Ky Yeu KHSV Tong Hop

Trng i hc H Ni KHOA QUN TR KINH DOANH DU LCH
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Thng 5 2010
Hi ngh khoa hc Sinh vin Khoa Qun tr kinh doanh - Du lch
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MC LC
1. AN EXPLORATORY RESEARCH INTO WALKING TOUR DEVELOPMENT IN HANOI .................................................................................................................. 3
Written by: Nghiem Truong Son (3K-08), Tran Thu Phuong (4K-07) Luu Thi Hoang Oanh, Bui Phan Phuong Thao, Nguyen Thi Thu (2D-07) Supervisor: Nguyen Duc Hoa Cuong
2. ROLE OF AUDIT IN VIETNAM ........................................................................... 18

Written by: Pham Quynh Anh, Nguyen Thi Thu Phuong (1KT-08) Nguyen Thi Lien, Le Thi Huyen Trang (2KT-08) Vu Thi Ngoc (3KT-08), Dang Anh Thu (1KT-08) Supervisor: Chu Huy Anh
3. MANAGEMENT ACCOUNTING: FRAMEWORK AND PRACTICES IN VIETNAM CASE STUDY:NATEXCO .................................................................. 30

Written by: Tran Hong Nhung, Nguyen Thi Hoai Thu (1KT -07) Tran Duy Nam, Vu Phuong Thao, Bui Thi Hai Yen (2KT -07) Supervisor: Do Van Anh
4. ACCOUNTING FOR FIXED ASSETS................................................................... 42

Written by: Nguyen Thi Ha, Hoang Thu Hang Bui Thi Minh Hoat, Le Thi Kim, Dinh Thi Thoi Supervisor: Dinh Le Mai
5. SCIENTIFIC RESEARCH PAPER REPOS CONTRACTS: LAW AND APPLICATIONS IN VIETNAM ............................................................................. 70
Written by: Nguyen Hong Hanh Tran Viet Kien, Nguyen Thi Quyen Supervisor: Nguyen Quynh Anh
6. DANCE WITH VIETNAM INFLATION 2005-2010............................................. 84

Written by: Nghiem Truong Son, Pham Thanh Cong (BA-08) Le Bich Thuy (AC-07), Bui Thu Van (BA-07) Supervisor: Pham Thi Hoa Nhai
7. COUNTRY RISK ANALYSIS IN VIETNAM ....................................................... 98

Written by: Nguyen Thi Dieu Tuyet (3TC07), Nguyen Van Trang (2TC07) Nguyen Thi Bich Phuong (3TC07), Luong Thu Huong (3TC07) Supervisor: Nguyen Thu Huong
8. THE IMPORTANCE OF PHYSICAL EVIDENCE IN SEVICES ORGANIZATION.................................................................................................. 120

Written by: Le Tuyet Lan, Thieu Thi Thuy Linh (BA08) Luu Dieu Linh, Nguyen Thanh Huyen (BA08) Supervisor: Tran Tuan Anh
9. MARKETING AFTER CRISIS ............................................................................. 135

Supervisor: Ngo Phuong Dung Written by: Nguyen Thi Thu, Nguyen Thi Hoa (TR-06) Vu Thi Thin, Hoang Thi Thanh Huyen, Do Thi Phuong (TR-06)
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10. COUNTRY RISK ANALYSIS IN VIETNAM ..................................................... 169

Written by: Dang Thu Trang, Nguyen Thi My Hanh (3K-07) Tran Thi Quynh Trang (3K-07), Phung Thi Anh (2K-07) Supervisor: Nguyen Thu Huong
11. GAP BETWEEN ORDINANCE AND SMALL-SCALE RETAILERS MANAGEMENT ON FOOD HYGIENE AND SAFETY .................................... 196
Written by: Nguyen Thi Thanh Huong (3K-08) Hoang Thu Ha (CN2-08), Nguyen Thi Thuy (2KT-07) Supervisor: Nguyen Thi Cuc
12. The development of Standby Credit and its application in Vietnam...................... 209
Written by: Le Thi Thu Huong, Nguyen Thi Thanh Nga Nguyen Thi Ha Nhung, Nguyen Phuong Van Supervisor: Phan Thi Kim Ngan
13. BILL OF LADING AND ENDORSEMENT PROCESS ...................................... 225

Written by: Nguyen Van Anh (FB-07) Kieu Thi Thu Hang, Nguyen Le Quyen (FB-07) Supervisor: Phan Thi Kim Ngan
14. EFFECTIVENESS OF INNOVATIVE TRAINING ............................................. 240

Written by: Do Duc Thu (4K -07) Duong Hong Hanh, Nguyen Hai Yen (1D-07) Supervisor: Nguyen Le Phuong Tram
