Vietnam Country Study

Katherine Cavanaugh, Jackson Fitch, Kyle Gardner, Claire Garrahan, Parker JoynerMGT 431

Dr. Ellram - B8

Table of Contents

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TABLE OF CONTENTS

EXECUTIVE SUMMARY......................................................................................................................................................3

COUNTRY HISTORY.............................................................................................................................................................3

DEVELOPMENT............................................................................................................................................................3

GOVERNMENT.............................................................................................................................................................4

STABILITY...................................................................................................................................................................5

PRIMARY LANGUAGE..................................................................................................................................................5

MAJOR CITIES.............................................................................................................................................................5

RELIGIOUS AFFILIATIONS AND SIGNIFICANCE............................................................................................................6

LOCATION.................................................................................................................................................................................7

ACCESS TO TRANSPORTATION....................................................................................................................................7

TYPES OF TRANSPORTATION.......................................................................................................................................8

NATURAL RESOURCES................................................................................................................................................8

ECONOMY.................................................................................................................................................................................8

OVERVIEW..................................................................................................................................................................8

ECONOMIC PLAN.........................................................................................................................................................8

VIETNAM AND THE WORLD TRADE ORGANIZATION..................................................................................................9

LONG-TERM EDUCATION PLAN..................................................................................................................................9

PRIMARY INDUSTRIES.................................................................................................................................................9

TOP EXPORT GOODS AND PARTNERS.......................................................................................................................10

TOP IMPORT GOODS AND PARTNERS........................................................................................................................10

TRENDS IN TRADE.....................................................................................................................................................11

CURRENCY DENOMINATION AND STABILITY............................................................................................................11

EASE OF DOING BUSINESS.............................................................................................................................................12

ENVIRONMENTAL REGULATION................................................................................................................................12

BUSINESS OWNERSHIP OUTSIDE OF THE COUNTRY AND FUNDS EXPORTED............................................................12

PROTECT BUSINESS RIGHTS......................................................................................................................................12

BRIBERY/FACILITATING PAYMENTS AND STABILITY OF GOVERNMENT...................................................................13

LEAD TIMES..............................................................................................................................................................13

IMPORT AND EXPORT TARIFFS AND BARRIERS........................................................................................................13

FREE TRADE ZONES..................................................................................................................................................14

GOVERNMENT SUBSIDIES..........................................................................................................................................14

ATTITUDE AND TRADE WITH THE UNITED STATES..................................................................................................14

LOGISTICS..............................................................................................................................................................................15

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PORTS........................................................................................................................................................................15

CONTAINER PORTS IN NORTHERN VIETNAM............................................................................................................15

CONTAINER PORTS IN CENTRAL VIETNAM...............................................................................................................16

CONTAINER PORTS IN SOUTHERN VIETNAM............................................................................................................16

DEVELOPMENT OF VIETNAMESE PORTS...................................................................................................................16

AIRPORTS..................................................................................................................................................................17

PRIMARY TRANSPORTATION MODES AND THEIR PREVALENCE...............................................................................17

CAPACITY ISSUES......................................................................................................................................................18

DOMESTIC AND GLOBAL TRANSPORT AND SPEED...................................................................................................19

CHALLENGES AND STRENGTHS OF LOGISTICS SYSTEMS..........................................................................................21

ROAD SECTOR STRENGTHS.......................................................................................................................................21

ROAD SECTOR CHALLENGES....................................................................................................................................21

RAIL SECTOR STRENGTHS........................................................................................................................................22

RAIL SECTOR CHALLENGES......................................................................................................................................23

MARINE STRENGTHS AND CHALLENGES..................................................................................................................24

Inland Waterway Sector Strengths......................................................................................................................24

Inland Waterway Sector Challenges...................................................................................................................25

Maritime Sector Strengths...................................................................................................................................26

Maritime Sector Challenges................................................................................................................................27

AIR SECTOR STRENGTHS..........................................................................................................................................28

AIR SECTOR CHALLENGES........................................................................................................................................28

ENVIRONMENTAL ISSUES IN REGARDS TO TRANSPORT............................................................................................28

ENVIRONMENTAL ISSUES IN REGARDS TO TRANSPORT............................................................................................29

WORLD BANK LOGISTICS ASSESSMENT...................................................................................................................31

RISKS.........................................................................................................................................................................31

COST ISSUES..........................................................................................................................................................................32

MATERIALS...............................................................................................................................................................32

LABOR AND WORKFORCE.........................................................................................................................................32

EDUCATION LEVELS..................................................................................................................................................33

BENEFITS...................................................................................................................................................................34

AVAILABILITY OF MANAGEMENT PERSONNEL.........................................................................................................34

UNEMPLOYMENT.......................................................................................................................................................35

STABILITY.................................................................................................................................................................35

INFLATION STABILITY...............................................................................................................................................36

WORK RULES............................................................................................................................................................37

SOCIAL ISSUES.....................................................................................................................................................................39

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HAPPINESS................................................................................................................................................................39

BUSINESS CUSTOMS..................................................................................................................................................40

VIETNAM AND EUROPEAN UNION FREE TRADE AGREEMENT..................................................................41

CONCLUSION........................................................................................................................................................................41

FINDINGS...................................................................................................................................................................41

STRENGTHS AS A TRADE PARTNER...........................................................................................................................42

WEAKNESSES AS A TRADE PARTNER........................................................................................................................43

RECOMMENDATIONS.................................................................................................................................................43

WORKS CITED......................................................................................................................................................................45

APPENDIX...............................................................................................................................................................................51

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Executive Summary

This paper is designed to inform and educate the audience on Vietnam’s history, social background, and logistics involved in Supply Chain and Operations Management. To begin, the paper will discuss an overview of the country’s history to provide the reader with an understanding of the development, government, societal aspects, and geographic location of the nation. Following the history, the paper will explore the economy of Vietnam; specifically industry, trade and its relations, as well as education. With a greater knowledge of the aforementioned subjects the report will then examine the ease of doing business with Vietnam from a Vietnamese perspective. This discussion will also address the environmental regulations, business ownership outside of the country, protection of business rights, and government stability with regards to corruption. The paper will compare lead times as well as the difficulty of trade in Vietnam to that of the United States and how this relates to the ability to do business in Vietnam. It will also describe Vietnam’s government subsidies and its relationship with the United States. The majority of this report will focus on the logistics of Vietnam including transportation, a World Bank Assessment, and risks associated with strikes, politics and weather. The paper will then explicate the cost issues within Vietnam, specifically within rise of industry. The report will close with a discussion of social issues as well as a recent circumstance in regards to Vietnam’s trading relationship with the European Union (EU). In conclusion, the report will summarize the findings and relate them to the benefits and drawbacks of a business relationship with Vietnam. Finally, the team will recommend ways Vietnam can improve its logistics and the importance of Vietnam to other business entities.

Country History

Development

Vietnam was ruled by China for over a thousand years. The country focused on becoming an individual nation and was viewed as its own entity before the European colonization began. Even with Vietnam’s independence, Chinese influences and relations stayed strong between the neighbors for centuries. The 15th century is considered to be Vietnam’s Golden Age due to the rise of Confucianism and general stability. Over the next several centuries Vietnam suffered through various internal and external conflicts. One of the outcomes of the conflicts was the French Colonization of Vietnam, in 1885. During this time Cambodia and Laos were also taken over and combined into a block owned by France. This colonization drastically affected Vietnam’s economy, politics and social constructs in a way that would change the way Vietnam operated for good. Japan briefly controlled Vietnam from a distance during the World War II, but lost its hold when the nation was defeated in 1945. On September 2nd, 1945 Ho Chi Minh declared Vietnam a Democratic Republic. Shortly after the declared independence, the United States became involved in Vietnam’s conflicts along with other countries in the Indo-China

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region. A forceful combination of Southern and Northern Vietnam came to be on July 2nd, 1976 (Dosch, n.d). Since that time Vietnam has had a rocky relationship with the United States.. In recent years, Vietnam has dealt with a variety of political issues. The nation is trying to address many of these issues including corruption, pollution, education and social justice within its borders. This paper will discuss a variety of logistical issues that will affect Vietnam’s efforts to reform its country in the aforementioned ways as well as several others.

Government

Vietnam is a socialist state with that has been controlled by the Communist Party since 1992, based on the Constitution. The government has a President, elected by the National Assembly, who is the head of state and armed forces. The nation also has a Prime Minister, who is the head of the government and is selected by the President from the candidates in the National Assembly. The Prime Minister, in turn, selects his cabinet with approval from the National Assembly. The legislative power rests with the National Assembly, a body of government with a max of 500 persons. Vietnam is divided into 58 provinces and five municipalities that adhere to the central government. All local law is determined by the People’s Council, a group of locally elected individuals (Constitution and Government, n.d).

