Challenges of the Logistics Industry in Vietnam


Vietnam is one of fastest-growing locations as well as average export progress rate in your community during the last ten years (Vietnam logistics post. 2008). The united states has turned into a central point for off-shore purchase for global manufacturers looking for less expensive locations than others. By beneficial conditions, there are opportunities as well as troubles for the transport industry generally and logistics sector in particular (Transport cleverness. 2008).

This research will examine Vietnam logistics industry through models such as Porter's Five Makes, PESTLE analysis and Product Life Pattern to introduce tips for development of logistics industry in Vietnam.

Porter's Five Drive Analysis

Source: http://www. caneval. com/images/pictures/fiveforcesmodel. jpg

Threats of new entrants - High

Threat of new access can be characterized as high due to Vietnam must totally start logistics market for foreign logistics companies in 2012 after its conditions to the globe Trade Organization (WTO). This is a major difficulty for Vietnamese logistics sectors which have to contend with foreign companies which may have increased capital and better competitiveness.

Threat of substitutes - Medium

E-commerce will design a new market for players in the logistics field. Logistics and discussion systems that proficiently and effectively in respects will be key for the success of the corporations involved. This means that service companies and especially logistics companies, must identify and offer effective logistics alternatives in order to be competitive on the marketplace (Hultkrantz, O & Lumsden. n. d. ).

Bargaining power of suppliers - Medium

The inefficiencies of the transportations and lack of supporting infrastructure system, including warehousing and depot facilities are downsides for the advance of logistics industries. In addition, many seaports and airports also lack logistics syndication centres, which can result in increased inventory and idle time for pickup trucks, ships and planes (Hiong, K. S. 2008). However, lately, government's progresses to enhance transportation infrastructure and increase participation of international operators are anticipated to improve the logistics field in Vietnam.

Bargaining ability of buyers - Medium

The Vietnamese logistics industry has great advantages for growth by international economical interaction. The available policies of federal government effects strongly to country's trade needs. But, limited logistics infrastructure including seaports, warehouses, and international airports has resulted in increased logistics costs. This disadvantage has avoided from producing of the Vietnamese logistics sector and lower attraction of home logistics companies in customer's eye.

Rivalry among existing businesses - High

There are more than eight hundreds operating small-sized logistics businesses in Vietnam, plus they remain moderate capital, technology and manpower (Vietnam logistics send, 2008). The business environment for service providers is more likely to be improving as the advantages of a logistics system rises among policy designers and customers.

The Vietnam's delivery field is dominated by international players who can offer global coverage and a wide range of services. Due to accession to the WTO, Vietnam has allowed foreign shipping companies to establish joint ventures with majority foreign ownership. The neighborhood carriers are basically focused on domestic and regional delivery services within ASEAN (APL logistics, 2007).

Analysis on PESTLE of Vietnamese logistics industry

PESTLE analysis is used to recognize factors of macro conditions of Vietnam in logistics professional development relying on five basic elements: Politics, Current economic climate, World, Technology, Legal and Environment.

Political factor

Governmental regulations and polices on the logistics sector are unclear to provide conditions for expansion of the country's young logistics industry. Additionally, legal and regulatory requirements significant affect above the logistics sector with respect to the politics environment which formulates under laws and regulations.

Recent years, favorable policies for industrial activity have resulted in the progress of Foreign Direct Investment (FDI) moves and the establishment of more privately-owned Vietnamese companies. It has given great impulse to the nation's professional sector and resulted in the multi-fold progress of international trade (Hiong, K. S, 2008).

Economic scale

The businesses extended further national limitations and extended to consider good thing about new marketplaces and cheaper resources, therefore the movements of goods created new requirements for the logistics industry. However, increasing global competition offered greater stresses on businesses to minimise the costs of operation, including implementation of just-in-time inventory management systems, etc. , and also created needs for acceleration and accuracy in all aspects of business.

