Negotiation and implementation of the international sale contracts’ terms of burwitz refractory company problems and suggestions

STUDENT NAME: TRINH THI LAN ANH DISSERTATION GLOBAL STUDIES AND MARITIME AFFAIRS NEGOTIATION AND IMPLEMENTATION OF THE INTERNATIONAL SALE CONTRACTS’ TERMS OF BURWITZ REFRACTORY COMPA

STUDENT NAME: TRINH THI LAN ANH

DISSERTATION

GLOBAL STUDIES AND MARITIME AFFAIRS

NEGOTIATION AND IMPLEMENTATION OF THE

INTERNATIONAL SALE CONTRACTS’ TERMS OF BURWITZ

REFRACTORY COMPANY:

PROBLEMS AND SUGGESTIONS

HAI PHONG – 2015

STUDENT NAME: TRINH THI LAN ANH

CLASS: GMA 02

DISSERTATION

GLOBAL STUDIES AND MARITIME AFFAIRS

NEGOTIATION AND IMPLEMENTATION OF THE

INTERNATIONAL SALE CONTRACTS’ TERMS OF BURWITZ

REFRACTORY COMPANY:

PROBLEMS AND SUGGESTIONS

Supervisor : Nguyen Viet Hoang Son

Division: Basic Economics

Faculty: Economics

HAI PHONG – 2015

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PREFACE

I certify that all the materials in this dissertation that is not my own work has been identified, and that no materials is included for which a degree has previously been conferred on me

The contents of this dissertation reflect my own personal views, and are not necessarily endorsed by the University

Signature

TRINH LAN ANH

Date of completion: 10 th November 2015

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TABLE OF CONTENTS

Preface i

Table of contents ii

List of figures iv

List of tables v

Introduction 1

1 Necessity 1

2 Research Object 2

3 Research Scope 6

4 Research Findings 7

Chapter 1: Literature Review 9

1 Theoretical Background 9

2 Drafting contracts process 10

3 The international sale contracts’ terms of Burwitz Refractory Compnany 13

Chapter 2: Brief introductionof the company 19

1 Functions and Structure 19

2 The products and partners of Burwitz Refractory Comapany 23

3 Business results 29

4 Potential problems in the international sale contracts’ terms of Burwitz Refractory Compnay 32

Chapter 3: Recommendation for improvement 36

Conclusion 39

Annex 41

References 63

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ABBREVIATION LIST

[1] B/L: Bill of Lading

[2] B.O.M: Broad of Management

[3] BRC: Burwitz Refractory Company

[4] C.E.O: Chief Executive Officer

[5] CIF: Cost-Insurance-Freight (Incoterm)

[6] D/P: Document against payment (payment term)

[7] ICC: International Chamber of Commerce

[8] ISO: International Standard Organization

[9] FOB: Free-on-board (Incoterm)

[10] TT: Telegraphic transfer/ Telex Transfer (payment term)

[11] VND: Vietnam Dong

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LIST OF FIGURES

Figure 1: BEROA Deutschland, Gmbh 's International Projects .4 Figure 2: Contracts drafting process .7 Figure 3: The article of commodity details in Burwitz’s sales contracts 15 Figure 4:The value of International sales contracts from January to September 2014 and 2015 28 Figure 5:The Burwitz Vietnam's total revenue from 2012 to 2015 (billion VND) 29 Figure 6:The Burwitz Vietnam's Profit after tax (PAT) from 2012 to 2015 30

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LIST OF TABLES

Table 1: Major products of Burwitz Refractory Company 23

Table 2: Linings industry customers’ list 25

Table 3: Other customers 26

Table 4: Business results of Burwitz Refractory Company from 2012 to 2015 31

Table 5: Comparison in terms of workers and salary monthly before and after adding new terms of packing conditions……….…….37

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INTRODUCTION

1 Necessity

It is no exaggeration to say that practice always plays an indispensable pattern to plenty of aspects, especially study Without applying theories into reality, the learners cannot mature and get valuable experiences for their field There are three major justifications for giving students’ practice opportunities by corporations and companies