The national flag is a red background with a single five-pointed star in the center, as depicted in Figure 1. The star signifies Vietnam’s socialist government. The five points symbolize the five types of workers in creating a socialist state; the intellects, peasants, soldiers, workers and youths. The red background represents the revolution and all of its struggles through the imagery of bloodshed (Vietnam Flag and Description, n.d.).

Figure 1: Source: Vietnam Flag and Description, 2016

Stability

Due to the long history of Vietnam, the country’s political stability has changed drastically over time. As mentioned in the Development section above, Vietnam’s most stable period of history was during the 1400’s. Wars on its own soil and other countries seeking control of Vietnam have limited the nation’s ability to grow strong individually. Corruption and political

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strife have also limited Vietnam’s ability to remain a stable nation (History, n.d). Recently, the Vietnamese government has started to address some of the major issues that limit the stability of the country (Vietnam: Macroeconomic…, 2017). Later in the paper specific stability problems will be discussed in regards to economics and logistical issues.

Primary Language

The national language of Vietnam is Vietnamese, but a collection of Vietnamese dialects vary by region. The northern dialect is considered standard Vietnamese and is the prestige dialect (Luu). French is the most commonly spoken foreign language, due to the French colonization (Nag, 2016).

Major Cities

Vietnam’s capital is Hanoi, located in the northeast area of the country. Most of the population resides in the countryside in the river delta regions of both northern and southern Vietnam. In recent years there has been a shift towards a more highly concentrated urban population, primarily in Ho Chi Minh City and Hanoi. As of 2015, the largest city in Vietnam was Ho Chi Minh City with a population of 7,297,780 people. Even though Hanoi is the capital of Vietnam, the population is half the size of Ho Chi Minh City at an estimate of only 3,629,493 people. The port city near Hanoi, Haiphong, is also worth noting and has a population size of 1,075,499 people. Haiphong is not a large city by land size, but due to the nature of Vietnam’s logistics, it contains a large population based on the availability and necessity of port jobs (Demaine, n.d).

Below, Figure 2 is a map of Vietnam including the surrounding seas and major cities. In the course of this paper, the location and proximity of these cities play a key role in many of the logistics issues discussed.

Figure 2: Source: Margolies, 2018.

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Religious Affiliations and Significance

The majority of the country practices Buddhism (80%), but there are also several indigenous religions and other religious practices in Vietnam. Vietnam is a traditionally religious country and this has an effect on citizen’s comfort in expressing their beliefs and opinions. Due to the atheist nature of the Communist government, religious holidays are not publicly celebrated and religious activities are strictly regulated. In fact, the government controlled, Religious Publishing House, is the only entity permitted to publish religious materials. While the Vietnamese government is intolerant of religion, the Vietnamese people are all accepting of religions; there is no conflict between groups or sects (World Trade Press, n.d).A breakdown of the religions and their respective percentages can be seen in Figure 3 below.

Figure 3: Source: World Trade Press, n.d

Location

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Access to Transportation

Vietnam is a coastal country in the continent of Asia, neighboring China, Laos and Cambodia. The South China Sea surrounds the east and south side of the nation (Mortula, 2014). The physical location of the country lends itself well to sea shipping from along the eastern coastline. The country also has a rail system that follows the coastline and spreads inland into the northern territories. (Railway Systems, n.d) Airports are scattered across the country, providing access to air shipments nationwide (Efficient Logistics, 2014). Vietnam’s congestion adds difficulty to modes of road transportation (World Bank, 2016). All of these topics will be discussed in further detail later in the paper.

Types of Transportation

Vietnam uses air, truck, and water transportation modes to get their materials and products from point A to point B. Vietnam uses very minimal rail transportation to transport goods (Transportation Services in Vietnam, 2016). This paper will go into detail on how and where these transportation modes are most and least effective.

Natural Resources

Vietnam offers a few natural resources that are critical to itself as well as to other countries. The two main river deltas are agriculturally essential to the nation. The rice production is a key part of Vietnamese life, especially in the uplands. Vietnam contains metallic ores in the uplands as well as phosphates and coal. The nation is also a regional exporter of petroleum (Demaine, n.d).

Economy

Overview

Vietnam is a densely populated developing country that works under a socialist-oriented marketing economy and is transitioning from a centrally-planned economy. This means the government is directly involved in economic development and decision making for the country. Eventually, the goal of the economy is to achieve socialism. The Communist Party established this economic framework to move away from the Soviet-type economic approach that was in place (Pariona, 2016).

Economic Plan

Authorities have stated their commitment to economic modernization and a more open economy (World Trade Press, n.d). The process of doi moi (renovation) was initiated in 1990 with the objective of transforming Vietnam's centralized economy into a market-orientated

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system. As a result of this plan, Vietnam was transformed into a lower middle-income country from one of the world’s poorest nations (World Bank, n.d).

The economic performance in 2017 has been “resilient” as it exhibits robust export-oriented manufacturing, strong domestic demand, and a gradual rebound of agriculture. GDP growth was around 6.8% in 2017, which was Vietnam’s fastest expansion in the past ten years. (World Bank, n.d).

Vietnam and the World Trade Organization

Following eleven years of negotiation, Vietnam joined the World Trade Organization in January of 2007. The accession to WTO was to speed up trade liberalization as well as improve market access for the new member country’s exports. Additionally, membership provided Vietnam with greater access to overseas markets. However, it also required the country to cut import tariffs. Supporters of the accession believed it would help boost exports in the food and textile industries and attract investment, while critics argued that increased competition will damage local firms and producers such as livestock farmers (“Vietnam’s WTO Membership Begins”, 2007).

Long-Term Education Plan

The education ministry has designed a long-term plan and has committed to the financial support necessary for implementation. In 2010, almost all government expenditure was devoted to education, which is a larger proportion than in in any other OCED country. The government has made it a priority to get all young people into education and so far the education has been good at absorbing disadvantaged children and providing them with equal access to education (“Education in Vietnam”, n.d.). About 17% of Vietnam’s poorest 15-year-old students are in the top 25% of performers across all countries and economies that participate in Pisa tests (Schleicher, 2015).

Primary Industries

Agriculture, including forestry and fishing, contributed 18.9% of the country’s GDP in 2015 and engaged in 42.0% of the employed labor force in mid-2016. Comprising manufacturing, mining, and quarrying, construction and utilities, contributed 37% of GDP in 2015. In 2016, the industrial sector engaged 24.5% of the employed labor force. Industrial GDP increased at an average annual rate of 4.7% in 2006 through 2015. Mining and quarrying contributed 10.7% of GDP in 2015 and engaged 0.4% of the employed workforce. Mining GDP increased at an average annual rate of 1.5% in 2006 through 2015. Mining GDP expanded by 6.5% in 2015 but contracted by 4.0% in 2016. Manufacturing contributed 15.2% of GDP in 2015 and accounted for 16.6% of employment in mid 2016. Construction contributed 6.0% of GDP in 2015. The services sector contributed 44.2% of GDP in 2015 and the sector engaged 33.5% of the employed labor force in 2016. Tourism is an important source of foreign exchange, according

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to provisional figures, tourism totaled US $7,301 million. The number of tourist arrivals rose from 7.94 million in 2015 to 10.0 million in 2016 (“Economic Affairs”, n.d)

Top Export Goods and Partners

Vietnam has the 28th largest export economy in the world, exporting $165 billion worth of goods every year. These goods include broadcasting equipment ($23.8 billion), computers ($7.98 billion), crude petroleum (6.87 billion), leather footwear ($6 billion), and integrated circuits ($4.6 billion). The vast majority of these exports go to the United States ($29.9 billion), China ($17.5 billion), Japan ($15.2 billion), South Korea ($7.92 billion), and Germany ($7.64 billion). (“The Economy of Vietnam” World Atlas) (Pariona, 2016).

Top Import Goods and Partners

Each year, the country imports $151 billion worth of goods, providing it with a positive trade balance of $13.7 billion. The top imported goods include integrated circuits ($9.6 billion), telephones ($8.22 billion), refined petroleum ($7.81billion), light rubberized knitted fabric ($2.96 billion), and flat-rolled steel (1.98 billion). The majority of the imports are sent to China ($44.7 billion), South Korea ($21.7 billion), Japan ($11.9 billion) and Singapore ($7.98 billion) (Pariona, 2016).

Trends in Trade

Figure 4: Source: Vietnam Trade Balance, n.d.As illustrated above in Figure 4, both imports (red line) and exports (blue line) have been increasing steadily since 1995. It is expected that as Vietnam continues to grow and receive foreign investment, logistics will improve, resulting in continued growth of imports and exports.

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Currency Denomination and Stability

Vietnamese Dong (VND) is the official currency in Vietnam. Vietnamese Dong comes denominated in bills between 1,000 and 500,000 Dong.

