Increase export of vegetexco to the USA market

In 2010, agricultural products onthe market of our country was about 1.8 billion US dollars, accounting for 12.04% of total export turnover of Vietnam in this market.. Although many rese

First of all I would like to sincerely thank the teachers from Trade and InternationalEconomic Institute, National Economics University for their wholehearted help.They have given me the precious knowledge during the time I was learning at theschool

I would also like to thank the staffs working at the Vietnam Vegetable, Fruit andAgricultural product Corporation in general and employees of import-exportbusiness 8 department of the Corporation in particular who were always willing tohelp me during my internship

Finally, I would like to express my gratitude to my family, relatives and friends whohelped and encouraged me throughout the process of learning and training

Due to time constraint, the thesis can not avoid the limitations and shortcomings So

I would like to receive the contributions of the teachers and all the readers

I sincerely thank you!

Hanoi, 5/19/2014

Student

Nguyen Minh Phuong

STATUTORY DECLARATION

I herewith formally declair that I myself have writtened the submitted Bachelor’sthesis independently I did not use any outside support except for the sourcesmentioned at the end of this paper

Hanoi, 5/19/2015

Nguyen Minh Phuong

TABLE OF CONTENTS

ASEAN : The Association of Southeast Asian Nations

EU : European Union

FTA : Free trade area

GDP : Gross domestic product

IQF : Individual quick frozen

LIST OF TABLES

LIST OF FIGURES

CHAPTER 1: THE THESIS INTRODUCTION

1.1 Background of the study

With the advantages of natural conditions and a characteristic climate of eachregion creating favorable conditions in diversifying products of fruits andvegetables, these crops of Vietnam have been increasing rapidly Vietnameseexports of fruits and vegetables, mainly in the processed form, have grown stronglysince the early 1990s

Recently, Vietnamese fruit and vegetables are sold in 50 countries Sales to China,Russia, Ukraina and Japan are particularly huge

According to the website nongnghiep.vn, America is one of the major exportmarkets for agricultural products of our country In 2010, agricultural products onthe market of our country was about 1.8 billion US dollars, accounting for 12.04%

of total export turnover of Vietnam in this market In 2011, the estimated totalexports of agricultural, forestry and fishery sector of Vietnam to the United Stateswas more than $ 3 billion In 2011, the United States ranked first in the intake ofcoffee, cashew, pepper, furniture, seafood from Vietnam: 11.7% of the total coffeeexports, accounting for 1/3 of the total volume of exports Currently, the UnitedStates imported about 15% of food, 50% of fresh vegetables only Vietnam is one ofthe 15 largest agricultural export in the United States The dragon fruit, recentlyfabric, mangosteen, persimmons, apples and rambutan are considered the exportproducts which are potential for most markets, especially the US market At themoment, dragon fruit is till the item which has the large exports to the UnitedStates Within two months of 2012, dragon fruit export reached $ 624,800 , rose by170.9%, following by the pineapple export with canned pineapple and pineapplejuice concentrate

The most obvious change is that recently US has increased importing fresh fruitsand vegetables and decreased the processed vegetables, canned fruit But actually,

vegetables and dried fruits items of Vietnam has also penetrated the US market Sofar there are 36 kinds of vegetables exported to the United States with a totalturnover of US $ 1.1 million, of which pickled mushrooms, canned mushroomshave the highest turnover Cucumber is one of the largest exported items ofVietnam in recent years Not only vegetable products such as sweet potatoes,onions, garlic, turmeric, ginger, yam which are the Americans’s favor; mango,dragon fruit, banana, custard apple, papaya are also the agricultural products ofours being consumed quite a lot.

