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Foreign Trade University

Country attractiveness: Exporting crude oil to Japan


Nam Ha
FOREIGN TRADE UNIVERSITY
FACULTY OF BUSINESS ADMINISTRATION

Topic: Japan attractiveness

Export crude oil to Japan

Subject lecturer: Duong Thi Hoai Nhung


Student: Nguyen Thi Nam Ha
Class: A1- High quality class- Faculty of Business Administration- K47
Word count: 2470 words
Submit date: 20 September 2010

1. Executive Summary
The purpose of this report was to analyze Japan factors: economic, legal, political and
cultural environment that create the competitive strengths, weaknesses, opportunities
and threats associated with Japan’s business environment. Specific objectives were to
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Foreign Trade University
Country attractiveness: Exporting crude oil to Japan
Nam Ha
compare the level of dominance among the factors’ characteristics and then define
Japan attractiveness. Thanks to this analysis, Vietnam crude oil exporters have some
considerations in their decision- making and determine the appropriate strategic plan
when they export crude oil to Japan.
Though Japan is the second largest economy in the world, it has many problems in each
aspect. Especially, the political and legal system show many shortcomings such as
battle of leadership election, corruption, huge public debt, etc.
The report recommends the necessity for Japan’s reservation of nature resources and
against the corruption. And Vietnam has to make the use of crude oil effectively for
domestic demands and foreign demands and should maintain the good relationship with
Japan to encourage investment.

TABLE OF CONTENTS
…………………………………………………………………………………………...pag
e
1. Executive summary…………………………………………………………………...2

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Country attractiveness: Exporting crude oil to Japan
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2. Table of contents………………………………………………………………………
3
3.
Introduction…………………………………………………………………………….4
4. Overview of Vietnam crude oil exporting…………………………………………
5
5. Discussion……………………………………………………………………………...6
5.0 Japan first look………………………………………………………………………..6
5.1 Economic
aspect……………………………………………………………………….8
5.1.1 Benefits……………………………………………………………………………
8
5.1.2 Risks……………………………………………………………………………….9
5.1.3
Costs……………………………………………………………………………...10
5.2 Legal aspect…………………………………………………………………………...11
5.2.1 Benefits………………………………………………………………….
………..11
5.2.2 Risks……………………………………………………………………………...11
5.2.3 Costs……………………………………………………………………….
……..11
5.3 Political aspect…………………………………………………………………….
…..12
5.3.1 Benefits…………………………………………………..
…………………….....12
5.3.2 Risks………………………………………………………………………………12
5.3.3 Costs………………………………………………………………………………
12
5.4 Cultural aspect………………………………………………………………………..13

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Country attractiveness: Exporting crude oil to Japan
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5.4.1 Benefits……………………………………………………………………………
13
5.4.2 Risks……………………………………………………………………………….13
5.4.3
Costs……………………………………………………………………………….13
5.5 Tradeoff……………………………………………………………………………….14
6. Recommendation…………………………………………………………………….15
7.
Conclusion…………………………………………………………………………….15
8. References…………………………………………………………………………….16
9. Appendix………………………………………………………………………………17

3. Introduction

Recent years, Vietnam has dispute with the China about the ownership of South China Sea
well as other islands. One of the reasons that causes these due to the amount of crude oil in
these areas. This is considered as a global event that also makes one of the richest countries
in the world – US wants to jump in for somewhat benefits. Therefore, we can see the
importance of unrenewable resource – crude oil.
In addition, Vietnam doesn’t have the innovative technologies to condense the crude oil to
higher value products. Because of these, our countries have to export crude oil and import
products from crude oil.
It is inevitable to interpret the importer market to get the favorable benefits for Vietnam
crude oil. At the moment, Japan is one of the biggest importers of Vietnam crude oil. This
country is a market which has many concerned factors for Vietnam economic activities
included export crude oil. In this report I want analyze the country attractiveness of Japan
and then consider whether Vietnam should export crude oil to Japan or have the
appropriate export policies.

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Country attractiveness: Exporting crude oil to Japan
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4. Overview of Vietnam crude oil exporting.


As Vietnam’s most important export product, crude oil brought about 8.447 billion US
dollars for 15.1 million tons exported in 2009, or about 17.46% of the total export quota.
(Illustrated in chart 1)
At the present the main importers of Vietnam’s crude oil are China, Japan, Singapore,
England and USA.
Some big exploiting oil corporations in Vietnam are the state-owned Vietnam Oil and Gas
Group (PetroVietnam), Vietsopetro, Premier Oil, PCVL (PetronasCarigali Vietnam Ltd),
JVPC (Japan Vietnam Petroleum Co., Ltd), etc.