Source: World Trade Press, n.dAccording to an article from Bloomburg, the deputy Governor of State Bank of Vietnam

said, “We are confident that we will be able to maintain the dong’s value...Such high level of foreign reserves will allow us to stabilize the money market when needed.” Currently reserve levels are at $45 billion. There were a series of devaluations in 2015 that caused Vietnam’s central bank to move toward a more market-based framework. In doing so, the dong’s reference rate was adjusted daily and was one of the most stable currencies in Asia in 2017 (Uyen, 2017).

Ease of Doing Business

Environmental Regulation

The ease of doing business is calculated by the level of corruption, customs process, and cost of doing business in a country. Vietnam’s score of doing business is 67.93 out of 100 which ranks them 68th out of 190 nations (“Vietnam: Macroeconomic..”, 2017). Figure 5, below indicates that Vietnam’s score of doing business has been on the decline since 2014 which is something they hope to change going forward.

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Figure 5 Source: World Bank, n.d

Business Ownership Outside of the Country and Funds Exported

Vietnam is currently trying to increase their foreign investment to expand their economic growth. In order to do this, business ownership is permitted outside of the country if foreign investors register their investments and also meet all the conditions or restrictions. Some of these restrictions include: limitation on foreign ownership, business sector restrictions, geographic restrictions, and forms of investment (Nguyen, 2017). Vietnam seems to be on the right path to continue to increase their foreign investment which will be a benefit to the country.

Protect Business Rights

Some of the business rights in Vietnam include protection of property. As discussed later in the section about risks, Vietnam has an issue of the government seizing land from the public. In order for Vietnam to properly handle this risk, they have several protection of property rights, that are still evolving. With the new Housing Law and Real Estate Business Law, land can only be taken if it is considered to be necessary for social-economic development in the public or national interest (“Vietnam-6..”, 2017). These new property rights were meant to protect the public from losing land. However, this social-economic development is not properly defined and land continues to be seized.

Bribery/Facilitating payments and Stability of Government

When considering doing business with Vietnam, it is important to recognize a major issue of high levels of corruption. Vietnam ranked 113th out of 176 countries in the Corruption Perception Index in 2016 (“Vietnam: Macroeconomic..”, 2017). One of the reasons that the corruption level is so high is because of the facilitation payments being made to government officials. These payments, which are referred to as “tea payments” are made to expedite the customs clearance process or to mitigate traffic citations. This is considered to be normal or standard practices for businesses in Vietnam, which helps explain why the corruption level is so high. In order to try and lower the amount of corruption, Vietnam implemented an Anti-Corruption Initiative Program in 2014 (“Vietnam: Macroeconomic...”, 2017). The problem with this is that since most of the corruption is coming from high up government officials, corruption will most likely continue.

Lead Times

Vietnam’s two main forms of transportation are inland waterways and air. Vietnam’s lead time for imports and exports by inland waterways is about 21 days dating back to 2014. Compared to the U.S., Vietnam’s lead times are higher. When trying to find the lead time for

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air, no data was found. One of the ways that Vietnam hopes to decrease their lead times is through a new electronic customs process which will be talked about in the next section.

Import and Export Tariffs and Barriers

The customs process in Vietnam is considered to be slow and often inefficient. The reason for this is because government officials aren’t properly trained and the rules are not consistently interpreted amongst customs agents. Also, most of Vietnam’s customs process is all on paper. It wasn’t until a few years ago when they launched a new electronic customs clearance system “E Customs.” When doing business with Vietnam, there are certain import and export procedures that one must follow. In order to import and export business, a foreign investor needs to register with the Department of Planning and Investment (DPI). Also, there are certain goods that investors are not allowed to import or export into Vietnam including petroleum oil, cigars, tobacco, and aircrafts. Vietnam enforces taxation on almost all products imported into the country but only select commodities are taxed when exported. These tax rates depend on the product being imported or exported (Briefing, 2017).

Free Trade Zones

During the Obama Administration the United States negotiated a trade agreement among several Asia-Pacific countries, including Vietnam, called the Trans-Pacific-Partnership (TPP). This agreement was made to dismantle any trade barriers and establish new trading rules between the countries. However, since President Trump was elected, the United States left this trade agreement because President Trump did not believe it benefited the United States the way it did for Vietnam (Hankla, 2018). The TPP was on track to become one of the largest free trade zones however this may not the case now that the US is no longer involved. In order to increase free trade in Vietnam, the nation is finalizing a free trade agreement with the European Union. Once this agreement is finalized, Vietnam will be able to freely trade with more countries within Europe (Vietnam-EU Trade Agreement…, 2017).

Government Subsidies

There are several different types of government subsidies which include cash subsidies, tax concessions, assumption of risk, government procurement, and stock purchases. A government subsidy is money paid by the government to help a business reduce its cost, so it can sell a product or service at a lower price. The Vietnamese government subsidizes fishing, rice, and social health insurance. One of the reasons that Vietnam chose to subsidize fishing was because the fuel was becoming too expensive and the fishermen could not afford it. The subsidies were also made so that fisherman could switch to more powerful engines which would reduce the amount of small fishing boats (VOA, 2009). Government subsidies are made because the government sees it as a long term benefit.

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Attitude and Trade with the United States

The relationship between the United States and Vietnam has been on the decline since the United States elected Donald Trump. Under President Obama’s term, the relationship between Vietnam and the United States was as at an historic high with the trade between the two countries having tripled over the last several years. The economic ties were expected to expand even further with the agreement of the TPP. Since the United States and Vietnam no longer have this trade agreement, the economic favorability has been on the decline and this may continue this way (Fact Sheet.., 2016).

Logistics

Ports

Ports are grouped based on geographic regions- north, central, south. Each region has designated major ports, small subordinate ports and independent industrial private ports. The total design capacity of the Vietnamese sea port system holds 170 million tons. At the end of 2007, the total throughput reached 190 million tons, causing a strain on the port system. The government has recently adjusted the master plan of the Vietnamese port system to 2020 with the vision for 2030 (Banomyong et al, 2015, pg. 35). There are more than 200 foreign shipping lines operating liner and container services. These lines link hub-ports such as Singapore and Hong Kong, where these containers are trans-shipped to worldwide destinations by mother vessels (35).

Container Ports in Northern Vietnam

Vietnam serves as a stop for goods travelling to northern Europe. In northern Vietnam, Hai Phong Port and Vung Ang Port are gateways for international container traffic. The Hai Phone Port is located close to the capital of Hanoi. It is a gateway for goods destined to or originating from surrounding industrial and production zones. Container traffic between Germany/Northern Europe and Hai Phone have three port calls per week depending on the carrier (Karl Gross, n.d). Halfway between Hai Phong Port and the Port of Da Nang in Mid-Vietnam is the Vung Ang Port. Neither Hai Phone nor Vung Ang are deep water ports. As a result, the ocean going container vessels cannot directly call at these ports. Transshipments are required for vessels destined to Hai Phong or Vung Ang. Transloading of containers takes place in the port of Singapore or the port of Hong Kong. The containers are discharged from the large container vessel and are then reloaded onto a smaller container vessel. Following the reloading, the vessel will call at Hai Phong Port or Ving Ang Port (Karl Gross, n.d.).

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Container Ports in Central Vietnam

The port of Da Nang and the Quy Nhon Port are important for international container traffic. The Port of Da Nang is a deep water port and provides connections to Europe. The port of Quy Nhon is a useful gateway for goods going to or coming from the Western hinterland of Vietnam as well as for goods coming the Mekong Delta region. It is used for transloading goods with a final destination of Cambodia (Karl Gross, n.d.).

Container Ports in Southern Vietnam

The Saigon Port, located in Southern Vietnam, is the most developed and handles about 70% of Vietnam’s foreign trade. This port is considered the most productive and has the highest throughput rate per annum. In 2007, 1,849,746 TEUs of containerized cargo were handled. In 2008, the Port of Ho Chi Minh city there were 2168 vessels who arrived at the port. TEUs increased to over two million. Of the two million TEUs, 1.0 million were exports and almost 975.3 TEUs were imports (World Port Source n.d.).

Chi Minh City is Vietnam’s economic center. Consequently, this region has the Cai Mep-Thi Via Port. This port is part of Ho Chi Minh City’s port area. It is an important port for goods to be shipped to or coming from Dong Nai and Binh Duong, which are two of Vietnam’s major production centers. Since Cai Mep is a deep water port, there are connections for Northern European Ports (Karl Gross n.d.). In addition to the Cai Mep Thi Via Port, Cat Lai is another port in Southern Vietnam. This is the largest and most modern terminal in Vietnam and is used for shipping containerized goods from the industrial production centers North of Ho Chi Minh City. However, Cat Lai is not a deep water port means transshipment through the Singapore port is necessary (Karl Gross, n.d).

