VITECO COMPANY AND ITS IMPORT OPERATION EFFICIENCY

In this part, author focus on introducing the establishment and organization of Viteco Company from the beginning to present. 1.1.1 Overview of Viteco - Trading name VITECO VIETNAM TELECOMUNICATIONS TECHNOLOGY JOINT STOCK COMPANY - Abbreviation name VITECO VNPT.,JSC - Head office No. 35/61 Lac Trung, Hai Ba Trung, Ha Noi + Tel (84.4) 3 8622727 + Fax (84.4) 3 6360023 + Website www.viteco.vn Founded in 1991, Viteco Company specializes in supplying, installing, repairing and producing the telecommunication equipments and electronics proponents.Viteco’s effort in that period played an important role in completing the company’s plan in 1991-1995. From 1996-2000, Viteco had succeeded in supplying 100 per cent of the switchboard in district, strengthening and improving the quality, maintaining the network equipments to improve its quality and service.

CHAPTER I: INTRODUCTION OF VITECO COMPANY

AND ITS IMPORT OPERATION EFFICIENCY

1.1 Introduction of Viteco Company

In this part, author focus on introducing the establishment and organization ofViteco Company from the beginning to present

1.1.1 Overview of Viteco

TECHNOLOGY JOINT STOCK COMPANY

- Abbreviation name VITECO VNPT.,JSC

- Head office No 35/61 Lac Trung, Hai Ba Trung, Ha Noi

From 1996-2000, Viteco had succeeded in supplying 100 per cent of theswitchboard in district, strengthening and improving the quality, maintaining thenetwork equipments to improve its quality and service

In 2006, the company changed to do business by equitization form, the economic growth in 2008 increased 30 % compared to 2007 At that time, Viteco focused on cooperating with famous partners like Motorola, Ericsson, etc

Up to now, the company has 170 employees and more than 80 per cent of totalworkers had university degree and 10 per cent of them studied in abroad With morethan 20 years experience, Viteco reached trust from customers and partners, as well asits reputation has been increasing more

1.1.2 The organizational structure

Viteco’s management structure includes shareholders, board, directors They areall controlled by supervisors The following offices are finance and accounting,administration, business plan, import-export and technology office Beside, there aresome branches They are all described by the below diagram

Chart 1: Viteco organizational structure

General meeting

of Shareholders

SupervisorsBoard

Import-export department

Technological

department

Telecommunication centre branch

IT research, produce and apply centre branch

Design consulting and peripheral networks installation

branch

Technological service centre branchSouth branch in Ho Chi Minh City

General meeting of shareholders is the highest power in the company It decides

to reorganize and dissolve the company, as well as developing plan, dismissing orassigning members of board, supervisors

Board is the highest one in the management It has enough power to decideproblems related to the goal and profit of company, except for works of shareholders’authority

Directors include general director and deputy of director General Director is onbehalf of company doing business everyday They are all voted or dismissed by thegeneral meeting of shareholders

Supervisors are voted by Shareholders They control all operation of business,management of company

 Financial- accounting department: Advises the leadership, manage andsupport departments in the company on issues related to the accountingand statistics to ensure cost accounting in the company

 Business plan department: Advises the leadership, manage and support departments in the company to ensure goal for the production, business

 Technological department: Researches and applies informational

technology, supervising service’s quality and products of company,

managed by leadership

 Import-export department: does business directly, gains revenue for

company, takes over consulting tasks, manages and supports the

production for company

 Administrative department: supports in human resources, salary, political system

 Branches: supply telecommunication services, economical benefit, finance

to implement plan and target of company

1.2 Introduction of its business operation

Business operation of Viteco includes business areas, some services, customers aswell as partners

1.2.1 Viteco is one member of VNPT

Vietnam Posts and Telecommunications Group is a state enterprise whichspecializes in investing, producing or doing business in posts and telecommunication inVietnam Ranking to the fifth businesses among 500 highest enterprises in Vietnam,VNPT has been the biggest one in posts - telecommunications in Vietnam

Viteco is one of some parts of VNPT implementing the commission importservice Up to present, it has been making up large market in this manner

1.2.2 Business areas

The company does business in the field of installing, repairing, producing andensuring, importing the electronics components, telecommunications equipments Forexample:

 Producing and assembling telecommunications equipment, electric,electronics, information technology, combustion engine and refrigerationequipments

 Installing, repairing, and ensuring some switchboards such as IMS, STAREX-SRX, STAREX-APR