To start with, the essential roles of internship are undeniable Firstly, it is no little doubt that it is a strong support to develop students’ background knowledge In our contemporary life, learners have to deal with plenty of information flows without applying in practicing As a result, their recognitions are vulnerable and unstable, being easily to forget or misunderstanding Thus, thanks to a number of valuable internship, students have a fabulous opportunity to apply their own knowledge to practice, contributing to the higher - level working skills among learners in the near future It is obvious that students in general and teachers in particular can take advantages of those internships

In the second analysis, because of working in the practical environment, students can build up their own experience It is common knowledge that corporations and companies require candidates having two - year experience or more, guaranteeing that potential worker can work right after recruitment process Thus, should companies give opportunities to senior students, they will shortage the recruitment and keep the potential professional candidates From students’ perspective, it is also a valuable chance to show up their abilities, impressing the future recruiters From students and corporations points of view, this is a win-win situation

Regarding to the justifications for choosing Burwitz Refractory Company (BRC), it is undeniable that the international company like BRC has strong and thorough experience in international business The company involves in plenty of multinational businesses in the field of refractory linings’ raw materials In contemporary period, BRC has variety of prolong and truthful relationships with

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numerous of providers such as China, Germany, Japan and so forth On the other hand, I had an opportunity to do the second internship in BRC with the topic

“International Sale Contracts between Burwitz Refractory Company and Chinese Partners” Therefore, in the third and also the final internship, I aim to conduct further study in this field and to give feasible suggestions to existed problems

Thus, thanks to this internship at BRC, I have an excellent opportunity to continue not only apply theoretical knowledge, especially in international trade but also develop my study regarding to company’s existed issues Being close to experienced staffs of BRC via the second internship, I have been received glorious guilds to catch up with the real circumstance of not only company itself but also Vietnamese corporations Finally but yet importantly, this environment may indeed nurture and improve my knowledge and working skills

In a word, for aforementioned viewpoints, it is no exaggeration to conclude that internships are an important part with both companies and students due to its benefits and roles It may indeed be true to say that internships are the bridge connecting enterprises and students, creating the close relationship Therefore, it is common knowledge that internships is now and will be done annually Moreover, it

is no exaggeration to say that the internship in BRC is a value and glorious opportunity in my care

2 Research Object

The research has been conducted at the Burwitz Refractory Company, also

known as BRC Vietnam Being a subsidiary of BEROA Deutschland GmbH,

Burwitz Refractory Company has been established in 2004, basing on the technology of Burwitz Feurungsbau, GmbH (1949)

 BEROA Deutschland GmbH

For more details, Burwitz Feurungsbau, GmbH is a famous branch name, under the umbrella of one of the most giant corporations in terms of refractory linings and chimneys - the BEROA Germany Limited Corporation as known as BEROA Deutschland, Gesellschaft mit beschränkter haftung (BEROA Deutschland , GmbH) It has been created a massive international network, representing by 50

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companies in over 20 countries Having over 95 years of experience, the BEROA Group has a confidence toward their products and customers’ strong belief Under BEROA Group umbrella, there are plenty of well-respected brands such as Karrena (Germany, 1914), Burwitz (Germany, 1949), Bierrum (England, 1928), CPT-Themique (France, 1926), YLA Pty Limited (Australia, 1974) and many more(BEROA Deutschuland Gmbh, 2014)(BEROA Group, 2007)

Mergers and acquisitions of BEROA Deutschland GmbH not only increase the revenue of the group but also help this international network run more workable Developing based on “act-local-think-global” orientation, the corporation is not only remaining the primitive brand names but also standardize those brand images

by using internationally the BEROA’s logo (BEROA Group, 2011) BEROA Group serves international customers, doing across - boundary projects There are plenty of

BEROA’s successful projects in recent years, including:

 “Blast furnace shaft lined with shotcrete” in Slovakia of Refratechnik Steel

 The project in 2010 of Andritz Energy & Environment as known as

“Refractory lining of a circulating fluidized bed plant, combustion chamber with full masonry, thermal capacity 150 MW” at Eisenhüttenstadt CHP plant,

Germany (picture D)(BEROA Deutschuland Gmbh, 2014)

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(A) (B)

(C) (D)