Development of Vietnamese Ports

Vietnam is working to develop its port infrastructure. It was announced that two new container terminals will be constructed at Hai Phong Port. Additionally, the Lach Huyen International Gateway Port in Northern Vietnam is under construction. In Southern Vietnam further developments are taking place to develop the container section of Ho Chi Minh City’s port. Additionally, there are plans to improve connections of the Mekong Delta to international ocean freight shipping routes (Karl Gross, n.d.). The challenges associated with the ports will be further discussed later in the Capacity Issues section.

Airports

Currently, flight services are operating at all twenty civil airports operated under the Civil Aviation Administration of Vietnam. There are six international airports Noi Bai, Tan Son Nhat, Da Nang, Phu Bai, Cam Ranh, and Cat Bi. (Banomyong et al., 40) The two main airports for air freight logistics services are at Noi Hai in Hanoi and Tan Son Nhat in Ho Chi Minh. All import and export cargo for Da Nang and Hue mst be trans-

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shipped via Noi Bai or Tan Son Nhat. Smaller international airports were reserved for passengers rather than cargo. In 2012, total air freight through airports reached approximately 649,000 tons. In the main airports, there are storage facilities for perishable cargo as well as facilities for dangerous goods located on the airport property. There is also a separate area of the airport providing warehousing and office space for freight operations (40). Only 10% of airfreight is carried in freighters rather than as the belly cargo in passenger aircraft. The rights to international air freight services are open to all ASEAN countries but turning to the on-airport freight operations, air cargo agents, or third party providers are not allowed to offer storage within the airport and to have direct access to the aircraft loading area. Only the Airport Corporations are responsible for these activities. However, competing parties are allowed to offer baggage handling and other services to the aircraft (41).

Primary Transportation Modes and Their Prevalence

Vietnam’s main forms of transportation are comprised of air, marine, rail, and road freight sectors. The Vietnam transportation service industry has performed rather unpredictably in recent years. In 2016, the Vietnamese transportation services industry group had total revenues of $7.8bn and represented a compound annual growth rate (CAGR) of 7.1% between 2012 and 2016 (Transportation Services in Vietnam, 2016). Lately, the transportation industry suffered some minor losses. This was due to historic lows in global freight prices and decreased global demand. The sudden decline was likely due in vast majority to a lessened demand from the United States and China. These two countries are Vietnam’s primary export markets (Transportation Services in Vietnam, 2016).

The road sector of Vietnam’s transportation industry is the most profitable domestically. In 2016, total revenues amounted to $5.8 billion, an equivalent to 74.4 percent of the entire transportation industry (Transportation Services in Vietnam, 2016). Because Vietnam is a manufacturing hub, efficiency and affordable transportation for both raw and finished goods, the road sector is dominant across the country. Marine freight holds the second largest share of the transportation industry. Vietnam is able to access the markets of many large manufacturing nations nearby such as the Philippines, Indonesia, and Malaysia by sea. Air and rail transportation represent a very small portion of this industry with air only worth 3.5 percent and rail at 1.4 percent of the total transportation services. (Transportation Services in Vietnam, 2016). For a graphical representation of these statistics from 2016 refer to the Appendix Figure 1A. Figure 1A shows current metrics for Vietnam’s transportation modes, it does not illustrate the amount of annual tonnage and forecasted growth rates. The Figure 2A shows the amount of tonnage each transportation sector is moving annually and predictions through 2030. Road and marine make up nearly 95% of the transportation services industry in Vietnam, but situationally each transportation mode has a varying level of importance. Figure 6 illustrates the appropriate methods for different distances of travel.

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Figure 6: Source: Vietnam National Transport System Study, 2011

Capacity Issues

The largest and most influential capacity issue in Vietnam is the increased capacity in its ports. The Port in Da Nang in central Vietnam had a total throughput of over 1.3 million tons of cargo in the first quarter of 2014. This was a sharp 37 percent increase from the previous year. Since the director of the port as well as the government has been noting this upward trend of throughput, the government has opened four new domestic sea transport routes between Dan Nang, Saigon and Haiphong. The goal of the new routes were to help alleviate cargo off its clogged road network. Additional ports also decrease unnecessary intermodal transport modes to the other large cities (Knowler, 2014). Vietnam has many ports, but most only meet the needs of smaller vessels. The latest generation of vessel ships require port designs with at least 400 meters in length. Even though one of Vietnam’s most popular and efficient ports, Cai Mep, has a berth of 600 meters it is only big enough for one large vessel. The two largest and most highly concentrated ports are Haiphong in the North and Ho Chi Minh City (HCMC) in the South. The issue is that the Vietnamese government is focusing on quantity than quality of the ports, hindering the number of effective shipments in and out of Vietnam. Many of the other satellite ports cannot handle international shipments because of their obsolete facilities, shallow water channels, and poor support services. Figure 7 below illustrates Vietnam’s poor capacity in major ports compared to neighboring countries (UNCTAD, 2015).

Figure 7: Source: UNCTAD, 2015)

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Domestic and Global Transport and Speed

The largest delay in domestic speed is Vietnam’s road congestion. The source of this issue stems from rapid expansion of urbanization, increasing levels of car ownership, higher volumes of freight, a shortage of road capacity, and poorly designed highways and road intersections. The Vietnamese government has tried banning trucks from urban areas and limiting maximum weight load on bridges as well as roads. These solutions have created new problems because trucking and other logistics have become delayed from these restrictions. Annual savings on trucking costs have been estimated to reach US $121 million by 2020 if more truck trips per truck per day are generated through better highway and road designs (The World Bank, 2014). Exceptionally low highway speed limits also decrease speed of Vietnam’s logistics. For most areas the speed limit is around 80 km per hour, about 50 mi per hour and some places are as low as 60 km per hour or 37 mi per hour (Le, 2016).

Figure 8: Source: Doing Business Report 2015, World Bank) Figure 8 shows that imports and exports take about 21 days each to complete throughput from beginning to end. The largest delay is in document preparation with an average time period of 12 days. This can be attributed to the fact that most documentation is still paper and not digitized. That is the main difference between customs clearance and inspection. That is because automation and modernization of customs clearance process has been partly implemented with custom documents being able to be created, declared and submitted via the Internet within an hour. It can also be attributed to Vietnam’s levels of corruption highlighted in Bribery/Facilitating Payments and Stability of Government. Figure 9 below the compares the large gap in export and import time between the United States and Vietnam.

Figure 9: Source: Doing Business Report 2015, World Bank, n.d

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These capacity issues increase service users’ inventory costs, especially for time sensitive cargo because the users have to compensate for unreliable delivery. These delays have been estimated to cost approximately $100 million annually in extra carrying costs incurred due to import-export clearance delays. This amount is potential projected to reach $180 million by 2020 (Knowler, 2014). The slow speed of processing and poor roadways limit Vietnam’s speed both domestically and internationally. In order to improve Vietnamese logistics, the issues mentioned in this section must be addressed.

Challenges and Strengths of Logistics Systems

An efficient logistics system has many moving parts. There is no singular factor that encompasses how a perfect logistics system operates. A combination of the aforementioned sectors of transit modes should work together in fluid system. However, not all of these segments operate efficiently either. There are many strengths and challenges for each transportation mode in Vietnam. The following sections will discuss the strengths and weaknesses of each mode of transportation.

Road Sector Strengths

Roads are the main form of transportation that link factories to key ports, terminals, and cities. The network of roads in Vietnam is its most flexible. Strengths of the road sector include a high degree of choice for customers, can be cost effective for shorter distances, and flexibility of the road network. Trucking has the lowest entry barriers of all transportation modes in Vietnam due to the amount of trucks and the competitive landscape. Services can range from companies with one to thousands of trucks. This is especially helpful for small businesses trying to break into larger markets because of the ability to choose from a wide variety of services. There are competitive advantages to owning a larger stake of the trucking market including multinational reach, strength in reputation, and the ability to offer more cohesive and complex logistics services (Transportation Services in Vietnam, 2016). Due to the nature of the road sector, it is relatively easy for companies to increase their capacity. Trucking is a very cost effective option in Vietnam because it is the most widely used and lucrative option for moving freight around the country.

Road Sector Challenges

The road sector challenges include high costs over long distances, congestion, inadequate road infrastructure, an old national trucking fleet, and unsafe roads. Vietnam’s high reliance on trucking can be a significant cost for shipping companies because of elongated geography of the country (Efficient Logistics, 2014). For instance, shipping products from distances as far as Ho Chi Minh City or the Mekong Delta, where the majority of consumer goods are manufactured, to distribution facilities and ports in the northern regions of the country add up to sizeable costs.

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Compared to rail, road transportation can be expensive for moving large amounts of product over long distances.