Currently, Vietnam is on the list of producing oil countries in the world and ranks the third
in the Southeast Asia on the crude oil production from 15- 17 tons of oil which contribute
to ensure the national energy security. Despite being Southeast Asia's third-largest crude oil
producer with output averaging 300,000 bpd, Vietnam now still relies almost entirely on oil
product imports as it lacks major refineries.
Up to now, Vietnam only has two oil refineries: Dung Quat (Quang Ngai) and Nghi Son
(Thanh Hoa). In addition, the factory capacity is still small and not equal to the quantity of
crude oil available in Vietnam. Therefore, Vietnam mostly exports the crude oil and import
many products from crude oil.
This is the disadvantage for Vietnam due to partly technologies. And of course, the
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Country attractiveness: Exporting crude oil to Japan
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consideration in which Vietnam should export is very important. Vietnam Oil Corporation
determines that Japan is one of the strategic & sustainable clients. Now, let’s see how Japan
is.

5. Discussion: Country attractiveness.


5.0. Japan first look.
Japan is a mountainous, volcanic island nation in East Asia, on the Pacific Ocean. China,
Taiwan, Russia, North Korea and South Korea are its neighboring countries. Japan is
popularly called the "Land of the Rising Sun" as the characters in its name mean "sun-
origin". Japan is made of up 6,852 islands, most of which are mountainous (some even
volcanic). Tokyo is the world’s largest metropolitan area and home to 30 million people.
The country boasts a modern and extensive military force that aims at self-defense and
peace promotion. The standard of living is one of the highest in the world, with the highest
life expectancy and the third lowest infant mortality rate.
 Japan and Oil

 Oil production: Japan has very limited domestic oil reserves and relies almost totally on
imports to meet its consumption needs.
Japan maintains government controlled oil stocks to ensure against a supply interruption.
Japan is the third largest petroleum consumer in the world, behind the United States and
China. Oil demand in Japan has declined in 2009. This decline stems from structural
factors, such as fuel substitution, an aging population and energy efficiency targets. In
addition to the shift in the industrial sector to natural gas, fuel substitution is occurring in
the residential sector as high prices have decreased demand for kerosene in home heating.

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Country attractiveness: Exporting crude oil to Japan
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 Japan’s import oil: Due to its gap between domestic consumption and production, Japan
remains the second-largest net importer of oil after the United States, having imported just
under 5 million bbl/d in 2007. The country is primarily dependent on the Middle East for
its oil imports, as roughly 90 percent of Japanese crude oil imports originate in the region,
up from 70 percent in the mid-1980s. The country was able to diversify away from the
Middle East briefly following the 1973 oil shock but this regional dependency has returned.
Japan is currently looking towards Russia, Central Asia, and Africa in order to
geographically diversify its oil imports and promote domestic energy security.

5.1 Economic aspect.


5.1.1 Benefits.
As of 2009, Japan is the second largest economy in the world, after the United States, at
around US $5 trillion in terms of nominal GDP and third after the United
States and China in terms of purchasing power parity.
GDP $5.273 trillion (2010) (nominal; 2nd)

$4.267 trillion (2010) (PPP; 3rd)


GDP growth - 5.0%( 2009)
GDP per capita $41,366 (2010) (nominal; 17th)

$33,478 (2010) (PPP; 23rd)

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Country attractiveness: Exporting crude oil to Japan
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GDP by sector Agriculture: 1.6%, industry: 23.1%,
services: 75.4% (2009 est.)
Inflation -1.3% (2009 est.)
We can see that the GDP- real growth rate of Japan in the chart (illustrated in chart 2)
- Japan has a large industrial capacity and is home to some of the largest, leading and
most technologically advanced producers of motor vehicles, electronic equipment,
etc. The service sector accounts for three quarters of the gross domestic product.
- Some of the largest enterprises in Japan include Toyota, Nintendo, Canon, and
Honda. Mitsubishi, Japan Tobacco, Toshiba, etc. Moreover, Japan has high labor
skills.
- It is home to some of the world's largest banks, and the Tokyo Stock
Exchange (known for its Nikkei 225 and Topix indices) stands as the second largest
in the world by market capitalization. Japan is home to 326 companies from the
Forbes Global 2000 or 16.3% (as of 2006).
In conclusion, Japan’s economy is highly efficient and competitive in areas linked to
international trade. Japan's reservoir of industrial leadership and technicians, well-educated
and industrious work force, high savings and investment rates, and intensive promotion of
industrial development and foreign trade produced a mature industrial economy. Japan has
few natural resources, and trade helps it earn the foreign exchange needed to purchase raw
materials for its economy, especially crude oil. Thanks to this, it is the chance for crude oil
exporters and Vietnam specially.

