for logistics development,supplier and logistics user development in order to create the most propitiousand optimal conditions that enable logistics to operate effectively and promotethe development of logistics sector

As inclusive theory of development, logistics development does not onlyfocus to quantity development as scale enlargement, increasing quantity oflogistics infrastructures (increasing number or enlargement of roads, ports,airports, railway, bridges, sewers, pipelines, telecommunications networks,

warehouses, dry ports, ) but focus to quality development (improve quality ofinfrastructure, reducing the cost of infrastructure using, increase connectivityamong the transport system as a basis for developing forms of multimodaltransport, increasing forms of infrastructure services, establish Logistics Zoneswith modern facilities ) as well Logistics development not only includeincreasing number of logistics supplier and consumer, increasing proportion oflogistics in GDP but also include quality development as increasing of number

of services, services quality enhancement, increasing service coverage,increasing number of services that the business willing to use At the same time,the development of the national logistics system was also associated withchanges in institutional administration, management and implementation oflogistics activities with the aim to facilitate trade, reduce costs, reduce time,reduce problems, strengthen the cohesion and confidence of the entire logisticssystem and to ensure sustainable growth in the future

1.3.3 National logistics development assessment criteria

As the Asian Development Bank (ADB), the performance of the nationallogistics system could be assessed based on four factors: logistics infrastructure,logistics institutional framework, logistic services user and logistics serviceproviders

As the World Bank (WB), effectiveness of logistics could be assessedbased on Logistics Performance Index (LPI) indexed by the WB throughinvestigations, researches and that LPI have been publicized in "Connect toCompete - Logistics sector in the global economy" report The LPI consists ofmany criteria: quality of infrastructure, customs facilitation, capacity of serviceproviders, ability to track and trace consignments, just in time delivery,international shipment (LPI international) and many specific criteria includingqualitative and quantitative assessment related to the domestics LPI Thesecriteria are evaluated on a scale from 1 to 5 or from 0% to 100%

According to research purpose, the dissertation have combined theapproach method from logistics elements of ADB with properly indexes from

LPI of WB to make clearance of development level of national logisticselements and to point out strength and weakness in each element.

1.4 Factors influencing to the development of national logistics

Factors that influence to the development of national logistics could bedivided into 4 groups: (i) natural and geographical conditions, (ii) political,social and macroeconomic environment, (iii) the development of productiveforces; (iv) strategy, policy and the role of government

CHAPTER 2

CURRENT SITUATION OF LOGISTICS DEVELOPMENT IN

SINGAPORE, MALAYSIA AND THAILAND

2.1 Current situation of logistics development in Singapore

2.1.1 Natural geographic, economic and social characteristics

2.1.2 Development of logistics in Singapore

With the target to make Singapore become a Center hubs in region, from 1980s Singapore Government have implemented many solutions to promote the logistics.

Singapore has developed and modernized physical and communication infrastructure Singapore has the most modern port, airport, roads and warehouse in the world In parallel with investing to physical infrastructure, Singapore has developed the communication system by launching national informatics projects to setting-up 5 connection network as: Business network, port network, online Jurong port network, marine network and aviation network Modern transportation infrastructure together with strong communication system is key factor make the strength of Singapore’s logistics.

Singapore created an institutional framework to promote logistics development and trade facilities Government of Singapore have enforced many policies of financial, monetary and exchange rate stabilization to

increase saving and attract foreign investment; implemented tax incentive policies for transportation companies, tax exempt policy for venture business, income tax exempt policy for benefit from shipping operation in

10 years… The most remarkable is beneficiaries from preferential policies

of Government are strong, big scale, efficiency logistics companies and they have commitment for long term and stability development It is evident to prove that the Singapore Government aimed to a strong and solid logistics development Customs clearance policies have been make transparency with very clearly regulations and could be easily applied Beside that, Singapore Government also focused to education and training policy as well

as talented foreigner resources attractive policy.

There are many LSP in Singapore and they could provide many services in form of flexibility with professional standard, high quality and confidence services Big logistics demands in Singapore are the result of out-sourcing trend that comes from domestic manufacturers and almost comes from foreign companies and agents.

Thanks to highly developed logistics system, Singapore becomes No.1 Logistics Center in the world In all 3 assessment reports from 2007 to 2012, the LPI of Singapore kept the flagship at 1 st and 2 nd ranks.

2.2 Current situation of logistics development in Malaysia

2.2.1 Natural geographic, economic and social characteristics

2.2.2 Development of logistics in Malaysia

From 1980, as the strategy to develop base on export, Malaysia have recognized the important role of low cost distribution system and efficiency distribution strategy In the 8 th National Master Development Plan (2001- 2005), Malaysia Government has enforced many policies to make facilities for both domestic and foreign 3PL companies In 2006, Malaysia Government have created long term plan for logistics sector separately until 2020 (IPM3) and according to that, logistics sector have been

identified as separate sector and have an important role in national economic development

Malaysia has hardly invested in infrastructure (i) Transport infrastructure has been synchronous and comprehensive invested; (ii) Information technology and communication infrastructure have been upgraded and modernized continuously (iii) Many In-Land Container Depot (ICD have been built to become connecting point of transportation methods; (iv) Free Commercial Zone (FCZ) have been built to support for main ports to become regional transit center.

Malaysia have created and enhanced their logistics institutional framework As re-aware about role of logistics, Malaysia Government keep going to improve the policy system to support for logistics development; focus to facilitate custom clearance procedures; apply high technology into logistics management, supervision and control; apply various policies to set

up an propitious environment to attract investment such as tax incentive policy, policies support for international LSP and directly invest to local LSP.

Malaysia develop logistics market through develop LSP and support for education and training activities to make more demand for logistics In the period of 1980 to 2000, logistics in Malaysia operated in 2PL model In decade after that (2000-present), the 3PL logistics model have fair development in Malaysia with the participation of many 3PL companies, in which, there are companies meet international standard Together with local logistics company (57% market share), number of big logistics companies who have global network is increasing (31% market share) In

2012, Malaysia Government continues to make more propitious conditions for logistics development through Government innovation and Economic innovation programs Thanks to that, the logistics demand in Malaysia has increase and spread out to many sectors instead of limited in out-sourcing sector as before.