Figure 1: BEROA Deutschland, Gmbh 's International Projects

Copyright 2014 byBEROA Deutschland, Gmbh Reprinted with permission

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Although owning numerous of brands, the BEROA Group still remain the primitive brand names, letting them develop in their strong points Thus, it is definitely the justification for a range of BEROA Technology Group subsidiaries with different brand names across the world One of them, which have to be mentioned, is the Burwitz Refractory Company – a Burwitz subsidiary in Vietnam

 Burwitz Refractory Company – BRC Vietnam

The company’s manufacture locates in Kinhmon town, Kinhmon district, Haiduong with their agents being held in LILAMA Buildings at Hanoi and Haiduong In fact, the company primarily provides Vietnamwse market, starting to explore the African and Middle eastern markets(Burwitz Vietnam, 2015)

Below is some general information of Burwitz Refractory Company

 Hanoi’s agent: floor 18 LILAMA Building, 124 Minh khai, Hai Ba Trung,

Ha noi

 Haiduong’s agent: floor 1 LILAMA Building, 313 Dien Bien Phu, Haiduong

 Factory: Kinh mon town, Kinh mon district, Haiduong city,Haiduong

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industry and other related materials and services Applying the international standard ISO – 2008 in the product’s quality management process, Burwitz Vietnam’s products and services embrace the European standard inside domestic market In contemporary period, the company’s productivity is 100 tons refractory linings per day, not only have met the domestic market’s demand but is also adequate to fulfill other foreign markets Therefore, it is no little doubt to understand the company’s strategy, which is starting to access the African and Middle Eastern markets (Burwitz Vietnam, 2015)

Interestingly, Burwitz Vietnam is the very first high quality refractory linings manufactory in Vietnam, being a key factory to reduce the fixed cost of numerous industries such as metallurgy, cement, pottery, normal and refractory glass, crude oil extraction and so forth (Vietnam Trade and Industry Review) Working with the slogan “For You We Go Through Fire !”, Burwitz Vietnam defines that their primary value is always the customers’ belief (Burwitz Vietnam, 2015) At Burwitz Vietnam, the company’s aim is to develop to be the Vietnamese first class refractory linings and services provider Remaining a close relationship with mother – company and improving products and services’ quality, Burwitz Vietnam try to satisfy the demands and control the risks in order to providing the best benefit to customers(Burwitz Vietnam, 2015) Not eliminating the company’s mission in monetary values, the company never stop renews itself This means making a friendly working environment, improving professional workforce’s skills, and applying the new technology and quintessence in the next products generations (Burwitz Vietnam, 2015)

Although the Burwitz Vietnam has started the business for ten years, it can conclude without hesitance that Burwitz Vietnam will get plenty of successes, and rewards in the future due to its products and services quality, and also their recognition toward customers

3 Research Scope

Being an extraonary corporation, it is easy to understand there are many fields and subjects, which needs to be studied carefully and improved in the future Thus, in this dissertation, the write focuses only on the international commercial

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contracts between Burwitz Refractory Company and their partners In those contracts, BRC Vietnam always plays the role as the buyers, when they need to import the massive amount of raw materials to support for their produce activities

First and foremost, to study the international sales contracts between Burwitz Refractory Company (Burwitz Vietnam) and Chinese providers, we need to understand the drafting contracts’ process before analyzing the sales contracts themselves The relationships between the company and its Chinese partners determine not only the structure of the process of drafting the contracts’ process but also the tenor of the international contracts Secondly, based on the founded information, the researcher starts to analyze and figure out the potential problems

In a word, the scope of this dissertation focuses on the negotiation and implementation of the international sale contracts’ terms of Burwitz Refractory Company

4 Research Findings

Being witnessed as the first class company in refractory industry, Burwitz Refractory Company is the truthful partner of other cement manufacture companies like Uong Bi Thermal or Tam Diep Cement Company Being a joint venture between BURWITZ Group and LILAMA Corporation, Burwitz Vietnam has both the European technological manufactured system and experience in the domestic market Therefore, the Burwitz Vietnam can feel proud to say that the company is the market leader in refractory linings industry

Established from 2005, after 10 years, Burwitz Vietnam is a partner of more than 20 customers with 14 of them belonged to cement manufactured industry The company owns the variety of products and services It includes refractory anchors and wedges; pottery rolls, refractory bricks, insulating materials and refractory linings and chimneys services As time goes by, the company is spreading their activities besides improving their primarily product quality – refractory linings Besides, because the company has established in a short period of time, company’s organization is still simple, having three major levels included top level decided the macro – strategy of company, middle level realized the company’s strategy as a