15. ANALYSIS OF THE DEPENDENCE OF TOURISM REVENUE ON THE NUMBER OF VISITORS, INVESTMENT, CPI .................................................. 256
Written by: Hoang Thi Hue, Ngo Van Lung (TR-08) Supervisor: PhD DAO Thanh Binh
16. THE FACTORS AFFECTING STATISTICS FINAL RESULTS OF FMT STUDENTS............................................................................................................ 268
Written by: Pham Viet Dung, Luu Dieu Linh (BA-08) Nguyen Thi Dung (BA-08) Supervisor: PhD. Dao Thanh Binh
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AN EXPLORATORY RESEARCH INTO WALKING TOUR DEVELOPMENT IN HANOI

Written by: Nghiem Truong Son (3K-08), Tran Thu Phuong (4K-07), Luu Thi Hoang Oanh, Bui Phan Phuong Thao, Nguyen Thi Thu (2D-07) Supervisor: Nguyen Duc Hoa Cuong ABSTRACT This paper aims to analyze the potentiality of walking tour in Hanoi and find out problems which is needed to improve for further development of walking tour in Hanoi. Basing on both primary and secondary method, the information collected through real experiences of tourists in Hanoi and tourist information center (HaproTic) which are conducted through interview and observe. We also gathered some information about traffic, transportations and attractions in the internet through reliable sources. From those, we can conclude that I. INTRODUCTION Being well-known as a City of Peace and ranked the sixth in top ten most attractive cities in Asia according to Travel and Leisure magazine of the US in 2007, is one the of top ten best shopping cities in Asia, of top ten best city for leisure in Asia by online tourism magazine Smart Travel Asia (2009), Hanoi, a thousand year city, is likely to be an ideal destination for tourists from all over the world. Looking at many neighbor countries such as Thailand, Singapore, Malaysia which have utilized Tourism as an engine to boost their economies, Vietnam generally and Hanoi particularly must take action to make tourism become a key industry soon. Besides many popular types of traveling such as cycling tour, in-seat coaching tour, walking tour could be a trend to develop in Hanoi because Hanoi has many potentials to nurture it. Thus, this paper focus on analyzing some aspects of Hanoi ranging from attractions, transportation, information system to find out problems which is needed to improve to develop walking tour and also give some recommendations and potential walking tours for further development. II. LITERATURE REVIEW 1. The walking tour concept Nowadays, tourism is defined by most of the countries as the chief industry to develop economy because tourism has become a popular global leisure activity. However to meet the demand of all the customers, tour operators have to create a wide range types of tours in term of tour styles (luxury tours, budget tour) or tour activity types (adventure tours, eco-tours) and another type of tour which depends on transportation options such as motor coach tours, train tours, bicycling tours Among them walking tours has become a popular trend for many tourists. Walking tour may refer to either a multi-day trip or a full day or partial day trip of one or more destinations
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where the primary method of transportation is walking. Walking tour can be led by a tour guide or be self-guided. Your tour will probably involves a morning walk with sightseeing stops, lunch, a longer afternoon walk and dinner (http://en.wikipedia.org/wiki/Walking_tour). Commonly, walking tours take place when distance between destinations is not too long and accessibility for walking tourists is somewhat convenient. By participating in walking tour, tourist can take advantage of seeing destinations in great detail and also saving a large expenditure for transportation. 