Imports and exports of Vietnam have been increasing constantly and the current economic climate has been proven a high growth rate of on average of gross annual 6% between 2005- 2008. The country's exports and imports of 2009 was approximately $136 billion USD, a 21% increase from 2008 (Basic Figures Office of Vietnam, 2010). The increase of international trade experienced created great demand and strong possibility to logistics companies (Hiong, K. S. 2008).

Moreover, FDI has also been increasing moderately in the logistics sector and it is expected to increase faster with the Vietnam's entrance to the WTO. The arising of foreign logistics companies which can be in the process of investment to use as fully international owned companies or joint ventures in Vietnam. Using the increasing penetration of multi-nationals, the marketplace is likely to grow through the next years, with service levels reaching international expectations (Hiong, K. S. 2008).

Recently, Vietnamese Authorities aims to get as much as 10% of its GDP on infrastructure including the move, energy and telecommunications industries. The private sector is likely to play a further role in the highway, seaport and air-port projects. Improving in infrastructure and ancillary services such as warehousing, depots and distribution centres will widened boost the demand for logistics services and create great business opportunities for the existing logistics providers (Hiong, K. S, 2008).

The inadequate HR for logistics services as lack of skilled logistics specialists. In an effort to keep tempo with these needs, as well as cater for the needs of the world's 13th greatest society, the Vietnamese Government has invested closely in improving its carry infrastructure.

However, its success can be detailed the best as merged. While Vietnam's considerable network of inland waterways transportation efficiently throughout the united states, an inadequate street network (less than 20% pavement) and limited railway capability have resisted Vietnam from reaching its full transfer capacity.

On the other palm, Vietnam's quickly growing air and seaport industry has facilitated a higher volume of trade; improvements across all carry systems will have a similar effect.

Technological force

The less matching information system of Viet Nam logistics industry is leading to be ineffective. Just lately, Vietnam continues to be behind almost regional countries of EDI and E- Business applications. Several other countries have made significant work to build up a general public- private EDI, inter- ministry network to share the logistics knowledge and enhance the sector's functions (Arnold, J & Stone, J. I. n. d. ).

On the other hand, Vietnam Internal of Commercial Technology (VICT) system of Vietnam is the one port operator using the EDI system, on standalone basis, which processes automated pot billing, computerized inventory management (box yard procedure), automatic gate procedure (truck arrival and departure check), automatic vessel operation (container loading and unloading management), and CFS stock management (Arnold, J & Natural stone, J. I. n. d. ).

Legal force

In Vietnam, the laws and legislations are highly complicated and not usually steadiness such as traditions clearance, surface handling, and terminal businesses. The multiple levels of administration levels also lead to some problem issues and increase in both the cost and times of control freight (Hiong, K. S. 2008).

Recently, the many business procedures such as freight forwarders, warehouse, fleet and designed logistics companies aren't defined clear restrictions. They are not often co-operated and do not connect generally each others' business offerings, which will result to increase of efforts, higher costs and time. Lack of sharing of information, decentralization on tasks and obligations also create potential difficulties and can further become barriers to the progress of the Vietnam's logistics industry (Hiong, K. S. 2008).

Environmental factor

Vietnam's logistics sector also experienced less logistics pros. That is a great challenge and drawback for the logistics companies given that they suffer to consider talents. Insufficient training and education in logistics' area is also a significant contributor to discover skilled individuals (Hiong, K. S. 2008).

Otherwise, the move infrastructure is actually in bad conditions and a corridor for general public transport has not been created as the needs for high quality carry of goods between various method of transport are increasing.

The Motorists of change of the Logistics industry

The main causes that dives change of logistics industry in Viet Nam will be: the polices of government, nationwide travel and infrastructure system, business environment, cost and time of services.

Regulations of government's policies

The sophisticated legal and regulatory environment is a significant participation for both private and foreign investors. It really is an important reason behind the lower contribution of private traders in critical areas such as heavy industry and infrastructure development (APL logistics. 2007, p. 5). This will likely be needed for greater transparency in insurance plan decisions also to place greater emphasis on economic considerations over political practically.