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number of plans and a bottom level completed these planes Although the company

is still new and young, their business results are truly impressed, increasing dramatically through years

In term of their operation process, it is no little doubt that the company has to involve in plenty of international trading business As a result, drafting international sales contracts become an indispensable pattern in the development of company’s operation in general and business activities in particular Besides other nations, China outstands as a primary provider of raw materials in terms of quantity and contract’s value In fact, it accounts for more than 60 percent in terms of value and 50% regarding to total number of contracts Analyzing those international sales contracts, it is obvious that they are still existed plenty of limitations, which can influence negatively to the not only the benefit but also the development of company There are four major issues, including buying products under CIF term, packing conditions, cultural influence and the dominance of Chinese products

There are numerous of justification for the existence of these limitations However, finding the feasible solutions and applying in reality may indeed improve the company’s successful in the future

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CHAPTER 1: LITERATURE REVIEW

1 Theoretical Background

As the main purpose of this research is to overcome the limitation of international contracts between Burwitz Refractory Company and its partners, it is necessary to understand the key words also the necessity to study this topic Thus, it may indeed help the readers to get a basic knowledge, and further deep understanding about subject

To start with, the term “contract” is the first one which has to been defined clearly In fact, there are many types of contract like commercial contract or working contract However, in this research, the writer just focuses on and study only the purchase contract, especially Burwitz Refractory Company’s contracts The contract, first and foremost, is the mere agreement between the seller and the buyer, aim to avoid damage or harm for parties(Fried, 2015; European Union, 2012; The Unidroit Principles of International Commercial Contracts, 2010; Kline & Quiggin, 2014; Wang, Wong, & Wang, 2014; Kolarz, Marszałek, Kozlak, & Zabinska, 2012)

First of all, culture is one of the influence factor Culture, which includes language and religion, has impacted on business in many aspects like understanding

of a situation, access to people, reaction between people and so forth Thus, commercial contracts as a part of business have been influenced by culture(Thai, 2012; Thai, Globalization of Culture: Business Communication across Culture, 2012) As a consequence, although it has its own pros, parties have to face with its cons However, in each circumstance, it is necessary for parties to find the solution

to deal with problems caused by cultural conflicts

In the second analysis, the dominance of supplier may be a threat with the buyer like Burwitz Refractory Company First and foremost, it increases the supplier’s power of bargaining with customers(Porter, n.d) Thus, the suppliers can influence the activities of company Secondly, there are many example in the past that shown the negative impact of overly dependent on the suppliers to manufactures It can name the case of Nokia Corp of Finland and Telefon AB L.M

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Ericsson of Sweden(Latour, 2001) In fact, the burn of Albuquerque, N.M in just ten minutes had shifted the power balance between two electronic giants

In fact, there are limited number of researches and books studied about the link between the change of contract’s condition and company efficiency However,

it can be denied that the good terms can gain a lot of benefit for company It can be witnessed through the fact that parties’ representatives have to spend a huge amount

of time just for negotiation Therefore, in this research, the writer has studied the Burwitz Refractory Company’s international contracts to find out its limitation Thus, from that results, the researcher hope to give a suitable solution for each problems, leading to the boost in company efficiency

2 Drafting contracts process

Regarding to drafting the contracts, the whole process includes seven major stages, which are offer of orders, counter-offer of orders, drafting and signing contracts, performing contracts, adjusting contracts’ term (if necessary), completing contracts, and filing the contracts’ documentary Based on the relationship between Burwitz Vietnam and the partner, due to different suppliers, the process can be modified as convenient as possible for both parties For more detail, it also means that the drafting contracts’ process may ignore some stages thank to the close relationship of parties Firstly, the research is going to define and study the drafting contracts’ process Given is the graph below describing the seven stages of drafting contracts’ process

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• File contracts' document

Figure 2: Contracts drafting process Copyright 2015 by BRC Vietnam Reprinted with permission