Congestion aging trucks in Vietnam are also relevant challenges. This is largely due to inadequate highway infrastructure and poor quality of highways. Issues with infrastructure include weight limits and bridge clearances on key roads that are often incompatible with container shipping via trucking. Paved roads account for only 60 percent of national roads and 27 percent of provincial roads (Vietnam National Transport Strategy Study, 2011). Unpaved roads make it difficult to reach secluded villages, thus limiting market expansion. Poor quality of highways often leads to reduced speeds and longer lead times. Intercity truck speeds in Vietnam average 35 km per hour, equivalent to 21.75 miles per hour (Efficient Logistics, 2014). Slow speeds hurt reliability and the load capacity of trucks, leading to overall inefficiency. The cost of congestion when all motor vehicle highway users are included, has an estimated cost of $1.7 billion on the Vietnam economy (Efficient Logistics, 2014). Figure 3A shows the total cost of congestion in Vietnam based on cities and regions.The current state of the national trucking fleet is old and outdated. This leads to increased costs for maintenance expenses for truckers. Frequent truck breakdowns can contribute to longer and erratic transit times (Efficient Logistics, 2014). Vietnam’s roads are still dangerous and unsafe, accidents contribute to further unreliability in supply chains and increase cost in logistics. According to The Vietnam National Transport Strategy Study in 2011, road accidents make up 1-2% of GDP (Efficient Logistics, 2014). Although roads are the most widely used form of transportation in Vietnam, there is still a lot to be done to improve its efficiency and safety.

Rail Sector Strengths

Railway tracks run up and down the country to move freight to key ports and manufacturing hubs. The strengths within the country’s railroad sector include the ability to transport freight directly to ports, transport more freight at one time than other forms of transportation, and support by the government to develop railway framework. Railroads allow businesses to move massive amounts of freight long distances. Finally, the government is trying to improve and develop the rail sector. Figure 4A details the percentage of total tons based on the mode of transport from 2006 to 2012 (Assessing the National Logistics System of Vietnam, 2015). The Vietnamese government has made several attempts to reverse the trend of decreasing train tonnage. Most notably, the government created a $55 billion project to construct North-South express railways between Hanoi and Ho Chi Minh City, a distance of over a thousand miles (Vietnam National Transport Strategy Study, 2011). These railways would slash transit times from 32 hours to 5 hours. Unfortunately, the project was put on hold in 2010 by the Vietnam National Assembly for fear of massive debt and uncertainty of return on investment. Although the government put a hold on that project, they continue to fund smaller infrastructure projects and are determined to strive for improvements.

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Rail Sector Challenges

The challenges regarding the railway sector include lack of market direction, backlogging of infrastructure maintenance, unmodernized railway utilization strategies, and a shortage of international lines to serve primary ports. Vietnam does not have the foundation and infrastructure for effectively utilizing railroads. Figure 10 below identifies all railways in Vietnam.

Figure 10: Source: Efficient Logistics, 2014

The shortage of railways makes it difficult to move freight around the country in the most cost effective and efficient transit methods possible. Businesses would rather use road transportation because it is currently more reliable, flexible, and has a stronger infrastructure. Vietnam only has four international railroad connects. These lines lead to southern China, Laos, and Cambodia (Vietnam National Transport Strategy Study, 2011). Currently, there is no modern tracking system specifically designed for railway freight and Vietnam does not have a central rail control system for monitoring train movements, identification, automatic routing settings, or any other advanced control systems (Assessing the National Logistics System of Vietnam, 2015). An improvement in the versatility and number of railways in Vietnam would increase efficiency and improve profits. This possibility will be discussed in further detail in Environmental Issues Related to Transport and Recommendations.

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Marine Strengths and Challenges

The marine sector can be separated into two subsections: inland waterways, and maritime transport.

Inland Waterway Sector Strengths

The inland waterway transport system plays a key role in moving cargo around Vietnam. This form of transportation is mainly used in the Red River in the North and the Mekong Delta in the South. Both the Red River and Mekong Delta are close to large manufacturing hubs (Assessing the National Logistics System of Vietnam, 2015). There are currently 109 inland waterway ports with 3,111 landing points throughout the country (Assessing the National Logistics System of Vietnam, 2015). These channels are a unique alternative to move freight, but are only accessible in limited areas.

The strengths of the inland waterway sector are rail connectivity, high carrying capacity, relatively low costs compared to alternatives, and international transport linkages. Rail connectivity allows business to seamlessly load their shipments from a waterway transport to a railroad (Assessing the National Logistics System of Vietnam, 2015). However, there are few ports that have this capability. Inland waterways can also provide a cheaper alternative to move large amounts of freight based on geographic areas. Lastly, inland waterways can transport freight over country borders. This can improve market expansion and quickly move freight across neighboring borders. The map below shows all the major transport corridors in Vietnam (only 26* and 27* are inland waterways into Cambodia).

Figure 11: Source: Vietnam National Transport System Study, 2011

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Inland Waterway Sector Challenges

The inland waterway transport sector challenges include a fragmented port system, weak market mechanisms, poor port services, inadequate dredging and navigational aids, and lack of legal framework (Vietnam National Transport Strategy Study, 2011). The poor port services are due to the poor condition of the ports and their weak management. Nearly every port was constructed before 1939 and has not been updated since (Vietnam National Transport Strategy Study, 2011). In Vietnam, there are no regulations in place to improve the competitiveness of these waterways. Most major traffic is handled by a few different operators engaged in long-term contracts. As a result, it is extremely difficult to enter the inland waterway market (Vietnam National Transport Strategy Study, 2011).

The most important challenge associated with inland waterways is the lack of legal framework. There are many gaps in definitions of guidance documents and procedures of waterway facility management (Vietnam National Transport Strategy Study, 2011). This leads to the weak infrastructure of management as a whole. Ultimately, there is a lack of capacity planning, guidance, control and monitoring. A trend in Vietnam’s transportation management is poor capacity planning which leads to overcapacity and overcrowding in both road and maritime sectors.

Maritime Sector Strengths

The strengths of the maritime sector are favorable geographic location, high levels of international investment, and high levels of capacity. Vietnam’s maritime connectivity plays an increasingly important role in shipping lanes in the Association of Southeast Asian Nations (ASEAN) (Assessing the National Logistics System of Vietnam, 2015). The country has a central location within ASEAN and relies heavily on trade with China and Thailand. This is important because recently most of the trade between ASEAN has been primarily road dominated. Given Vietnam’s location and its ability to reach major market destinations easily, foreign investors take great interest in their maritime sector.

The national seaport system is broken into six main groups. Saigon is the most developed in the country, handling 60-70 percent of Vietnam’s foreign trade (Assessing the National Logistics System of Vietnam, 2015). Container vessels can carry more tonnage than any other form of transport. Maritime transport has the largest capacity capabilities due to the amount of freight moved annually to practically any coastal destination. Figure 12 below shows the forecasted amount of demand and available capacity at Northern ports from 2000 to 2020 (Efficient Logistics, 2014).

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Figure 12: Source: Efficient Logistics, 2014

The graph also displays the amount of demand growth in different ports over time, further supporting the claim that Vietnam’s maritime transport sector important in the country’s trade strategy.

Maritime Sector Challenges

The challenges of maritime shipping include limited competition in coastal shipping, lack of experienced management, poor condition of shipping fleet, lack of modern handling methods, weak management, and incomplete legal framework (Vietnam National Transport Strategy Study, 2011). Maritime shipping has limited competition, most of the traffic is carried by the members of VINALINES (Vietnam National Shipping Lines). Volume distributed based on port locations is unbalanced, the majority of container throughput in Vietnam are dominated by the Northern and Southeastern seaports. Disproportion can cause overcrowding, larger delay impacts, and increased port sophistication. Figure 13 below details the amount of volume of container shipments based on six geographical port locations.

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Figure 13: Source: Efficient Logistics, 2014

Vietnamese ship managers lack the experience to compete with foreign operators. The majority of the Vietnam shipping fleet is in poor condition and cannot operate efficiently. Most of the ports in Vietnam run on an outdated handling methods. This means that they do not have modern equipment that leads to longer loading and unloading processes (Vietnam National Transport Strategy Study, 2011). Weak management is a result of poor management systems for infrastructure management and database management. Lastly, incomplete legal framework is a result insufficient regulations. This can range from ship inspections to handling and compensation claims for oil spills (Vietnam National Transport Strategy Study, 2011). Maritime transportation has the opportunity to help Vietnam flourish, but still has many areas that the sector can be improved.

Air Sector Strengths

The strengths of Vietnam’s air sector of transportation include timely delivery times, fast transportation for long distances, and the ability to reach a global market. An obvious strength of the airline sector would be its ability to travel far distances very quickly. A direct result of traveling quickly over long distances are shorter lead times. This is great for companies that need to move freight quickly in a short amount of time. Another benefit that is derived from traveling far distances in a short period of time is the opportunity to expand markets globally.