5.1.2 Economic risks.

+ Competing with China: While the latest data shows Japan remained ahead of China as
the worlds number two economies in the first quarter in terms of nominal GDP, it remains
close to losing the position it has held for more than 40 years.

Japan Economy Is Overtaken by China as Growth Weakens: Japan risks ending this
year in third place worldwide as it struggles to cope with deflation and a shrinking
population, say analysts while China has strong growth in 2010. Soaring welfare costs for a

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Country attractiveness: Exporting crude oil to Japan
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greying population and deflation continue to burden Japan, as falling consumer prices
encourage consumers to defer purchases in the hope of further price drops.
+ Japan’s debt: After decades of heavy stimulus spending and declining tax revenues,
Japan has a public debt mountain bigger than any other industrialized nation, expected to
hit 200 percent of gross domestic product in the next year.
Financial analysts warn Japan's economy at risk of bankruptcy: Tokyo -Financial experts
are cautioning Japanese officials that their economy may go bankrupt as early as next year
because of their high public debt figure.
Dai-ichi Life Research Institute sounded the alarm this week when they said a Japanese
bankruptcy could occur as early as 2011 when the public debt is expected to hit 20 per cent
of the gross domestic product.
“Japan’s revenue is roughly 37 trillion yen and debt is 44 trillion yen in fiscal 2010.
Without issuing more government bonds, Japan would go bankrupt by 2011” said Hideo
Kumano, chief economist at Dai-ichi Life Research Institute, reports the Manila Times.
The Japanese economy shrank by 5.2 per cent in 2009 due to debt, deflation and a decline
in domestic demand.

5.1.3 Economic cost


Infrastructure: Japan infrastructure requires high design to resist earthquakes and
volcanoes. Therefore, it is very costly when Japan has nature disasters.
Cost for producing energy: Japan lacks significant domestic sources of energy except
coal and must import substantial amounts of crude oil, natural gas, and other energy
resources, including uranium. Thus the country depends much on imports for primary
energy. Japan was the world's third largest producer of electricity thanks to nuclear power.
However, Japan's nuclear power program was strongly opposed by environmental groups,
particularly after the Three Mile Island accident in the United States. Other problems for
the program were the rising costs of nuclear reactors and fuel, the huge investments
necessary for fuel enrichment and reprocessing plants, reactor failures, and nuclear waste
disposal.
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Country attractiveness: Exporting crude oil to Japan
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5.2 Legal aspect


5.2.1 Legal benefits
Japan has strict law to govern property rights such as patents, copyrights, trademarks.
These will protect the investors from theft, piracy, etc.
In business, Japanese contract law is based mostly on the Civil Code, which defines the
rights and obligations of the parties in general and in certain types of contract. That could
be convenient for conducting business.
5.2.2 Legal risks

Corruption: Politicians imprisoned on corruption charges have won re-election because


they remained popular in their home districts even after the convictions. For recent
example, Prime Minister ShinzoAbe was brought down by scandals and a suicide.
---One of the most common forms of corruption in Japan is kickbacks for construction
projects. This form of bribery is one reason why Japan has so many bridges and railway
lines but less than half the population is hooked up to sewer lines.

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---The Japanese legal system and appeal system have reputation for being ridiculously
slow. The entire judicial system is relatively small and isn’t capable of taking on that many
cases. The costs of legation are very high.

---Critics of the Japanese legal system argue that it offers fewer protections for individual
rights than other systems and it discourages people with legitimate complaints from taking
their concerns to court, especially when their complaints are against the government and
big business.

5.2.3 Legal costs

Potential exporters to Japan should not be deterred by a widely perceived view that the
Japanese market is closed and heavily regulated. Barriers to market access for
merchandised and value added goods are mainly informal. Examples of informal barriers
include: entrance into business networks, maintenance of market presence and product
quality assurance.

5.3 Political aspect


5.3.1 Political benefits
The politics of Japan is conducted in a framework of a parliamentary representative
democratic monarchy. In general, Japan political systems are stable.
5.3.2 Political risks.
Take a closer look at just some of the political risks the country faces today that have the
potential to affect those with Japan-related financial or business interests.
• .The North Korean threat: Japan's troubled relationship with North Korea means
there is a small but significant risk of Tokyo being the target of nuclear missile
attacks

• Extremism in Japan: On the surface, Japan looks like a politically stable country
with no fear of civil conflict. The country has recently implemented mandatory
finger-printing of foreigners when entering the country as part of their 'Anti-

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Country attractiveness: Exporting crude oil to Japan
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terrorism strategy.' However, the truth remains that all terrorism attacks to date have
been home-grown.

