Vietnam is one of fastest-growing locations as well as average export growth rate in the region during the last decade (Vietnam logistics submit. 2008). The country has become a core point for off-shore purchase for global manufacturers looking for lower cost locations than others. By favorable conditions, there are opportunities as well as challenges for the transport industry generally and logistics sector in particular (Transport intelligence. 2008).
This research will analyze Vietnam logistics industry through models such as Porter’s Five Forces, PESTLE analysis and Product Life Cycle to introduce recommendations for development of logistics industry in Vietnam.
Porter’s Five Force Analysis
Threats of new entrants – High
Threat of new entry can be characterized as high due to Vietnam must entirely open logistics market for foreign logistics companies in 2012 following its conditions to the World Trade Organization (WTO). This is a big difficulty for Vietnamese logistics sectors that have to compete with foreign companies that have greater capital and better competitiveness.
Threat of substitutes – Medium
E-commerce will design a new market for players in the logistics field. Logistics and interaction systems that efficiently and effectively in respects will be key for the success of the enterprises involved. This means that service companies and especially logistics companies, must identify and provide effective logistics solutions in order to compete on the marketplace (Hultkrantz, O & Lumsden. n.d.).
Bargaining power of suppliers – Medium
The inefficiencies of the transportations and shortage of assisting infrastructure system, including warehousing and depot facilities are drawbacks for the advance of logistics sectors. Moreover, many seaports and airports also lack logistics distribution centres, which can lead to increased inventory and idle time for trucks, ships and planes (Hiong, K. S. 2008). However, most recently, government’s progresses to enhance transport infrastructure and increase participation of international operators are expected to improve the logistics field in Vietnam.
Bargaining power of buyers – Medium
The Vietnamese logistics industry has great advantages for growth by international economic interaction. The open policies of government effects strongly to country’s trade needs. But, inadequate logistics infrastructure including seaports, warehouses, and airports has led to increased logistics costs. This disadvantage has prevented from developing of the Vietnamese logistics sector and decrease attraction of domestic logistics companies in customer’s eyes.
Rivalry among existing firms – High
There are more than eight hundreds operating small-sized logistics enterprises in Vietnam, and they remain moderate capital, technology and manpower (Vietnam logistics submit, 2008). The business environment for service providers is more likely to be improving as the benefits of an integrated logistics system increases among policy makers and end users.
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The Vietnam’s shipping field is dominated by international players who can provide global coverage and a wide range of services. As a result of accession to the WTO, Vietnam has allowed foreign shipping companies to establish joint ventures with majority foreign ownership. The local carriers are largely focused on domestic and regional shipping services within ASEAN (APL logistics, 2007).
Analysis on PESTLE of Vietnamese logistics industry
PESTLE analysis is used to identify factors of macro environments of Vietnam in logistics industrial development relying on five basic elements: Politics, Economy, Society, Technology, Legal and Environment.
Governmental policies and regulations on the logistics sector are unclear to provide conditions for growth of the country’s young logistics industry. Moreover, legal and regulatory standards significant affect over the logistics sector depending on the political environment which formulates under laws and regulations.
Recent years, favorable policies for industrial activity have resulted in the growth of Foreign Direct Investment (FDI) flows and the establishment of more privately-owned Vietnamese companies. This has given great impulse to the nation’s industrial sector and resulted in the multi-fold growth of international trade (Hiong, K. S, 2008).
The businesses expanded further national boundaries and extended to take advantage of new markets and cheaper resources, so the movements of goods created new demands for the logistics industry. However, rising global competition gave greater pressures on businesses to minimise the costs of operation, including implementation of just-in-time inventory management systems, etc., and also created demands for speed and accuracy in all aspects of business.
Imports and exports of Vietnam have been increasing continuously and the economy has been shown a high growth rate of on average of annual 6% between 2005- 2008. The country’s exports and imports of 2009 was approximately $136 billion USD, a 21% increase from 2008 (General Statistics Office of Vietnam, 2010). The increase of international trade had created great demand and strong opportunity to logistics service providers (Hiong, K. S. 2008).
Moreover, FDI has also been increasing moderately in the logistics sector and is expected to increase faster with the Vietnam’s entry to the WTO. The arising of foreign logistics companies which are in the process of investment to operate as fully foreign owned companies or joint ventures in Vietnam. With the rising penetration of multi-nationals, the market is expected to grow during the next years, with service levels reaching international standards (Hiong, K. S. 2008).
Recently, Vietnamese Government aims to invest as much as 10% of its GDP on infrastructure including the transport, energy and telecommunications sectors. The private sector is expected to play a further role in the highway, seaport and airport projects. Improving in infrastructure and ancillary services such as warehousing, depots and distribution centres will expanded boost the demand for logistics services and create great business opportunities for the existing logistics service providers (Hiong, K. S, 2008).
The inadequate HR for logistics services as lack of qualified logistics specialists. In an effort to keep pace with these demands, as well as cater for the needs of the world’s 13th largest population, the Vietnamese Government has invested heavily in improving its transport infrastructure.
However, its success can be described the best as mixed. While Vietnam’s extensive network of inland waterways transport efficiently throughout the country, an inadequate road network (less than 20% pavement) and limited railway ability have resisted Vietnam from meeting its full transport capacity.
On the other hand, Vietnam’s rapidly growing air and seaport industry has facilitated a higher volume of trade; improvements across all transport networks will have a similar effect.
The less corresponding information system of Viet Nam logistics industry is leading to be ineffective. Recently, Vietnam is still behind almost regional countries of EDI and E- Commerce applications. A number of other nations have made significant efforts to build up a public- private EDI, inter- ministry network to share the logistics knowledge and to enhance the sector’s operations (Arnold, J & Stone, J. I. n.d.).