1.2 The research problem

American market is a huge goods consuming market It has an enormouspotentiality but includes harsh competitions and plenty of risks Penetrating into thismarket is hard but setting foot in the market as well as maintaining company’sposition is even harder

Although many researchers has been working on increasing fruit, vegetable and agricultural products export to the American market, no one has yet done a research

on the same matter for Vegetexco Vietnam Researches for Vegetexco are about the

company’s export status, applying marketing mix to gain profit for the company,how to increase export of the company in general or on a specific market such as

EU But again, the USA market is being left intact In addition, according to thedata collected from Vegetexco, the export to the USA market has been reducing inthe past few years Those are the reasons why I started a research for Vegetexco onhow to maximize their export to the USA

1.3 Research objectives

The overall aim of the research is to give out the method to help Vegetexco toexport more goods to the USA market This involves understanding the microenvironment( 5 forces analysis: buyer, supplier, rival, substitute, new entrant) andmacro environment of the company( PEST analysis: political, economic, social,technological analysis) as well as the internal and external factors( SWOT analysis:

Strength, Weakness, Opportunity, Threat) that are favourable or unfavourable toachieve the objective.

1.4.1 Data collecion method and data analysis

The secondary data used here is the information collected from newspapers andInternet

Access to data will be convenient as the researcher is an employee of the case studycompany and access to both quantitative and qualitative information will beconvenient to achieve with accuracy

To build the basic premise, numerous research journals, books and online resourceshave been consulted, which constitute the secondary data for this study

1.4.2 Source of information

The secondary data used here is the information collected from Vegetexco Vietnam

as well as from numerous news and previous researches on the Internet

1.5 Rationale

How necessary is the research to Vegetexco Vietnam?

Export is very important to Vegetexco Vietnam In fact it is the sales activity of thecompany and profit from this activity contributes to the existence and development

of the company Profits are additional sources of the company’s capital and funds.Higher profit allows the company to promote reinvestment in fixed assets andincrease floating capital to implement import and export activities which helps thecompany to expand and develop

Exporting goods also enhances the company reputation in the international arena Itallows the company to establish the relationships with many customers in differentcountries which will be very beneficial for the company if it can maintain goodrelationships To get this, the company has to meet the requirements of customers interms of price, quality, trading methods, payment, etc.

Nowadays export is associated with competition Thus it requires companies toinnovate and complete production and business management in order to beeffective Result of export activities allow the company to self-assess their strategyand implementation so that they can make appropriate adjustments to develop thecompanies’ situation

Vegetexco Vietnam is a leading state-owned corporation specializing in production,processing and trade of vegetables, fruit and agricultural products

With the advantages of natural conditions and a characteristic climate of eachregion creating favorable conditions in diversifying products of fruits andvegetables, these crops of Vietnam have been increasing rapidly Vietnameseexports of fruits and vegetables, mainly in the processed form, have grown stronglysince the early 1990s

Recently, Vietnamese fruit and vegetables are sold in 50 countries Sales to China,Russia, Ukraina and Japan are particularly huge What about the US, whereconsumers spend approximately USD 8000 for food annually?

USA market is one of the largest markets in the world Research on how to increasefruit, vegetable and agricultural products export to the US will help Vegetexco togain much more profit than it earns at the moment

1.6 Research structure

This thesis contains six chapters including this chapter which has introduced thecurrent research Chapter 2 follows with an introduction about Vegetexco’s historyand development, organizational structure as well as the products that it offers and

current markets It is then followed by Chapter 3 which is an overview and analysis

of Vegetexco’s export status Chapter 4 presents the analysis of the market andcompany’s position which is the basis for the recommendations brought out in theChapter 5 Chapter 6 concludes the thesis with a summary of findings of thisresearch, limitations of the study and recommendation for future researches

CHAPTER 2: INTRODUCTION OF VEGETEXCO

2.1 Vegetexco’s history and development

Vietnam national vegetable and fruit Corporation Ltd was established by decision

no 63-NN-TCCB/QB of November 2nd 1988 of the Ministry of Agriculture andFood Industry (now the Ministry of Agriculture and Rural Development) on thebasis of three companies: vegetable, fruit import and export corporation, fruit andvegetable central company and Phu Quy agricultural and industrial companiesUnion