Air Sector Challenges

The challenges for air freight in Vietnam are the lack of variety in freighter airports, limited number of schedule air freighter services, expensive rates, and inefficient customs processing. The shortage of freight accessible airports in Vietnam makes it difficult for businesses to move freight via aircraft. Because of the limited amount of airports, there is a limit

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to the amount of aircraft that can transport in and out of the country daily. This can also cause a number of capacity issues, lead to longer lead times, and inventory costs. When capacity and schedules are tight, most air cargo moves in the underbellies of passenger aircrafts (Efficient Logistics, 2014). However, this capacity is also limited. Vietnam’s customs processing in regards to international shipments is affected mostly by the size of the imports and exports. Generally, high import content of Vietnam’s manufacturing exports can make the country’s trade competitiveness vulnerable because of delays in the custom process and logistics. These procedural bottlenecks and Customs operating setups can keep imports in airports and ports for days. These kinds of procedural mishaps can cause manufacturers, especially just-in-time (JIT) manufacturers, to carry additional inventory.

Environmental Issues in Regards to Transport

Vietnam, as a nation, is becoming more attentive to the effects of inefficient transportation on the environment and individual’s health. In recent years, Vietnam has suffered from a large increase in pollution due to increased industrialization. In 2012, Vietnam began to focus heavily on promoting green growth to decrease the amount of pollution released from industrialization. In particular, Vietnam is working with the World Bank to improve the railway sector efficiency and climate resilience. This mode of transportation only contributes to 3 percent of Vietnam’s cargo and passenger transportation but offers opportunities for a cleaner transportation mode in the future years (The World Bank, 2016). The map below outlines illustrates Vietnam’s rail system as it stands.

If Vietnam were to expand the rail system they have currently, many shipments coming from the ports could be transported inland. As the system currently stands, an increase on rail transportation could result in less congestion on roads as well as decreased transportation pollution when transporting goods across the country. The rail transportation mode is known to be slower and with Vietnam’s inefficient logistics design, the cons might outweigh the pros. This being said, for consistent low priority items, rail could be a great option to keep both costs and pollution low (Railway System, n.d).

Exhaust from internal combustion engines, that make up 80 percent of total energy consumed worldwide, is the main pollution source in Vietnam. Motorcycle transportation has been increasing by 20 percent annually. Cars are increasing by 15 percent. The Vietnamese government has implemented several solutions that revolve around increased, stricter regulation. As a socialist nation, the government takes control over the majority of policies, working closely with specialized agencies. The government is focusing efforts on improving its staff for specialized work within the environmental sector. The Vietnamese government has made it clear that the highest priority of improvement is pollution. The government is actively trying to raise awareness of the severe impacts of the environmental issues within their country. The efforts are focused on having citizens abide by all environmental laws and being conscientious consumers. The environmental changes in transportation will not only decrease the negative effect Vietnam

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has on the earth, but it will also help meet the quality of life demands of the Vietnamese people (The World Bank n.d.).

Environmental Issues in Regards to Transport

Vietnam is becoming more aware as a nation to the effects of transportation on the environment and individual’s health. In recent years, Vietnam has suffered from a large increase in pollution due to increased industrialization. In 2012, Vietnam began to focus heavily on promoting green growth to decrease the amount of pollution released from industrialization. In particular, Vietnam is working with the World Bank to improve the railway sector efficiency and climate resilience. This mode of transportation only contributes to 3% of Vietnam’s cargo and passenger transportation, but offers opportunities for a cleaner transportation mode in the future years (The World Bank, 2016). Figure 14 below outlines illustrates Vietnam’s rail system as it stands.

Figure 14: Source: Railway System - Vietnam Tourism Information, n.d

If Vietnam were to expand the rail system they have currently, many shipments coming from the ports could be transported inland. As the system currently stands, an increase on rail transportation could result in less congestion on roads as well as decreased transportation pollution when transporting goods across the country. This transportation method is known to be slower and with Vietnam’s inefficient logistics design, the cons might outweigh the pros. This being said, for consistent low priority items, rail could be a great option to keep both costs and pollution low (Railway System, n.d).

Exhaust from internal combustion engines, that make up 80 percent of total energy consumed worldwide, is the main pollution source in Vietnam. Motorcycle transportation has

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been increasing by 20 percent annually. Cars, at the same rate, are increasing by 15 percent. The Vietnamese government has implemented several solutions that revolve around increased, stricter regulation. Due to the nature of a socialist nation, the government takes control over the majority of policies, working closely with specialized agencies. The government is focusing efforts on improving its staff for specialized work within the environmental sector. The Vietnamese government has made it clear that the most concentrated area for improvement is pollution. The government is actively trying to raise awareness of the severity of the environmental issues within their country. The efforts are focused on citizens abiding by all environmental laws and being conscientious consumers. The environmental changes in transportation will not only decrease the negative effect Vietnam has on the earth, but it will also help meet the quality of life demands of the Vietnamese people (The World Bank, n.d.).

World Bank Logistics Assessment

The LPI is an interactive benchmarking tool that was created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance.

Figure 15: Source: World Bank Global Rankings, 2016

Figure 16: Source: World Bank Global Rankings, 2016As shown in the Figure 15, Vietnam’s current LPI rank is 64th as compared the United States’ rank of 10th. With an overall LPI score of 2.98, it is evident that Vietnam still has areas of opportunity to improve their logistics. Specifically, the infrastructure has the lowest score out of the five categories. Throughout this paper, the challenges with infrastructure have been addressed, so this score was not surprising. However, the timeliness score of 3.50 was an interesting note as the country has an international lead time of twenty-one days and a domestic lead time of three days. Figure 16 shows Vietnam in comparison to the highest ranking country,

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Germany. With continued economic growth, it is expected that Vietnam will continue to improve their logistics.

Risks

Vietnam is exposed to various risks related to politics, weather, and strikes. In the political sphere, there are three primary concerns: poor participation from the public in elections, corruption issues with government officials, and land seizures leading to civil unrest.

Referencing the 2016 Provincial Governance and Public Administration Index (PAPI) survey, participation rates have decreased since 2011 (“Country Analysis…”, 2018). The government sees this as a major issue going forward because this implies that people are unconcerned with who is elected. Elections are an opportunity for the people to have a voice and if they are not voting then it shows that they do not care who is put in charge of the country.

The second risk with politics is the high level of corruption. One example is that in April 2014, Vietnamese officials were accused of accepting bribes for handing contracts to Japanese firms (“Country Analysis…”, 2018). This has some correlation to why less and less people are voting each year. The people of Vietnam realize that many government officials are corrupt. If nothing changes, Vietnam is exposed to more risk.

The last risk with politics is land seizures. The government has illegally confiscated land from citizens which has led to resentment of the government (“Country Analysis…”, 2018). This has been a problem that has continued to grow over the years, which has resulted in people going on strike in order to try to get there land back.

Vietnam had not had a major issue with strikes until a recent law change when Vietnam increased the minimum wage, which led to an increase in strikes. The reason for this is because some businesses were failing to pay employees the proper wages.

Finally, when discussing weather related risks, there is risk related to dangerous roads and even the slightest bit of bad weather can cause major issues.

Every country is exposed to different amounts of risk, some more than others.

Cost Issues

Materials

With the recent large influx of manufacturing in Vietnam, raw material prices are rising creating new problems for corporations. According to the President of the Vietnam Steel Association, Pham Chi Cuong, the rising costs of scrap steel, iron ore, and steel billets are damaging domestic production. Prices of steel imported from Russia, Korea, and Malaysia have increased by VND 200,000 or US $30 per tonne. In paper production, raw materials in the industry's domestic market are becoming more scarce, increasing prices by 40-50 percent. With the prices of these current raw materials, enterprises incur a loss of around VND 1.1 million per

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tonne. The rise in prices have forced companies to increase prices at an rate equal to one quarter more than the increasing rate of raw material prices (Vietnam News, 2013).

Labor and Workforce

Vietnam’s workforce numbers is fairly equal between male and female people. The labor force is steadily inclining with a projected total of almost 60,000,000 working individuals by the year 2021. Figure 6A illustrates a graphical representation of Vietnam’s workforce broken down by gender.

Vietnam’s labor influence affects the general economy because of how young the individuals are as compared to neighboring companies. This in turn, relates to Vietnam’s lower labor costs. In respect to other countries, the average Vietnamese wage is around US $200 per month, while the Philippines and India are US $215; only around half of Thailand’s and a third of China’s average wage. This creates great interest in companies looking to offshore (ILO, 2014). Even though the size of the labor force is an advantage for Vietnam, the quality of the workforce is not the greatest. The workforce literacy rate is above 90% which is high, but Vietnam still lacks the highly skilled workers such as executive level managers and employees who have a good supply chain and logistics background (Knowler, 2014).