 Sending offer

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Burwitz Vietnam contacts with the Chinese providers whenever the company need the raw materials to manufacture the products Usually, the orders are made via email between both sides, containing the company’s information such as name

of company, address, contact number, types of raw materials, quantity, arrival time and so forth Because Chinese providers are acquainted partners, the basic information of Chinese partners like address, contact information or representative

does not require checking the truthfulness

In fact, company works is seasonal Thus, the placing orders has been booked in the April, May, June and July

 Receiving counter - offer

After the orders have been placed, the negotiation process starts Thanks to the close relationship between both side, the negotiation primarily focuses on the means

of raw materials, quantity and arrival time Other terms and terms are based on the previous contracts between parties This stage is also done via email

 Drafting and signing contracts

The international sales contracts will be drafted based on the model sample The contracts will be modified to meet the requirement of parties as a part of negotiation

The Chinese partners have to sign the contracts firstly before faxing to Burwitz Vietnam Then, the representative of Burwitz Vietnam, Burwitz Vietnam’s CEO - Mrs Vu Thi Van will sign the contracts

 Performing the contracts

According to contracts’ terms and terms, the Chinese partners take responsibility

to complete the contract Because of their close relationship, the Burwitz Vietnam,

in fact, does not require the Chinese partners to send raw materials’ sample to inspect the materials’ quality

The third party like 3PL companies will take responsibility for the middle activities Based on the term of payment in sales contracts, the company either endorses a

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document promising it will pay within a certain time or has to pay in advance at least 80% of contract value The company, then, receive the packing list, commercial invoice, arrival notice, bill of lading, and so on to be able to bring raw materials to company’s warehouse from destination port

 Adjusting contracts’ terms and terms

In some cases, the buyer and seller need negotiation to deal with certain changes

in circumstances, occurring after contract has been signed In this situation, the additions must be a concurrence between both sides, and must be in writing This may be the weather condition, pressure from the government and so forth In addition, this stage has been done only when has an unexpected event happened And, in the trading history between Chinese partners and the company, it never happen Thus, with Chinese partners, in most case, this stage has been ignored

 Completing contracts

Based on the term of payment in sales contracts, the Burwitz Vietnam has to pay

in an allowed period In some circumstance, the time can be up to 30 days

 Filing contracts’ document

The document related to sales contracts have been filed by Accounting Department of Burwitz

In the second analysis, the research will concentrate on theanalysisof the structure of international sales contracts between Burwitz Vietnam and Chinese exporters Overall, it is going to define and study the common points and the dissimilar ones among contracts Moreover, the international sales contracts of Burwitz Vietnam based on the model sample, including nine articles

3 The international sale contracts’ terms of Burwitz Refractory

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majeure (acts of god) arbitration and additional condition All the contracts have been written in English, applying the International Chamber of Commerce (ICC) model contract

 Information of seller and buyer

This part provides the information of importer and exporter, including the name

of companies, their addresses, contact number and the names of representative Finally yet importantly, this part also indicate the good faith of both sides that they want to enter this agreement and have no ulterior motives “It is hereby agreed to between the Buyer and the Seller, whereby the Buyer agrees to buy and the Seller agrees to sell the below material on the following terms and terms” (Burwitz Vietnam, 2014)

Moreover, the prolonged and close relationships between Burwitz Vietnam and Chinese providers are the most obvious examples for the good faith of both parties in international sales contracts

 Description of products (commodity, quantity, price)

Being witnessed as the first article in the sales contract, this part shows the information related to the trading products This includes the commodity name, quantity and price of the various trading products, mostly are raw materials Not only has mentioned to the origin of goods, this part also contains the quality of products The percentage of tolerance is also presented in this article Usually, it equals to 0% That information is shown as below:

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Figure 2: The article of commodity details in Burwitz’s sales contracts

Copyright 2015 by BRC Vietnam Reprinted with permission

Importantly, Incoterm used in the sales contract are mentioned here In fact, with sales contracts between Burwitz Vietnam and Chinese partner when the former is a buyer and the latter is a seller, the Incoterm used is CIF HAIPHONG (Port) VIETNAM version 2010

 Packing and marking

This article defines the way goods had been packed and marked By contrast, in some circumstance, packing term is left empty This is due to the case of raw

material For example, with CA50-G9, which is a high strength aluminate cement,

requires storage in dry terms, prevent humidity and does not allow to mix with other variety of cement, the packing condition of this goods have been mention clearly and thoroughly in packing and marking article of the sales contract between Burwitz and Success Top International Limited on 29July 2014 On the other hand,

with White Fused Alumina, which is raw material, characterizing with high

hardness, high melting point and large crystal size, other sales contract between two