• Battle for leadership of ruling party: A challenge to Prime Minister Naoto Kan by
controversial party powerbroker Ichiro Ozawa in a September 14 ruling party
leadership race means more political uncertainty for Japan, following July 11 upper
house elections in which the Democrats fared surprisingly poorly and lost their
majority.

• Fiscal dilemma: Japan's huge public debt is a pressing policy problem...

5.3.3 Political costs.


Due to the conflict with the North Korean, Japan has to enhance their defense. To show off
the nuclear power to enemy, Japan used much money for it. This also is the reason why
Japan has huge public debt.

5.4 The cultural aspect

5.4.1 Cultural benefits

When you built the strong relationship with Japanese, doing business becomes more
smoothly. Japanese are favor in loyalty and in human feelings and emotions than scientific
or logical concerns.

5.4.2 Cultural risks.

Japanese culture has evolved greatly over the years which combine influences
from Asia, Europe and North America.

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Country attractiveness: Exporting crude oil to Japan
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And Japanese business culture is very tied and strict. If you are not familiar with Japanese
business culture you are risking the whole purpose of your business trip. The Japanese will
never do business with someone they don't know or respect.

5.4.3 Cultural costs

It takes time for investors to learn Japan’s culture before doing business. If you don’t know
how to do business in Japanese ways, you easily fail.

5.5 Tradeoff

Compare between benefits and risks, costs (Japan attractiveness survey 2008 illustrated in
chart 3). As shown in this chart above, we observe very high level of satisfaction with
quality and business- environment criteria (R&D, labor skills, political stability, and
transport and telecoms infrastructure). However, these criteria have big potential risks as
we discussed above. In addition, investors show very low satisfaction with cost related
criteria such as labor cost, corporate income tax, productivities and subsidies. Therefore,
costs and risks rather exceed the benefits. Japan has being downstairs very slowly thanks to
good basis and unique fields: high-tec, big corporation. Currently, Japan is one of the
biggest importers of Vietnam crude oil; Vietnam should maintain this business export

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Country attractiveness: Exporting crude oil to Japan
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relationship with Japan. The thing Vietnam should do is to calculate the quantity of crude
oil which was exported and used for refineries relatively.

6. Recommendation
Japan:
Having plans to reserve the materials and natural resources such as: coal, crude oil,
steel, etc.
Do further research and development to go ahead other countries to make the
competitive advantages.
Reform the construction system to adapt to the social requirements and their geography.
Simplify the legal system or de- regulation but still keep the efficiency.
Build the group to investigate the corruption among the government officials to make
the authority system more consistently and effectively.

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Foreign Trade University
Country attractiveness: Exporting crude oil to Japan
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Vietnam:
+Make of the advantage of the natural resource to produce the finished goods at the
higher price.
+Build the good relationship with Japan to encourage the support from Japan to build more
the refineries.
+The government’s development strategies should entail allocating privileged resources to
needy economic sectors without discriminating private firms.

7. Conclusion
The country is deemed the most attractive Asian country for both Research and
Development (R&D) quality and labor skill level. However, the risks and cost of the legal
and political system are big, Japan’s attractiveness as an investment destination is
decreasing. To manage in this situation, Japan need to improve its policies.

8. References.
1. http://www.jetro.go.jp/en/reports/survey/pdf/2008_04_2_fdi.pdf

2. http://en.wikipedia.org/wiki/Japan

3. http://factsanddetails.com/japan.php?

itemid=807&catid=22&subcatid=147
4. http://www.vietpartners.com/statistic-imex.htm

5. http://www.japanechoweb.jp/economy/jew0104

6. http://en.wikipedia.org/wiki/Culture_of_Japan

7. http://www.eia.doe.gov/cabs/Japan/Oil.html

8. http://www.asiafinest.com/forum/index.php?showtopic=136858

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Country attractiveness: Exporting crude oil to Japan
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9. http://www.chinadaily.com.cn/opinion/2010-

06/03/content_9931405.htm
10. http://www.wsws.org/articles/2010/sep2010/pers-s04.shtml

9. Appendix
List of charts.
……………………………………………………………………………………….page
Chart 1: Vietnam export 2009………………………………………………………….18
Chart 2: Japan GDP growth rate 2010…………………………………………………18
Chart 3: Japan attractiveness survey 2008……………………………………………..19

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Chart 1:

Chart 2:

Chart 3:

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