On November 6th 2013 Vietnam national vegetable, fruit and agricultural productCorporation Ltd was established under Decision No 66 / QD-BNN-TCCB of theMinistry of Agriculture and Rural Development by the merger of agriculturalproduct import and export and processed foods Corporation and Vietnam nationalvegetable and fruit Corporation Vietnam national vegetable, fruit and agriculturalproduct Corporation Ltd began to be acivated on July 1st 2003

Vegetexco Vietnam is a state-owned enterprise, which has legal status under thelaw of Vietnam, has its own seal and accounts opened at the domestic and foreignbanks in accordance with law

Since the end of 2014, Vegetexco Vietnam started its equitization process underDecision No 916/QD-BNN-QLDN of May 5th 2014 of Ministry of Agriculture andRural Development and is expected to be completed in May 6th 2015 Accordingly,Vegetexco Vietnam is going to become a joint stock company with 60% shares held

by the T&T group and 30% state-owned

Basic information about Vegetexco Vietnam:

PRODUCT CORPORATION LIMITED

• Head office: No 02 Pham Ngoc Thach str , Dongda dist , Hanoi city , Vietnam

• Email: vegetexcovn@fpt.vn

• Website: http://vegetexcovn.com.vn

• Logotype:

2.2 Organizational structure

Management board Board of auditors

Personnel Financial Planning Investment Quality Sale and exp-Imp Administrator Accounting General Consultant Control Dept

Dept Dept Dept Trade Promotion Dept

Dept

Subordinated companies

General DirectorDeputy general

directors

HCM cityVegetexco

Vegeseeds

Company

HanoiVegetexco

VegetexcoCashew nutProcessing Imp

& Exp Co

Subsidiary companies Affiliated companies Joint-venture

companies

Chart 2.1: Organization structure of Vegetexco

1 TOVECAN Coorperation Ltd

2 Vinaharris Spices Co Ltd

3 Crown Beverage cans HaNoi Co., Ltd

4 Luveco Joint Venture Co., Ltd

1 Vegetables and Fruits Export Import JSC No I

2 Material Supply and Import Export JSC

3 Food and Industrial Material JSC

4 Transportation and Trading JSC

5 Construction and Production Material JSC

9 HungYen Export Foodstuff JSC

10 BacGiang Export Foodstuff JSC

11 DongGiao Foodstuff Export stock Co.

Joint-12 ThanhHoa Fruit and Vegetable Export and Import JSC

13 HaTinh Fruit and Vegetable JSC

14 Fruit and Vegetable Export and Import JSC

15 The Vegetexco Port JSC

16 TanBinh Foodstuff Export JSC

17 SaiGon Vegetable and Import &

1 Hanoi National Agriculture

Produce and Foodstuff Import

Export Co

2 SaiGon Agriculture Product

and Foodstuffs Exp- Imp JSC

2.3 Functions and duties of the company

2.3.1 Functions

There are three main functions of Vegetexco:

• To produce vegetables and fruits: This is the first function which creates main inputfor other functions The following activities cannot run smoothly without anabundant supply of raw materials, so the first step: vegetables and fruits production

is an essential function Thus, Vegetexco always search and bring the new varieties

of plants into cultivation, as well as updating the technology to enhance productsquality and competitiveness ability in domestic market and international market

• To produce the final product: This is the function of processed product producingfrom the raw materials collected from the previous step to export to other countries

• To work in business field: This is the most decisive factor out of the wholeactivities of the company because it directly affects the business result

2.3.2 Duties

Vegetexco has to participate in creating plans to develop vegeteble and fruit varietyproduction and supply system, constructing high quality specialized and intensivecultivation areas

• To invest in Research and Development, especially bio technology to meet thedemand of both domestic and foreign markets

• To create training plans for staffs and workers so that they have high quality skills

to ensure sustainable development

• To associate with other domestic and foreign organizations to increase businessperformance

2.4 Business products and markets

2.4.1 Sectors/ Products

2.4.1.1 Main business sectors

These are the main business sectors specified in the company’s regulation:

• To produce processed agricultural products and forest products

• To offer cultivation, breeding and afforesting services

• To produce the wrapping/ package( paper, glass…)

• To wholesale/ retail vegetable and fruit varieties, food, drink, materials, chemicals,machines.