National transportation and infrastructure system

The commercial infrastructure and travelling network significantly is placed under international benchmarks and hence be aware of a low share of the entire logistics market. The improvement of these will greatly enhance the country's potential to develop its domestic and international logistic co-operations (APL logistics. 2007, p. 5).

Vietnam has great capacities to become a major shipment hub. However, the shortage of world-class deep normal water ports is restricting its potential to completely develop shipping and supported establishments (APL logistics. 2007, p. 5). Motivating the contribution of international shipment and dock companies would complement great driving makes to the sector.

Costs and time

In addition, the development of logistics industry will significantly encourage Vietnam's competitiveness through the reduced amount of travel and inventory costs, leading in shorter delivery period to destination markets and a standard improvement in the efficiency and security of the movement of goods and materials (APL logistics. 2007, p. 5).

Recently, logistics costs are a exceptional contributor to the high cost to do business in Vietnam. During the last years, increased competition and the increased level of logistics services has reduced this cost substantially.

The life-cycle model

Source: http://alife4info. co. uk/images/stagesInTheIndustryLifecycle. jpeg

Vietnam's current economic climate is likely to continue development at above 6% for the next years (Basic Reports Office of Vietnam. 2010). The share of national GDP between your commercial and service industries will grow regularly. Vietnamese logistics industry is known as stand inside progress and shakeout stages (X).

The connection with its neighbours (such as China, Hong Kong, and Singapore) will be useful types of how to develop logistics industry. Government policies concentrate on transforming Vietnam into a market economy and continuing international financial integration.

Moreover, foreign logistics buyers will expand their occurrence in Vietnam. There is an chance to improve this further through investment in new infrastructure as well as new procedures and technology to meet international benchmarks. This will likely support for countrywide main industries, including travelling and logistics to continue growth in the future.

Scenario Analysis

Redesigning of rules and regulations as well as co-operation of small corporations to assist in trade functions faster, cheaper and more effective

Service providers face various problems, including inconsistent laws across levels of administration and too little manpower skill. Further, the industry is highly fragmented with a matter of more 800 operators competing for business. The majority of a small size and have service range, limited coverage, and it potentials (APL logistics. 2007, p. 4). It is necessary for encouraging customers to work in cooperation with one another based on utilising corporations' advantages (physical facilities, information systems, and others) for one-stop shop provision of services, and widening domestic and abroad business functions range.

Improvement of technology, the national transport system as development of streets, infrastructure, landside and international airport.

This will be a critical need to build up road and landside infrastructure to be able to accomplish the efficient activity of the increased volume of goods. Upgrading of the prevailing international airports at Ho Chi Minh City and Hanoi to aid larger quantities of cargo is also urgently required (APL logistics. 2007, p. 3).

The increased emphasis positioned on developing the electronics and hi-tech areas by the Government will give restored impulse to further develop its air facilities, as the products require more complex and secure modes of delivery and shorter transit times.

Further, the building new ports around major economical centres of country (Ho Chi Minh City and Hanoi) could bring about a considerable improvement of infrastructure. The introduction of deep water ports is also likely to remarkably enhance international cargo activity linked with Vietnam and lower overloaded flows of goods at two big ports as Ho Chi Minh and Hai Phong (APL logistics. 2007, p. 4).

The early on building of the new airport terminal at Long Thanh - Dong Nai, practically Ho Chi Minh City provides more benefits adding capacities. Also, the concurrent development of an improved road network to connect to the new international airport will be required to enough time creation of new bottle-necks (APL logistics. 2007, p. 4).

Training and human being resources

The progress of getting aware of logistics, building logistics management skills and boosting the capability to translate logistics theory into logistics practice needs long-term time. Vietnam federal should have insurance policies to support enterprises and schools in order to step up the duty of training under various adaptable forms, providing recruiting for the industry. On the part, enterprises need to look for funding and co-operation in human resource training from overseas countries and organizations.

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