2. Typical walks in major cities The Classic Walk in Paris (http://classicwalksparis.com/paris/tours/classic-walk) Duration: 3.5 hours Distance: 4 miles or 6.4 km The Classic Walk offers a whole overview of Paris. Virtually most of major sites in the city center are covered: - The Eiffel Tower: the symbol of Paris - Notre Dame: the most famous cathedral in the world - Napolons Tomb: the resting place of the most famous Frenchman in history - Louvre Museum: one of the grandest museum in the world, include the most famous works: Mona Lisa, Venus de Milo. - Musee D Orsay: the museum hosts a world-class collection of Impressionists paintings. - Tuileries Garden: Former Royal Garden in the middle of the city - Champs- Elysees: the most famous avenues in the world. Its sidewalk are lined with caf, cinemas, 5-star hotels and shops. The French Revolution Walk (http://classicwalksparis.com/paris/tours/frenchrevolution-walk) Duration: 2 hours Distance: 2.3 miles or 3.7 km The French Revolution Walk will enlighten you to the significance of one of the most important events in modern history. Revive the troubled period leading up to some famous events in France. Fashion walking tour (http://www.paris-walks.com/crbst_6.html) Duration: 2 hours The tour is conducted by the fashion specialists; it is an enjoyable mixture of history, anecdotes, and trivia associated with fashion. The tour guide will show you both famous names and introduce you some lesser treasures. You also can go inside the shops and purchase what you want. Vatican walking tour (http://www.enjoyrome.com/walking/vatican.html) Duration: 3 hours
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The Vatican is one of the most famous interesting and breathtaking beautiful sites in the world. The tour will take you to some major attractions as well as some lesser known spots, and provide you a broad base for understanding the history, architecture, and politics of the Vatican. The highlights of the tour include: - Vatican Museums - Sistine Chapel - St. Peters Basilica Ancient and Old Rome walking tour (http://www.enjoyrome.com/walking/ancient.html) Duration: 3 hours The tour covers all the well known sites of ancient and old Rome including: - Colosseum (interior visit) - Roman Forum (interior visit) - Capitoline Hill - Trevi Fountain - Pantheon (interior visit) - Piazza Navona 3. Hanoi with walking tour Hanoi A legendary city with significant collections of major cultural and historical attractions Hanoi the beautiful capital of Vietnam strategically lies at the center of the triangular basin of the Red River. It original named Thang Long (City of the Ascending Dragon) and was first the capital of Vietnam in A.D.1010. With the 1000 years history and culture and the topography of many lakes and rivers, Hanoi have many attractions both cultural, historic and natural ones. And it is very potential for walking tour because most of these attractions were located closed to others. It means that tourists can visit these attractions by their feet instead of other kinds of transport Mentioned about Hanoi, we can not forget many rich historic attractions such as Hanoi Old Quarter, Temple of Literature, Ba Dinh Quarter, Flag Tower, Ho Chi Minh Mausoleum Van Mieu Quoc Tu Giam is a famous historical and cultural relic consisting of the Temple of Literature and Vietnams first University. The Temple of Literature was built in 1070 in honour of Confucius, his followers, and Chu Van An, a moral figure in Vietnamese education. Quoc Tu Giam, or Vietnams first university, was built in 1076. It was the first educational school for royal family members, and it was later opened to talented students. The site preserves historical vestiges of a 1000 years old civilization such as status of Confucius and his disciples, and ancient construction such as Khue Van Pavillion, and Worshipping Hall.