• To deal in logistics

• To deal in tourism, restaurant and hotel

• To invest in forex and real estate markets

• To offer consultancy service in developing fruit and vegetable industry

- IQF products: papaya, baby corn, sweet corn, mango

- Other processed vegetables and fruits: fruit juice, concentrate and puree

- Other spices and agriculture products: cinnamon, black pepper, rice, softdried banana

- Flower and vegetable seeds: Dalat Cymbidium, Leaf Mustard Seed, Hanoi Radish Seed, Head Mustard Seed

- Fresh fruits and vegetables: dragon fruit, spinach, mango

More details will be shown in the Table 1 of the Appendices

2.4.2 Markets

2.4.2.1 Domestic market

Regarding domestic operations, the corporation has only participated in a number ofareas such as manufacturing packaging, fruit drinks, and providing service ,vegetable and flower seeds Results in these areas are very good, but the main items

to be considered as fresh vegetables and farm products are very small

Table 2.1: The profit of some companies of Vegetexco doing domestic business

in the period of 2010- 2014

( Unit: billion dong)

( Source: Summarizing the work of production and business Report of the year

2010, 2011, 2012, 2013, 2014)Over the years, some units have sold products and provided services in the domesticmarket as beverages, iron boxes, aluminium cans, construction services, transportservices, hotel services, automobile repairs etc., continuously expanded businessand stabilising cmpany operation Some typical businesses are the My ChauCompany, Dona Newtower Company, Crown Hanoi Company

Since our country implemented an open economy, the on the spot export market hasbeen expanding This market includes:

- The store and supermarket system in large urban areas, export processing zonesand industrial parks where many foreigners stay or being long-term residents inVietnam

Export processing zone system: this is an important system, which imports fruit andvegetables as raw materials for processing export products

Table 2.2: Profit in some domestic specific markets

Unit: million dong

2.4.2.2 Foreign markets

Until now, Vietnam vegetables have been sold in over 50 markets around the world,which include the leading import markets such as China, USA, Japan, Korea, EU The export value of vegetables in these markets occupies a large proportion in thetotal export turnover of the Corporation vegetables For the traditional import andexport markets like China, since it is about to enter the summer, demand for imports

of tropical fruits of Vietnam is increasing

The main markets are the USA, China, Netherlands, Russian Federation, Australia,Thailand and Switzerland

2.5 Operating results in the 5 year period from 2010 to 2014

On the average, over the years, the Corporation still maintains operationalefficiency in production and business, as well as earning profit and continue togrow; the average income of workers and employees has been higher year afteryear

The units with large losses and bad debts have also made attempts to find solutions

to cut their losses, negotiated with creditors to continue to do business, maintainproduction as well as search for opportunities to cooperate with strategic investors

Table 2.3: Some main indicators of Vegetexco business result in the period of

2010 plan: profit grew to more than 400 billion as of early 2011.

Through Table 2.4, we can see 2011 as a good year in manufacturing and businessactivities of the Corporation Despite so many factors influenced by adverseeconomic, social inside thae country as well as abroad which made the planimplementation difficult; generally the entire Corporation could still maintainmanufacturing and sales activities and all the indicators increased Specifically,revenue increased by 13% over the same period last year which was 6% higher thanplanned; Profit before tax increased by 3.8% over the same period last year whichwas 5.8% higher than planned; and the income of workers increased over 17%compared to 2010 In addition, 2011 was the year of the least number of lossbusiness and decommissioning units over the period of 2010-2014