STAREX- Producing, purchasing and selling smart cards and applied card products(SIM/GSM, Master Card)

 Importing-exporting commodities company trading, especially thecommission import service

 Supervising construction, installing equipments, network informationtechnology, telecommunications

1.2.3 Services, customers and partners

1.2.3.1 Services

Huge customers using commission import service of Viteco involve bothdomestic and international countries like Vinaphone, VNPT, VTN, Alcatel, Motorola,Ericsson, etc In recent years, this form has brought great profits for company,especially with 3G service, Viteco becomes the head enterprise in VNPT doing thiskind well

Sponsored by Japan government, design consulting service succeeded inconsulting solutions to incorporate the most advanced achievementstelecommunications in world and Vietnam's telecommunications network conditions 1.2.3.2 Customers and partners

Customers of Viteco are almost in all provinces, city in Vietnam which usingnetwork telecommunications and company’s services: Hanoi, Yen Bai, Thai Nguyen,Quang Ninh, Tuyen Quang and some other foreign customers like Huawei, Motorola,Ericsson, ZTE Up to now, Viteco has good relationship with more than 14 famousenterprises in the world such as: NEC (Japan), Siemens (Germany), LG (Korea),Ericsson, Motorola, Utstarcom (USA), Argus (Canada), Accu (Korea, China)

Above is the common introduction of Viteco Company including establishment,organizational structure, business areas, services, customers and partners In chapter 2,general terms used in import operation will be defined In addition, there are also somefactors that affect on company’s import operation

CHAPTER 2: THEORETICAL FRAMEWORK2.1 Import theory

This part will solve import theory involving its definition, characteristics, rolesand types

2.1.1 Definition of import

The word "import" is derived from the word "port," since goods are often shippedvia boat to foreign countries Countries are most likely to import goods that domesticindustries cannot produce as efficiently or cheaply, but may also import raw materials

or commodities that are not available within its borders

(http://www.investopedia.com/terms/i/import.asp#axzz1q8h3OSS2)

"Imports" consist of transactions in goods and services (sales, barter, gifts orgrants) from non-residents (residents) to residents (Lequiller, F; Blades, D.Understanding National Accounts, Paris: OECD 2006, pp 139-143) The exactdefinition of imports in national accounts includes and excludes specific "borderline"cases A general delimitation of imports in national accounts is given below:

An import of goods occurs when there is a change of ownership from a resident to a resident; this does not necessarily imply that the good in questionphysically crosses the frontier However, in specific cases national accounts imputechanges of ownership even though in legal terms no change of ownership takes place.Also smuggled goods must be included in the import measurement

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

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

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

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

2.1.2 Basic characteristics of import

Import is a complicated operation compared to domestic business It has somefeatures as follows:

 Adjusted by laws like international agreement on foreign trade, nationallaws, etc

 Diversifying trading systems on international market: normal trade,mediated transactions, or transactions in festivals, exhibitions

 Various payment methods: L/C, T/T, exchanging goods

 Importing by CIF, COB, etc conditions

 Currencies used in transactions are: USD, EURO…

 Buying insurances in terms of risks

 Large area, complex formality, long time for completing

Import operation is one chance for businesses in different countries cooperating.International trade has a direct effect on economic relations - politics of the exportingcountry, contributing to economic development and external relations

2.1.3 Roles of import

Import expresses close mutual relations between the country’s economy and theworld one However, its characteristics and its goal are different in each time In fact,after joining the international economy, import operation is becoming more and moresignificant

 Contributing to bring modern technologies from world to country, playsroles in eliminating monopoly, and improves economic result

 Creating leading goods for company, department and meeting domesticcustomers demands

 Diversifying business operations and commercial goods, and thenimproving quality of those companies.

 Pushing up technique transportation which helps save time, money andleading to the development of national production

 Creating competitions among domestic companies and international ones

at all by the manufacturer's authorized distributors can be procured as direct import.There is no difference in the actual products In most cases, they are manufactured inthe same place by the same people and with the same materials Occasionally,manufacturers will give them a different name

This method may contain more risks but it also brings bigger profits forcompanies than other types

2.1.4.2 Commission import (entrust import)

Commission import is implemented by a domestic business having own foreigncurrency wants to import materials but do not have abilities Consequently, they entrustother company to finish that procedures Then, receiving entrusted businesses workwith foreign partners to make import proceedings according to entrust businesses’requirements Finally, they will accept remuneration called “entrust fees”

In this model, importers do not need to do import formalities, moreover,beginning capital is also not too much Nevertheless, those businesses can not be activeabout time, place, and procedures