On the other hand, Vietnam Internal of Commercial Technology (VICT) system of Vietnam is the only port operator using the EDI system, on standalone basis, which processes automated container billing, automated inventory management (container yard operation), automated gate operation (truck arrival and departure check), automated vessel operation (container loading and unloading management), and CFS stock management (Arnold, J & Stone, J. I. n.d.).
In Vietnam, the regulations and legislations are highly complicated and not usually consistency such as customs clearance, ground handling, and terminal operations. The multiple layers of administration levels also result to some corruption issues and increase in both the cost and times of processing freight (Hiong, K. S. 2008).
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Recently, the various business operations such as freight forwarders, warehouse, fleet and integrated logistics companies are not defined clear boundaries. They are not often co-operated and do not associate generally each others’ business offerings, which will result to double of efforts, higher costs and time. Lack of sharing of information, decentralization on roles and responsibilities also create potential challenges and can further become barriers to the growth of the Vietnam’s logistics industry (Hiong, K. S. 2008).
Vietnam’s logistics sector also experienced less logistics professionals. This is a great challenge and disadvantage for the logistics companies since they suffer to look for talents. Inadequate training and education in logistics’ area is also a major contributor to find out skilled persons (Hiong, K. S. 2008).
Otherwise, the transport infrastructure is actually in bad conditions and a corridor for public transport has not been created while the needs for high quality transport of goods between various means of transport are increasing.
The Drivers of change of the Logistics industry
The main forces that dives change of logistics industry in Viet Nam will be: the regulations of government, national transportation and infrastructure system, business environment, cost and time of services.
Regulations of government’s policies
The complex legal and regulatory environment is a major involvement for both private and foreign investors. It is an important reason for the lower participation of private investors in critical sectors such as heavy industry and infrastructure development (APL logistics. 2007, p.5). This will be essential for greater transparency in policy decisions and to place greater emphasis on economic considerations over political practically.
National transportation and infrastructure system
The national infrastructure and transportation network significantly lies under international standards and hence account for a low share of the overall logistics market. The improvement of these will greatly enhance the country’s potential to develop its domestic and international logistic co-operations (APL logistics. 2007, p.5).
Vietnam has great capacities to become a major shipping hub. However, the shortage of world-class deep water ports is restricting its potential to completely develop shipping and supported industries (APL logistics. 2007, p.5). Encouraging the participation of international shipping and port companies would supplement great driving forces to the sector.
Costs and time
In addition, the development of logistics industry will significantly encourage Vietnam’s competitiveness through the reduction of transportation and inventory costs, leading in shorter delivery time to destination markets and an overall improvement in the efficiency and security of the movement of goods and materials (APL logistics. 2007, p.5).
Recently, logistics costs are a remarkable contributor to the high cost of doing business in Vietnam. Over the last years, increased competition and the improved level of logistics services has reduced this cost considerably.
The life-cycle model
Vietnam’s economy is expected to continue growth at above 6% for the next years (General Statistics Office of Vietnam. 2010). The share of national GDP between the industrial and service sectors will grow continually. Vietnamese logistics industry is considered stand inside growth and shakeout stages (X).
The experience of its neighbours (such as China, Hong Kong, and Singapore) will be useful examples of how to develop logistics industry. Government policies focus on transforming Vietnam into a market economy and continuing international economic integration.
Moreover, foreign logistics investors will expand their presence in Vietnam. There is an opportunity to improve this further through investment in new infrastructure as well as new processes and technology to meet international standards. This will support for national main industries, including transportation and logistics to continue growth in the future.
Redesigning of regulations and laws as well as co-operation of small enterprises to facilitate trade operations faster, cheaper and more effective
Service providers face various challenges, including inconsistent regulations across levels of administration and a lack of manpower skill. Further, the industry is highly fragmented with a count of more 800 operators competing for business. Most of a small scale and have service range, limited coverage, and information technology potentials (APL logistics. 2007, p.4). It is necessary for encouraging members to work in collaboration with each other on the basis of utilising enterprises’ advantages (physical facilities, information systems, and othersâ€¦) for one-stop shop provision of services, and expanding domestic and overseas business operations range.
Improvement of technology, the national transportation system as development of roads, infrastructure, landside and international airport.
This will be a critical need to develop road and landside infrastructure in order to facilitate the efficient movement of the increased volume of goods. Upgrading of the existing airports at Ho Chi Minh City and Hanoi to support larger volumes of cargo is also urgently required (APL logistics. 2007, p.3).
The increased emphasis placed on developing the electronics and hi-tech sectors by the Government will give renewed impulse to further develop its air facilities, as these products require more sophisticated and secure modes of delivery and shorter transit times.
Further, the building new ports around major economic centres of country (Ho Chi Minh City and Hanoi) could result in a considerable improvement of infrastructure. The development of deep water ports is also likely to remarkably boost international cargo activity linked with Vietnam and decrease overloaded flows of goods at two big ports as Ho Chi Minh and Hai Phong (APL logistics. 2007, p.4).
The earlier building of the new international airport at Long Thanh – Dong Nai, nearly Ho Chi Minh City will bring more benefits adding capacities. Additionally, the concurrent development of an improved road network to connect to the new airport will be required to avoid the creation of new bottle-necks (APL logistics. 2007, p.4).
Training and human resources
The progress of getting aware of logistics, building logistics management skills and enhancing the ability to translate logistics theory into logistics practice needs long-term time. Vietnam government should have policies to support enterprises and schools in order to step up the task of training under various flexible forms, providing human resources for the industry. On their part, enterprises need to look for funding and cooperation in human resource training from foreign countries and organizations.