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aforementioned companies on 27 July 2014 did not mentioned the packing condition Briefly, it is obvious that the packing condition in each sales contract is based on the characteristics of raw material itself

By stark contrast, in every circumstance, the marking condition follows exporting standard marking This includes the name of goods, net weight/ gross weight and the country origin of the product

Furthermore, packing and marking article mention the term of shipment, which is always CIF Haiphong, Incoterm 2010

In short, the Incoterms rules as known as International Commercial Term established by International Chamber of Commerce is an international law, using widely in international commercial transactions or procurement process The most important feature of Incoterms to both buyers and seller is the clarity with respect to the cost and obligations

By using CIF Haiphong in buyer’s position, Burwitz Refractory Company takes the risk from the port of loading and receives products at Haiphong port as the port of discharge or port of destination However, the seller’s responsibility includes freight and insurance for the voyage

 Term of payment

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Irrevocable D/P at sign and TT are two most common terms of payment used

in Burwitz Vietnam’s international sales contracts

D/P - “document against payment” or a sign draft transaction means that the exporter can request that the presenting bank release the document only upon payment of the invoice by the importer In this case, a sign draft is a promise by the importer that it will pay “at sign” (immediately) In addition, the D/P at sign is irrevocable, which means the payment is incapable of being retracted or revoked

TT – “Telegraphic transfer” or “Telex Transfer” refer to an electronic mean

of transferring funds overseas

US dollar is used to make the payment among parties The payment term is either Irrevocable D/P at sign (for 80 % to 100% of contract value) or TT 100% (within 5 days since the date started in Arrival Notice) The payment process involves intermediary bank, which is Citibank, New York Nonetheless, after the payment has been done, the presenting bank of seller will release a set of document, including Ocean Bill of Lading (B/L), Commercial invoice, Packing List, Original Certificate of origin, Original Certificate of quality and quantity, copy of fax advising particulars of shipment in duplicate Thus, the importer Burwitz Vietnam can take the products at port Last but not least, the document has to be sent directly via express to Burwitz Vietnam’s agent at Haiduong

 Inspection

Inspection article guarantees the rights of buyer in circumstance that the quantity, or quality of the goods cannot meet the requirement in sales contract Thus, besides having the right to “involve Institute for Building Materials of Vietnam in inspecting of the Goods quantity and quality in discharging port”, the buyer, which is Burwitz, have the responsibility to notify the seller in case that

“goods fail to conform with the contract in either quality or quantity”

 Force Majeure (Acts of God)

This part stipulates the rights and responsibilities of both sides when the commitment is not able to fulfilled because of the event like storm or earthquake,

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which beyond the control of any of these parties in an agreement According to the sales contracts, either of the side shall inform the other in case that the contract can

be terminated by “force majeure” justifications within 30 days

The force majeure clause of International Chamber of Commerce (ICC publication No 421) is used in international sales contracts between Burwitz and not only Chinese collaborates but other providers In addition, this part is exactly the same in another international sales contracts of Burwitz Vietnam played the role

of Buyer

 Arbitration

Regarding to the actions of both sides in case of having disputes or disagreement, this part recommends that parties shall settle the problem by means negotiations and consultations

It also stipulates the choice of law, choice of court’s location, the choice of Forum, and the language of arbitration Remaining the same in every contract, while the choice of law being a result of negotiation process among parties, the arbitration place is at Hanoi – capital of Vietnam, which is also the capital of Buyer’s country Nevertheless, the choice of forum is the International Commercial Arbitration Court

at the Chamber of Commerce and Industry of Vietnam

First and foremost, this title remains in every international sales contracts of Burwitz Vietnam as a Buyer

 Additional condition

Stipulating the application of a variety of additional condition after the contract has been signed, this clause also contains the language of the international sales contract, a number of copies, and rights of parties to keep those duplicates Moreover, the terms making the sales contract came into force are also mentioned Like the previous head, additional condition head remains the same in every international sales contract of Burwitz as a Buyer