In addition, there is one type of import is import barter or import convection Itwas used by some undeveloped countries but now, this form is not applied ininternational trade

2.1.5 Import procedures

Import trade refers to the purchase of goods from a foreign country Theprocedure for import trade differs from country to country depending upon the importpolicy, the statutory requirements and customs of different countries In almost all thecountries of the world import trade is controlled by the Government The objectives ofthese controls are proper use of foreign exchange, restrictions on imports of non-essential and luxury goods, development of indigenous industries, etc It includes 11steps as follow:

 Seller and Buyer conclude a sales contract, with method of payment usually byletter of credit (documentary credit)

 Buyer applies to his issuing bank, usually in Buyer's country, for letter of credit

in favor of Seller (beneficiary)

 Issuing bank requests another bank, usually a correspondent bank in Seller'scountry, to advice, and usually to confirm, the credit

 Advising bank, usually in Seller's country, forwards letter of credit to Sellerinforming about the terms and conditions of credit

 If credit terms and conditions conform to sales contract, Seller prepares goodsand documentation, and arranges delivery of goods to carrier

 Seller presents documents evidencing the shipment and draft (bill of exchange)

to paying, accepting or negotiating bank named in the credit (the advising bankusually), or any bank willing to negotiate under the terms of credit

 Bank examines the documents and draft for compliance with credit terms Ifcomplied with, bank will pay, accept or negotiate

 Bank, if other than the issuing bank, sends the documents and draft to theissuing bank

 Bank examines the documents and draft for compliance with credit terms Ifcomplied with, Seller's draft is honored

 Documents release to Buyer after payment or on other terms agreed between thebank and Buyer

 Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchangefor the goods or the delivery order

(Source: Airlinklebanon.com/international trade)

2.1.5 International commercial terms

The Incoterms (International Commercial Terms) is a universally recognized set

of trade terms brought out by the International Chamber of Commerce (ICC) in Paris.They clearly define the buyer and seller’s trade contract liabilities and are considered to

be a cost-saving tool They are used throughout the world and are accepted by banks,customs authorities, all types of carriers, transportation intermediaries and financialinstitutions

The Incoterms were first published in 1936 and have been regularly updatedfollowing the changes in the international trade needs, till their latest version in 2002.The International trade terms are grouped in four categories: E, F, C and D, each oneindicated by the first letter of the acronym

Below is a list of the most common Incoterms:

EX- WORKS (From factory or warehouse):

The term EXW is commonly used between the manufacturer/ seller and trader/ buyer, and is considered to be the minimum obligation of the seller among allother Incoterms Under EXW, the seller is not even responsible for the cost of loadingthe goods on the vehicle provided by the buyer, unless otherwise agreed in advance.Therefore, the buyer has to bear the full cost and the potential risks involved inbringing the goods from the EXW location to the ultimate destination

export-FCA (Free Carrier):

In Free Carrier, the seller/ exporter/ manufacturer clears the goods for export andthen delivers them to the carrier specified by the buyer at the “named place” If thenamed place is the seller’s factory, the seller will be in charge of loading the goodsonto the transport vehicle If the named place is any other location, the seller will not

be responsible for the transportation of goods A carrier can be a shipping line, anairline, a trucking firm, a railway or sometimes a freight forwarder

FAS (Free Alongside Ship):

Under this term, the seller clears the goods for export then places them alongsidethe vessel at the “named port of shipment” The buyer will be responsible for theloading fee, the main carriage, the cargo insurance and other costs implicated

Letters of credit can also be used in the payment terms of FAS transactions

FOB (Free On Board):

In Free On Board, the seller clears the goods for export, takes charge of the costsand risks involved and delivers the goods on board the vessel This term is used onlyfor ocean or inland waterway transport

Once the cargo has crossed the “ship’s rail”, the buyer bears all costs and risks

The main difference between FAS and FOB is that under FAS term, the buyer isrequired to clear the goods for export and pay the cost of loading them

CFR (Cost and Freight):

Under CFR, the seller clears the goods for export and is responsible fordelivering the goods past the ship’s rail at the port of shipment He also takes charge ofthe costs associated with transport of the cargo to the named port of discharge

However, once the goods pass the ship’s rail at the port of shipment, the buyer assumesresponsibility for risk of loss or damage, as well as any additional transport costs

CIF (Cost, Insurance and Freight):