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Another attraction which is also very familiar and attractive with tourists who come to Hanoi is Hanoi Old Quarter. It is a unique antique quarter which represents eternal soul of the city. In Hanoi Old Quarter, beside traditional buildings, there are cultural, historic and religious buildings and traditional restaurants. Nowadays, the Old Quarter still maintains Vietnamese and Asian architecture and creates a complexity of unique architecture. Two examples of cultural and historic buildings which still remained are 87, Ma May Street (built in XIX century with old traditional architecture) and 38, Hang Dao Street (original was communal house built in XVII, now has combination of traditional and modern architecture). Now, in Hanoi Old Quarter, there are walking streets and night markets which were established to promote walking tour. Being a long-standing urban area, Hanoi is also very well-known with its religious attractions like Quan Su temple, Tran Quoc pagoda, One-Pillar pagoda Quan Su Temple was built in the 15th century under the Le dynasty. According to Hoang Le Nhat Thong Chi, during Emperor Le The Tongs seign, the Emperor ordered to construct a building called Quan Su (Embassy) to receive foreign ambassadors to Thang Long. Because those ambassadors were all Buddhist, they decided to build a temple on the premises for worship. Today only the temple remains. In 1934, the General Buddhist Society of Tonkin was founded and choosed as its headquarters. One-Pillar Pagoda is a historic Buddhist temple in Hanoi. It is regarded alongside the Perfume Pagoda, as one of Vietnams two most iconic temples. The temple is designed to resemble a lotus blossom, which is Buddhist symbol of purity, since a lotus blossoms in a muddy pond. In 1954, The French Union forces destroyed the pagoda before withdrawing from Vietnam after the First Indochina War, it was rebuilt afterwards. Beside those cultural and historic attractions, Hanoi is also proud of its natural attractions which mostly are beautiful lakes and rivers such as West Lake, Sword Lake, Truc Bach Lake, Red River Sword Lake the beautiful basket of flowers inside Hanoi, a mirror-like green lake with Ngoc Son Temple, The Huc Bridge, Pen Tower in the surrounding is a part of the Red river. Sword Lake used to be called Luc Thuy Lake (or Green Water Lake) since the water was green all the year round. In 15th century, it was named Hoan Kiem Lake (Sword Lake) after the legend of Emperor Le Thai To. Cuisine of Hanoi is also very attractive. It is not only diversified but also simple and sophisticated, for example Thanh Tri Cuon Cake, Pho, Com (green rice), Bun, And it is considered as a attraction to attract tourists come to Hanoi. However, its inner transportation is inappropriate and problematic for designing walking tours It will be difficult for a visitor to enjoy a walking tour in Hanoi without an appropriate transportation system. It cannot argue that because this is a walking tour
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then feet will be the only one means to travel. Besides, a transportation system is developed to add more conveniences for traveler. First of all, the most important factor that, in order to walk along a street, is pavement. In Hanoi nowadays, many streets have a large and nice pavement not only in using mean but also in the aesthetic mean. However, in the streets that almost every visitor to Hanoi will walk in maintain a situation of bad pavement, those are Old Quarters. In the survey we have been conducted, many visitors claimed that pavements in Old quarters are very narrow; sometimes they have to walk in the road instead of the pavement. The road system in Hanoi is the second significant factor. Besides some main roads for instance Trang Thi, Le Dai Hanh, etc which are very huge, streets in the blocks are small and crowded. Too many transports circulation around the street make visitors feel terrible and scared. In order to travel to the walking streets, travelers need some transports to take them from their hotels or from airport to Hanois center. Some will be suggested as taxies, buses, and motor taxies. Taxies will be the most useful transport. It can be easy to order, able to pick up a number of people, convenience for changing the route if necessary, cheap by international standards and a safe way to travel around at night. Average tariffs are about 10,000d per kilometer. The bus systems in Hanoi have improved in the past few years but are light years behind Hong Kong and Bangkok and, in general, buses are not a practical way to get around town. Even this kind of system is much cheaper but obviously it has more disadvantages than taxies. Getting around by motor taxies is easy as long as you don't have a lot of luggage. It is not a convenience transport for traveler, because they have to negotiate the price beforehand. Beside those transports above, traveler can find cyclo, or hide a motorbike or bicycle to enjoy their moment in Hanoi. III. RESEARCH METHODOLOGY In order to fulfill this research, two surveys and one observation were conducted in two different days and all data colleted are quantitative. The first survey was carried out on 1 May 2010 from 8.45am to 11.30am around Sword Lake in the form of personal interviews. One or two researchers interviewed one tourist and took note what he or she said. In this survey, 17 tourists, both Vietnamese and foreigners, were randomly chosen to answer various open-end questions ranging from their motivation to travel, their likes and dislikes in Hanoi, their evaluation about Hanoi attractions, transportation, and especially about Walking tour. Basing on experiences from many surveys before, the research group decided to hang on a banner with slogan if you love Hanoi, please tell me to attract tourists attention first, then