By 2012, due to the difficult problems of the consumming market , industrialproduction, import, export operartion and business results of the majority of units inthe Corporation decreased compared to the previous years Revenue fell by 3.88%,profit before tax decreased by 31%; however the Corporation has guaranteedincome of workers and employees remain stable with 4.7 million VND/

The head company operations in 2012 brought good results, presented in the growth

of the indicators compared to the same period last year and even exceeded theassigned plan Specifically, sales of the head company reached 538.4 billion VND,increased by 48.8% compared to the previous year, and 50% higher than planned.The average income of workers reached 7.15 million VND / month

In 2013 and 2014, The Corporation units continued to face difficulties due toincreasingly intense competitive levels in many areas, materials and productssupply for export was gradually shrinking; but the important indicators such asprofits and incomes of workers and employers in general are assured and saw aslight growth Total revenue of the company in 2014 decreased by 8.5% comparedwith 2012, but earnings before taxes tended to move upward- reached 403.7 billion,rose more than 45% compared to 2012 The number of loss business and shut-downunits also decreased significantly compared to the previous year

In 2013 and 2014, the head company business remained stable and its capital waspreserved, the lives of employees were guaranteed, and the Corporation continuedthe implementation of restructuring under the direction of the Ministry ofAgriculture and Rural development Overall, in 2013 and 2014, Vegetexcoaccomplished the self assigned tasks and tasks set by the state

CHAPTER 3: EXPORT OF VEGETEXCO

The total import-export turnover of the Corporation has not been stable over theyears, and hardly achieved any year plan outlined by the Corporation.

Chart 3.1 Total import and export turnover in plan and reality in the 5 year

By 2012, export and import turnover decreased compared to 2011, which was only76% of the plan This is because of the influence of the fruit, vegetable andagricultural products price collapses and the declining purchasing power of theworld market

In 2013 and 2014, the purchasing power of the market continued to decline, making

it difficult to do the business and directly influenced the import-export turnover ofthe Corporation Turnover in 2014 fell to only 86.73 million equivalent to 95.7% ofthat last year and 3% lower than plan

Chart 3.2 Vegetexco’s export turnover from 2010 to 2014

(Source: Summarizing the work of production and business Report of the year

2010, 2011, 2012, 2013, 2014)

Export activity during the period 2010-2014 tended to increase steadily over thefirst 3 years from 2010 to 2012, and decreased from 2012 to 2014 which was due tothe Corporation's market shrunk In addition, the competitive situation in the worldwas increasingly harsh, not only in the agricultural sector but also in processedvegetables and fresh vegetables The situation in the country also was adverse to theCorporation as more enterprises of different economic sectors involved in theexport business in this field.

3.2 Export analysis

3.2.1 Product lines

The Corporation has currently been applying the diversification strategy on the implementation based on the abundance of the input source and the product

processing methods The company’s export products are:

- Raw agricultural and processed food (cashew, peanuts, coffee )

- Canned vegetables (peas, corn, pineapple, cucumber )

- Dried and pickled vegetables (banana, dried lichy, pickled mushrooms )

- Frozen products (frozen pineapple, frozen lichy )

- Concentrates Products: fruit puree

- Spices (black pepper, cinnamon )

- Fresh vegetables (Lichy, bananas, dragonfruit )

(Referred to Table 2.1)

In the commodity groups above, raw agricultural products and processed food group hasalways kept its leading position in the contribution to the total export turnover of theCorporation in the recent years, especially cashew nut products, with the exported outputvalue reached 36.5 million USD in 2012 and 22.8 million USD in 2013

The proportion of good exported accounted for more than half of total export value, andquite stable, followed by canned vegetables, dried and pickled fruit and vegetable andfrozen products, these groups have not much difference in percentage Below them werethe concentrate products and fruit puree Finally, the commodity groups including spices,fresh vegetables, due to their characteristics, had quite low export quantity and value