CIF and CFR are similar with one difference: the seller is also responsible forprocuring and paying marine insurance in the buyer’s name for the shipment Thebuyer or importer will be responsible for the import customs clearance and other costsand risks

DDP (Delivered Duty Paid):

The seller clears the goods and makes them available to the buyer at the namedplace of destination, cleared for import but nor unloaded from the transport vehicle The exporter assumes therefore all responsibilities for delivering goods, includingimportant clearance, duties and other costs payable upon import

DDU(Delivered Duty Unpaid):

The seller also clears the goods for export and makes them available to the buyer

at the destination place However, cargo remains unclear for import The buyer bearsthe import customs clearance, duties, administrative charges and any other costs uponimport as well as the transport to the final destination

The above-defined terms are a brief summary of the Chamber of CommerceIncoterms in their latest publication

There are some other terms issued by the ICC but they are not as frequently used

as the ones just mentioned These terms are:

- CPT (Carriage Paid To)

- CIP (Carriage and Insurance Paid To)

- DAF (Delivered At Frontier)

- DES (Delivered Ex Ship)

- DEQ (Delivered Ex Quay)

(Source: Incoterms 2010, ICC publication No 715 Edition)

Chart 2: Incoterms (Source: http://thuongmaiwto.com/xuatnhapkhau/tin-chi-tiet/thuat-ngu-xnk-

incoterm/604.html)

2.2 Factors affect import operation

There are both internal and external factors which affect on import operation ofViteco Company as well as other companies

2.2.1 Internal factors

Internal factors are consist of capital and technology, management system, humanresources and some other related factors

2.2.1.1 Capital and technology

Capital and technology have great direct effect on company’s business operationcommonly and the import one particularly They facilitate import operation ofCompany implemented well

Capital and technology have close relation If company has huge power offinance, it will buy many high modern technologies which push up productivities andeffects in company‘s business operation and vice versa

2.2.1.2 Management system or administrative structure

Import operation refers complete leadership, suitable decentralized administration,and appropriate allocated jobs which suits for characteristic of import business in eachcompany A cumbersome organization will convey unaffected results for enterprisesand vice versa

2.2.1.3 Human resources

In import-export operation commonly and in import particularly, all periods frommarketing research to signing contract which require import employees to know

professional knowledge and skills clearly, moreover, they are active and confidentwhen working with foreign partners

Human resources play a significant role in effect as well as success or fail ofbusinesses

2.2.2.2 Tariff

A tariff is a tax placed on imported goods Each country has separate tariffregulations It is easy to see why a foreign tariff hurts the economy of a country Aforeign tariff raises the costs of domestic producers which causes them to sell less inthose foreign markets and vice versa

2.2.2.3 Politics

Import operation is international transaction, so it has close relationship withcountries’ politics and laws Companies doing business in import need to obeyregulations of related countries, cultures and international laws

Stable political environment, close laws will enhance international trade operationamong countries and their economies

2.2.2.4 Transportation and communication system

It is accepted that import operation and transportation, communication system cannot be alienated Well- designed, safe transportation and communication structure willrise effect on import operation, as well as reduce risks

2.3 Evaluation criteria

There are many criteria to evaluate the efficiency of the company In this report,the author just focuses on operating profit, profitability ratio, return ratios, and totalassets turnover

2.3.1 Operating profit

Operating profit means the profit earned from a firm's core business operations Itdoes not include profit earned from the firm's investments and the effects of interestand taxes It is also known as earnings before interest and taxes (EBIT) It is obviousthat enterprises do business because of profit So, it will be the first criteria to evaluatethe outcome of company’s import operation

Operating profit = Operating revenue – Operating cost

Pn: Profit from import operation

Cn: Cost of import operation

n: year

2.3.3 Return ratios

Return ratios involve return on assets and return on equity

2.3.3.1Return on Assets (ROA)

ROA shows the after tax earnings of assets and is an indicator of how profitable acompany is It matches net profits after taxes with the assets used to earn such profits

A high percentage rate will tell you the company is well run and has a healthy return onassets This ratio is calculated using the following formula:

taxes after profit Net

2.3.3.2 Return on Equity(ROE)

ROE is useful for comparing the profitability of a company with that of otherfirms in the same industry It is a measure of a corporation's profitability; ROE revealshow much profit a company generates with the money shareholders have invested.ROE is also known as return on net worth (RONW) It is calculated as shown here:

2.3.4 Total assets turnover (TAT)

Asset turnover measures a firm's efficiency at using its assets in generating sales

or revenue - the higher the number the better It also indicates pricing strategy