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asked them to join the survey instead of blocking them on the way and ask for their cooperation. Furthermore, everyone who participated in the survey received small gift that is a couple of Vietnamese in traditional dress. As a result, the majority of interviewees were people who approached us first due to their curiosity and then expressed their willingness and happiness to take part in the survey. Thus, we got very good responses from tourists in this survey. On 11 May 2010, the research group divided into two sub-groups to conduct both a survey and an observation simultaneously from 4pm to 6 pm. The first sub-group carried out the survey around Sword Lake and in front of Hapro TIC, a free information center in Dinh Tien Hoang street in the purpose of figuring out how tourists evaluate the quality of information system in Hanoi that is one of key factor influencing walking tours. Once again, a semi-structure interview with open-end questions was used to collect quantitative data. Especially for the tourists who were out of Hapro TIC, besides questions relating to general information system in Hanoi, the research group focused on asking them about their assessment on the quality of information given by this center. At the end of each interview, respondents were asked to provide their personal information comprising name, nationality, and email address to make valid references for the research. At the same time, another sub-group conducted observation inside Happro Tic center to evaluate attitude and working style of the staff, facilities and design of the center. In addition to observing, we also played a role a person who need information about some destinations in Hanoi to have short interview with the staff so as to evaluate the quality of information they provided to tourists. Moreover, we also collected many cards and brochures there to appraise effectiveness of these materials. Right after each survey and observation, all information collected was entered in database in order to make deep analysis. IV. FINDINGS 1. Motivation for traveling to Hanoi Although most of tourists interviewed are repeated travelers, only one-third of them have traveled to Hanoi before. However, it is hard for first time tourists to Hanoi to answer the question why they want to travel to Vietnam generally and to Hanoi particularly. Some stated that they wanted to be here just for relaxation; some other said they would like to discover Vietnamese culture and history through their travel. For those who have visited Vietnam several times before, it is Vietnamese culture, history and especially Vietnamese people who are very friendly and hospitable that attract them to come back Hanoi. As one Japanese tourist who has been to Vietnam six times and in Hanoi three times revealed, he loved Hanoi Old Quarter atmosphere that was hard to describe by word. Meanwhile, another American journalist who has ever traveled to Hanoi seven times tenderly looked at the research group and said I come back here because of you. Noticeably, no matter what their motivations are, Hanoi Old Quarter, Sword Lake, Ho Chi Minh Mausoleum, West Lake, Temple of Literature, and some
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Museums where Vietnamese culture and history are deeply reflected are places that they have visited or want to visit the best. 2. Likes and dislikes of tourists in Hanoi Among some common activities that tourists often participate in Hanoi, going shopping and enjoying Vietnamese traditional food are favorite ones of many interviewees. They love hanging out Hanoi Old Quarter to watch and purchase small handicraft souvenirs such as wooden objects, toys, silk clothes, brocades for themselves, and/or for their families and friends at home. Despite the fact that these products are very nice and Vietnamese, it is strongly recommended by one tourist that different shops had better sell different products in order to make shopping experience of tourists more diverse and exciting. Further, one respondent showed his wish for watching the hand-made items making process when going shopping in order to learn more about Vietnamese culture in more creative and exciting way. This can be a good recommendation for tourism makers to add more value for tourist during their trips. In terms of food and beverage, the great majority of tourists asked expressed their preference on traditional Vietnamese dishes; even some gave great praises for authentic Vietnamese food. Interestingly, one Japanese tourist could name some well-known Vietnamese food such as pho, spring roll, vermicelli and grilled chopped meat in Vietnamese. Besides, it is not surprising that every tourist asked stated that they would like and always come to small family-own shops to enjoy their meals instead of going to luxury restaurants where Vietnamese taste seems to be weaker than the former. Attentively, some of them asked showed their good experiences on enjoying food from street vendors like Vietnamese people often do. In contrast to many foreigners who feel afraid of eating food sold in the street because of hygiene matter, these tourists expressed their willingness to expose to very Vietnamese lifestyle. It is quite interesting that one Greek journalist revealed bread with pt in the street was his favorite breakfast everyday in Hanoi. In addition to some quite popular activities that tourists want to take part in during their stay in Hanoi, some respondents who are male journalists and engineer, have special interests in learning more about architecture, particularly French buildings in Hanoi. This interest possibly pertains to their jobs and genders. Thus, those prefer spending time walking around Hanoi Opera house and its environs to satisfy their like to going shopping in Hanoi Old Quarter or in open markets. However, in addition to several compliments on attractiveness of many beauty spots, of Vietnamese culture and history, and friendliness of the local people in Hanoi of tourists, there are some comments on keeping public sanitation in Hanoi because they saw many litters scatter on the ground. Therefore, Hanoi would be more beautiful if both everyone is more aware of keeping environment clean and the local authorities implement stricter regulations to rule their behaviors.