Table 3.1: Product lines proportion in export turn over from 2010- 2014

The main reason is the characteristics of this type of items: short storage period andquickly be wilt Besides, the product storage technology has not really developedwhich made the export of fresh fruits and vegetables become more difficult

Knowing those characteristics of the fresh vegetables product, to try to solve theproblems above, the Corporation has made the right choice in doing the market andsupply chain research In addition, the Corporation sent its staffs to the raw material

manufacturing areas to guide farmers to use seeds and harvest properly; so that thevolume of unqualified products reduce and account for only a small proportion.Pickled and dried vegetables are mainly exported to the Eastern Europe, Russia,Japan and Taiwan markets But in recent years, the export of this commodity groupfaced difficult obstacles affected by economic fluctuations, natural disasters Thus,the purchasing power of this market fell more, customers tend to consume morefresh fruits and vegetables The export turnover of pickled and dried fruit andvegetable group has been unstable, fluctuated unevenly over the years.

Speaking of canned vegetable section, this is the second largest export commoditygroups Before 1990, the canned goods were exported to Russia and were highlyfavored by local people But since 1991, the Soviet Union and Eastern Europecollapsed, the Corporation has faced many difficulties in finding customers in thismarket as well as new markets

However, Vegetexco has invested in a factory system equipped with mordernproduction chains, as well as applying quality management system in productionprocesses Therefore, product quality was improved day by day which helped solvethe problems in product preserveation, create a unique export source of goodsfavored by many markets in the world, particularly in the Russian market

In the group of canned vegetables, pickled cucumbers items are the best-sellingitems because it is suitable for food processing of Westerners There were even thetime when production capabilities of the plant couldnot meet the demand of themarket

Besides pickled products and canned vegetables, one of the staples of theCorporation is the condensed pineapple However, as the demand of the marketstends to decrease, in addition, the Corporation has not concentrated its investments

in product diversification, the total turnover of these two commodities stilldecreased over the years

3.2.2 Foreign markets

To date, the Corporation has had the relationship in export with 60 countries

worldwide, including 22 countries achieving an average turnover of US $1 million

Looking at the table we can see that in general, the Corporation retains the

relationship with the market traders in fruit, vegetables and agricultural products in

which major and traditional market groups retains a high proportion of turnover

In 2014, exports to some markets decreased, but the proportion is basically

unchanged, the main markets remained high proportion of turnover The US market

is still on the top with the export turnover reaching 7.6 million, accounting for

17.6% of total exports, followed by China with 3.8 million, accounting for 8.8%

example, South African market fell by over 90% Russia and Eastern Europeanmarkets continued to decline in purchasing power However, some markets such asJapan, France and Singapore saw a slight growth.

In general, the Corporation's market is shrinking, especially in the traditional market

of fruit products as Russian Federation and some European countries The reason isdue to weak competitiveness, domestic supplies are decreasing and the Corporationhas not really cared about the needs of customers

The decline in world market demand has a direct impact on the key export marketand the traditional market, a significant impact on export production andcommercial businesses while business enterprises inland still maintain efficiencyand growth, contributing greatly to the business result

In the Corporation, primarily export activities are performed by the import-exportdepartment on the basis of market segmentation according to the differentgeographical areas and each in charge of a region The Corporation focuses onselecting appropriate distribution partners who are suitable with productcharacteristics and objectives set out for choosing a foreign distributor to export.With the current distribution system, the Corporation cannot achieve more in thefuture The reason is that Vegetexco is only interested in how to bring moreproducts to the markets without considering how the products will reach consumers.Therefore, the company does not have chances to directly interact with consumers,resulting in fewer opportunities to receive direct feedbacks from them This makescorporations less flexibility in innovating their products

There is the need for an adequate investment to organise and build a sufficientproduct distribution system on each export market

CHAPTER 4: EXPORT OF VEGETEXCO TO THE

- Canned pineapple, canned mushroom