Employment percentages are increasing in Industry sectors of Vietnam while Agriculture employments are decreasing at similar rates. These percentages reflect how Vietnam is becoming a more industrialized nation due to manufacturing (Statista, 2017). Figure 7A is a graphical representation of the employment percentages by sector.

Education Levels

According to an article written by BBC, Vietnam has seen a “stunning” rise in school standards. In global rankings published by the Organization for Economic Co-operation and Development (OECD) in May 2015, Vietnam was ranked 12th in science and math, while the United States was in 28th. A commitment to leadership, focused curriculum, and investment in teachers are key factors attributed to this success. Further, educators have designed a curriculum that focuses on students gaining a deep understanding of core concepts and mastery of core skills. This is encouraged by expecting students to not only recite what they have learned in class, but to then apply concepts and practices in different contexts. Vietnamese classrooms are rigorous, with teachers challenging students with demanding questions (Schleicher, 2015).

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Figure 17: Source: Statista, 2017

Above, Figure 17 gives a visual representation of the spread of education in Vietnam. Vietnamese students are known for their strong studies but if families cannot afford 4-year United States schools or students don’t receive full scholarships, many students then attend community colleges. These community colleges offer financial and academic accessibility, which allows them to still integrate in American culture and learn English. Then through this they can eventually transition into and obtain a four-year degree. Vietnam is also the second largest country of origin for students at United States community colleges (Vietnam-Education Training, 2018).

Benefits

A female employee is entitled to maternity leave before and after childbirth for 6 months and the father is entitled one day for the berth. For personally paid leaves, a person will get three days for their own marriage and one for a kin. Also, they will get three days in case of a parent, parent-in-law, spouse, son or daughter. For annual break an employee was has completed one year service in the company is granted 12 days with full pay. The public holidays that grant one day off work are Hung King Anniversary Day, Victory day, Labor day, National day, and five days for the Lunar New Year festival (Sblaw, 2016).

Availability of Management Personnel

The future of Vietnamese students are going into the fields of engineering, business and management, and math and computer science. From these fields, the fastest growing is math and computer science at 18% from 2015 to 2016. Many of these Vietnamese students are coming to the United States for business and management (Vietnam-Education Training, 2018). In recent years, current individuals in management positions have been making difficult decisions, especially when dealing with ports. As a result, many students become motivated to study this

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area of business to help make better decisions. The current negative effects of decisions by managers in ports can be seen with the quantity over quality of shipping ports. Many transportation infrastructure projects were planned and executed largely in isolation, without employing strategic, multimodal corridor approach and with little regard to supply-demand considerations, according to a World Bank report on Vietnam released earlier this year (Knowler, 2014).

Unemployment

Unemployment rate in 2016 was 3.7% which was a slight increase over 3.5% in 2015. In comparison to the world Vietnam ranks 30 for 2016 (Global Road Warrior, 2016). Then in 2017 the total unemployment rate hit its lowest ever at 2.3%. Even though these numbers are low and look great for a country like Vietnam, there are still concerns in creating jobs. Mostly these concerns are for young adults with newly acquired post-secondary degrees. The third quarter of 2016 still had 202,000 unemployed college graduates which may force these graduates to find work in other countries and that is why the number of workers sent overseas for guest work in 2016 grew by over 9%.

Figure 18: Source: Bloomberg, 2017In Figure 18 above we can see this trend where the higher the education a young Vietnamese student achieves the less jobs that are available to them with around 17% of university students jobless. One of the main reasons is that there schools are failing to prepare students for complex work. This can lead to a standstill in Vietnam's economic rise leaving them in the middle-income economy. Development economist Scott Rozelle from Stanford University said, “Countries that have been successful moving up to to the next economic stage already have developed country levels of education when they were middle-income economies” (Tu Uyen, 2017).

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Stability

According to the Statista country report, “Vietnam is politically relatively stable with a moderate level of technological development.” This can also be seen in the figure below of the percentile rank of political stability and absence of Violence/Terrorism in Vietnam at 51.43% in 2016 (Trading Economics, 2018).

Figure 19: Source: World Bank, 2018)(Figure 19 represents the stability Vietnam’s political stability and absence of Violence/Terror)

Inflation Stability

Vietnam inflation stability has recently been stable but around the 2008-2012 year mark there was a sharp increase due to the large influx of their own industrial revolution. The large dip in between that time was due to the American recession which is where most of Vietnam’s international business is through. It hit its highest point in August of 2018 with 28.2 percent and its lowest at -2.60 percent and hitting in the negatives again just before 2016. The recent stability of inflation is good for other countries looking to invest their company resources into Vietnam (Trading Economics, 2018).

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Figure 20: Source: Trading Economics, 2018Figure 20 represents the inflation percentage over the years

Work Rules

Vietnam has been notoriously known as a country with a dangerous working environment. Although the government and offshoring companies are starting to add more regulations the problems still occur. Below, in Figure 21 the difference can be seen with standards between non-exporters and exporters corporations. Seeing the relatively high increase of standards for exporters shows that the main reason for these standards are from foreign countries. Still, around 60% of firms that export do not apply standards, revealing it is still not crucial for participation in export markets. The largest difference is in the textile manufacturing segment where there are zero standards while compared to 67% of exporting manufactures. This relation can be seen with all segments of business except for the publishing and printing, and basic metals exporters (Trifkovic, 2017).

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Figure 21Sources:Trifkovic, 2017Figure 21 represents the difference in standards of non-exporters and exporters companies

In Figure 22 below the difference in which industry and the progression over the years can be seen. Chemical products can be clearly seen as the leader in 2014 but only because of a substantial increase from the past years. Behind electronic machinery, the standards are low and even begin to increase from 2012 to 2014. This negative progression can be seen with fabricated metal products, wood, paper, rubber, food and beverage, and non-metallic mineral products. Figure 23 illustrates the application of standards by legal ownership. Also, shows how standards are most commonly applied among joint stock companies. This is representing how larger and complex firms are most likely to apply standards. To this point a relation has been found where certified firms tend to serve customers farther away from their manufacturing premise with over 30% in the national market (Trifkovic, 2017).

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Figure 22 Figure 23Sources:Trifkovic, 2017

(Figure 22 represents the segment of business that applies standards and Figure 23 represents the type of business that represents standards)

In March of 2018 the Ministry of Natural Resources and Environment (MONRE) and the Ministry of Transport (MOT) agreed to work together in an effort to manage climate change. The goal of this agreement is to moderate greenhouse gas emissions through regulations on various transportation modes. The two entities will cooperate on several improving several matters. They will implement plans for exploitation and sustainable use of seashore resources. Regulations on environmental protection, importing and second hand shipping are included in these plans. They will also control pollution on both island and marine segments of Vietnam. With this control, they will also distribute the information they gather to raise public awareness about environmental regulations. It is expected that these two units will cooperate and perform their respective roles effectively and efficiently. They will meet every six months during the 2018-2021 time period to discuss shortcomings and improve upon the work they are doing.

Social Issues

Happiness

According to a study conducted by the New Economics Foundation, Vietnam was ranked the fifth happiest country in the world, and the happiest in Asia. The Happy Planet Index report investigated 140 countries and looked at several factors including life expectancy, well-being, inequality and ecological footprint. In the study, wellbeing was measured by how people viewed their quality of life, while inequality looked at how unequal distribution of life expectancy and experienced well-being results were within a country. One factor believed to be attributed to happiness is the reduced poverty in the country. In the early 90’s about half the population lived below the poverty line and now it is in single digits (Brett, 2016).

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The average life expectancy in Vietnam is above average according to the Happy Planet Index. In comparison, both Vietnam and Gambia have similar sized economies with similar levels of GDP per capita but on average people from Vietnam live more than 17 years longer. Additionally, school enrollment is 98%, making it one of the highest in the world (“Vietnam”, n.d).

Business Customs

Vietnam is a culturally rich communist country whose society reflects the influences of its previous colonization by China and France. Vietnamese business people value hard work and efficiency and maintain enthusiasm for business. Business relationships are first based upon personal interactions. Therefore, the first meetings typically involve getting to know one another. Politeness and modesty are fundamental values that drive Vietnamese behavior. Yet, an appreciation for courtesy in combination with reverence for hierarchy and bureaucratic red tape creates slow decision making. Further, Vietnam is a collectivist society, and ideas need to be perceived as beneficial for the entire group. Risk and change is not a strength or priority in Vietnam, rather they place emphasis on protecting reputations and dignity (World Trade Press, n.d.).