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3. Opinions on walking tour in Hanoi When being asked about whether they had ever heard or joined in a Walking tour before, roughly a half of them replied No because they seemed to be unclear about what a walking tour was. Most of them appropriately thought about traveling on foot without using any kind of transportation during the tour. This reveals that walking tour appears to be a quite new term for tourists even though they have ever experienced it many times or were joining it at the time the survey was being carried out. After being explained shortly and clearly what a walking tour was, a small number of them expressed their willingness to combine public transportation means with walking in the trip as provided that they have a good guide. As several tourists complained, Vietnamese tour guides are now quite bad at both foreign language and tourism knowledge. For this reason, tourists often rely on their guidebooks and personal maps. In fact, currently, most of time, foreign tourists travel on foot and sometimes take a taxi rather than using other public transportation means like bus, cyclos or motorbikes to travel in Hanoi because of many reasons. Firstly, the traffic in Hanoi is too heavy, dangerous and different from their home countries for them to travel. Even some Vietnamese tourists asked also expressed their dislike in traveling by these modes. For this reason, one tourist suggested that Hanoi should block some streets suitable for walking in certain holidays in order to give tourists a chance to enjoy their own walking tours without any disturb of heavy traffics. Besides, one Japanese civil engineer gave a comment on improving infrastructure to make traveling on road more smoothly. Moreover, the instruction of each bus routine at bus stops is in Vietnamese only so that foreign tourists feel very hard to travel by bus. Worthy saying that the poor instruction in bus stops as well as from the board hung on the bus makes Vietnamese travelers misunderstand and lost many times. Additionally, one tourist even exclaimed terrible when he was asked about the signpost on the roads because he did not see any signposts during his stay in Hanoi. Actually, there is the extreme shortage of signposts on the road not only in multilingual but also in Vietnamese that makes tourists find more difficult in their trips. It is Vietnamese people who feel confused when looking at the signposts in Vietnamese because they are simply the names of streets or roads without any arrows that show directions. Thus, all of the foreign tourists asked stated that they completely rely on their guidebook and personal map to find the way. However, some tourists who used taxi to travel complained that they felt dissatisfied because of being differently by taxi drivers. In the respect of ideal time and the length of walking tours, the great majority of tourists asked want to join a walking tour in autumn and spring, especially in the morning when the weather is cool and fine. A minority of them was willing to travel in afternoon summer when the sun burns less hot. According to the majority of respondents, they would like to take part in a walking tour that lasts from 0.5 to 3 hours per day only. However, some other were willing to participate in a tour that takes 8 hours in maximum or even the whole day starting from the morning until the night.