Understanding the hierarchical structure of Vietnamese organizations will increase success in business. Confucianism is a philosophy that emphasizes social order when communicating with others. Everyone is seen to have a distinct place and role within the hierarchical structure, whether it is by age, education, gender, or job position. For example, in a business meeting, the oldest or most senior person will enter or be greeted first. In this way, ideas and decisions are often generated at the top. Vietnamese employees assume that a superior or manager will have experience and good leadership skills. As a result, some managers may show a paternalistic attitude toward their employees. Further, some bosses purposely delay announcing decisions to demonstrate their power. It is also important to note that a more democratic method of reaching decisions by asking for the opinions of others is become more acceptable in Vietnam (World Trade Press, n.d.).

Vietnam and European Union Free Trade Agreement

Over the last couple of years the dynamic in Vietnam’s trade partners has shifted. Vietnam is signing a free trade agreement with the European Union in the year 2018 and President Trump pulled out of the Trans-Pacific Partnership in January of 2017. These two factors will change the direction and methods that Vietnam exports goods to foreign countries. It is likely that there will be a shift in the coming years to more European trade and less trade with the United States. Currently, the EU is almost one-fifth of Vietnam’s exports. In 2016, the EU block accounted for the fourth largest number of imports to Vietnam. The free trade agreement will increase the trade between Vietnam and the European Union. This agreement is constructed to remove over 99 percent of tariffs. It is estimated that Vietnam’s textile, clothing and footwear

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exports will more than double by 2020 based on this agreement (Vietnam-EU Trade Agreement..., 2017). This free trade agreement, as well as others in the future, will benefit Vietnam and the other nations involved. Korean businesses rely on Vietnam for their own production. These Korean companies will also benefit from Vietnam’s ease in exporting to numerous countries within Europe. The EU benefits from strengthened regulations on intellectual property as well as better market access for investors (Vietnam-EU Trade Agreement..., 2017). As mentioned earlier in the paper, Vietnam is focusing a large amount of efforts on improving the sustainability of their entire country. The agreement will help the nation work towards this goal. The free trade agreement includes an entire chapter on trade and sustainable development for Vietnam and the EU. Some of these regulations focus on ensuring that the increased trade between countries does not negatively impact environmental protection, a key component to Vietnam’s future success (Vietnam-EU Trade Agreement..., 2017). Overall, once this agreement goes into effect, both entities will flourish and will bring about positive change for themselves, one another and other countries in the world.

Conclusion

Findings

After compiling and analyzing various components from a holistic approach, the team determined that in Vietnam’s current state in conducting business would present many challenges to foreign entities. It is clear from the research that Vietnam is striving to mitigate many of its major issues including pollution, corruption and infrastructure shortcomings. As a result of these potential improvements, Vietnam may be a opportune trading partner in the near future. The largest contributor to Vietnam’s lack of success in being a strong trading partner stems from unstable infrastructure. Additionally, the capacity issues previously discussed in Primary Transportation Modes can create an obstacle to Vietnam’s economic growth. Although these are current challenges, the government has increased spending in an effort to improve infrastructure. Vietnam has many areas to improve within the transportation sector that will be further discussed in the team’s recommendations. Overall, Vietnam, based on current sources, will continue to grow and has made strides towards becoming a more effective and efficient logistics country.

Strengths as a Trade Partner

In the analysis of Vietnam’s strengths as a trade partner, the team will discuss both present and future positive attributes of doing business with the nation. Currently, one of the most beneficial aspects of business with Vietnam is the access the country has to ports. As a production based country, Vietnam is in an excellent location to ship products and materials internationally, especially to other Asian or European countries. As noted in Capacity Issues,

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Vietnam has opportunities to improve and expand international shipping through the efforts previously mentioned in this report, including modernizing port equipment.

As stated in the Economy portion of the report, Vietnam has increased its opportunities to do business with foreign countries and in return foreign companies hope to invest in Vietnam. It is important to consider the business culture represented in the country. Overall, the team believes this culture will be a strength as it is one based on respect, loyalty, commitment, and long-term relationships. From the research conducted, especially from the results of the “Happiness Index,” it would appear that the citizens of Vietnam are enthusiastic regarding new economic growth opportunities and improving the overall quality of life in their country. With this knowledge, it would be expected that relationships will last, both parties will be invested in the business, and ultimately create a strong trade relationship.

Outsourcing and offshoring to Vietnam has become increasingly attractive to foreign countries as their own production costs rise. Foreign investment combined with increased government spending on improving infrastructure has made Vietnam an emerging market location. Vietnam has grown exponentially in the past few years and soon will compete with China and India as a production location. Vietnam is attractive in the textile, manufacturing, technology, and production industries. In general, the low labor costs are the most appealing and beneficial attribute for outsourcing and offshoring.

From the European Union perspective, the Free Trade Agreement discussed at the end of the report will also open many doors to a better trade relationship with many countries in the coming years. These strengths discussed have enticed large corporations to invest in Vietnam already and will continue to persuade more to come.

Weaknesses as a Trade Partner

Though Vietnam’s advantages as a trade partner are alluring, corporations must be cautious of recent legislature, corruption, and long-term infrastructure. Vietnam’s corruption will still be a concern for companies looking to invest in Vietnam because government officials controls cargo throughput based on the facilitation payments. Due to reasons mentioned in the Bribery/Facilitating Payments and Stability of Government portion of this report, new companies may feel trepidation towards Vietnam’s customs standards. Without accepting the corrupted standards, these businesses may not be as profitable as others. This can also lead to uncertainty in shipment time, which will be extremely worrisome for critical items.

Additionally, Vietnam’s logistical infrastructure is not ideal for high-volume and high-speed shipments. Even though there are a favorable amount of ports, there seems to be an emphasis on quantity rather than quantity. As a result, many ports will require modifications in order to accommodate larger vessels. Until this obstacle is resolved Vietnam’s capacity issue remains, ultimately leading to delays. Finally, domestic products are transported primarily by relatively poor roads with low speed limits and trucks prohibited from entering the large port cities.

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Recommendations

The success of any foreign company’s investment in Vietnam will depend on the desired business segment. As noted by the research in the Labor and Workforce section of this report, Vietnam has potential to benefit foreign companies because of its competitively low labor wages and a low unemployment rate for unskilled workers. Given this, companies may choose to manage with their own highly educated personnel that can monitor and report unethical behavior. This virtuous position is not one that every company will choose to take, but if one does, Vietnam can help to decrease the foreign country’s labor costs while preventing immoral behavior.

Transportation has a large impact on a country’s ability to do business successfully. As mentioned throughout the paper, Vietnam is striving to tighten regulations, improve infrastructure and improve the country’s social climate. As mentioned in the Environmental Transportation section of the report, Vietnam has an opportunity to expand its use of rail in the future. While it is important to note that a very small section of cargo transportation uses rail, a more effective use of railways could improve lead time and decrease carbon emissions. This system could be used for predictable, low-value products that are not critical to the business. By considering rail as an option for some of these non-essential products, Vietnam would also be able to decrease congestions on the roads, indirectly leading to shorter lead times for unrelated products.

Referring to the Strengths and Challenges of Logistics Systems section, there are several recommendations to be made for each transportation mode. Suggestions for the road sector include: upgrading the national fleet, decreasing the country's reliance on trucks, and improving the overall infrastructure of roads in terms of quality and access to all villages and cities. Making these changes can greatly improve the efficiency, assessability, and safety of the road sector. The recommendations for the inland waterway sector include: constructing more international waterways, accommodating channels to support larger vessels, implementing more rail connectivity stations at ports. Recommendations for the maritime sector are: implementing navigational aids, upgrading managerial education, improve port quality, and applying a new nationwide port network. These recommendations would decrease lead times, limit holding inventory, and improve overall logistics for companies in global markets. Lastly, recommendations for the air sector include: building more airports geared towards moving freight, improving customs training, investing in cargo planes rather than using the underbelly of passenger aircrafts, and removing procedural bottlenecks that cause delays and increase costs. By implementing these suggested recommendations, the air sector will see major improvements across the board.

Also, the CTPP will increase diversification of exports branching away from relying solely on the United States, thus, creating a more international presence. It is possible in the future the United States may re-sign back into the agreement. Under President Obama’s term, the relationship between Vietnam and the United States was at an all time high where the trade

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between the two countries tripled over several years. When President Trump was elected he pulled out of this agreement because he believed that the agreement strongly favored Vietnam.

Overall, Vietnam can be a profitable country to invest company capital, especially in exporting manufactured goods. A company must do their own research to know if Vietnam’s infrastructure and corruption will impede business opportunities or its low cost of production will offer potential growth opportunities for their business.

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Appendix

Figure 1A: Source: Marketline, 2016

Figure 2A: Source: Efficient Logistics, 2014

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Figure 3A: Source: Efficient Logistics, 2014

Figure 4A: Source: Assessing the National Logistics System of Vietnam, 2015

Figure 5A: Source: Statista, 2017

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Figure 6A: Source: Statista, 2017