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Only one out of 17 tourists desires to join a walking tour at night. This is possibly attributable to the shortage of night activities in Hanoi. Thus, firstly, it is a good idea if there are different walking tours designed with different themes and itineraries according to seasonal changes and time in a day in Hanoi. Next, in order to encourage tourists to take longer walking tour, it is highly recommended that besides famous and popular water puppetry performance in Hanoi, more entertainment activities bearing strong Vietnamese characteristics like bamboo singing (ca tru performance), and Xam singing, traditional music instruments like monochord, Vietnamese two-chord fiddle can be performed around Sword Lake in certain days under the control of the local authority to make Hanoi have more distinctive melody. Equally important, some Vietnamese traditional folk games such as man chess, swinging; walking on stills may be organized in parks to arouse the image of very traditional Vietnam in the heart of busy Hanoi. Furthermore, a night walking tour with food and beverage theme will offer tourists very great nights in Hanoi. In addition to 30% some of tourists asked love traveling with family and friends, other expressed their want to travel with strangers who may come from different countries with different languages. There are some reasons for this. Different from some tourists who like traveling with strangers because they are confident in speaking some foreign languages; most of respondents show their willingness to and interest in learning new things from new friends coming from different cultures. For them, using body language is the best solution. Especially, some of interviewees wish to have their travel partners are the local people so as to learn more about Vietnamese people and have better guidance in some cases. Furthermore, except for one-third of tourists surveyed is reluctant to travel with kids under 10 or the old people due to their believed that different tastes and health conditions between this group and them may affect their travel negatively, the majority of tourists expressed their readiness to travel with such partners. 4. Tourist information is the main drawback for promoting walking tours in Hanoi Guidebook and website are the main tourist information channels before the trip Among the above problems, the most outstanding issue is about information system for tourists. Most of the tourists stated that before traveling to Vietnam, they only obtained needed information about Vietnam from guidebooks. During their journey, they also utilized their guidebook as a direction tool to find the way to the destinations. In addition, they also base on other sources of information, for instance their relatives, friends, and searching on Google. Only few tourists have ever visited Vietnam websites to find out information, however they did not highly appreciate quality and value of these websites. According to Steven Bugg, a tourist from Australia who traveled to Hanoi to visit his relatives, some tourism websites of Vietnam in general and Hanoi in particular upload too general information about destinations. Moreover the information is mainly for the purpose of commercial such as selling tours, hotel rooms. Therefore the information appears too bias to him and he cant absolutely trust in the information for the tour. To prove for his statement, we tried visiting some tourism websites of
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Vietnam such as www.dulichvn.org.vn, www.vietnamtourism.gov.vn, www.vietnamtourism-info.com, www.vietnam-tourism.com.vn, http://www.hanoitourism.gov.vn, and also read Vietnam guide book online of Lonely Planet to compare the information from two sources. Actually, these websites only contain some basic information about tourist agency, restaurants, hotels, and typical attractions. They lack a very important part about transportation systems which helps tourists to find the way from the destination to other destinations on your own. While, the guidebook is possible of providing more detailed information about how and by what means of transportation which can help them to travel from this destination to other destination. This information is particularly important for developing walking tour for self-guided tourists. Provision of tourist information in Hanoi could be improved During their trips, tourists can base on a variety of sources to search information for their trips such as signposts, hotels, information centers, tour guides, or local people. However, in Hanoi, most of these sources have not been developed to serve for walking tourists effectively. In term of signposts system, in some famous destinations for walking tour in the world such as Paris or Romeo, signposts systems are considered as an important element for the success of these destinations, they are designed and positioned appropriately for all tourists being able to find their way without difficulty. Mr Cuong, lecturer of Hanoi University said that when he traveled to Paris, he could find the way to all destinations by himself just by basing on the direction of the signposts. However, to Hanoi, signposts system actually is an imperative issue. Mr Steven Bugg claimed that It is very terrible, should keep it better. As well, the other tourists complained that they rarely saw the signposts on the road; furthermore all of them are in Vietnamese without translation into English and other languages. Therefore they had to find the way by their own map and guidebook and sometimes they might loose their ways. Another tool which tourists can take advantage of asking free information is the information center. In Hanoi, there are two centers like this: one located in Noi Bai airport and the other located in Dinh Tien Hoang Street named Happro Tic. However, when we interviewed to 3 tourists around Hoan Kiem Lake, all of them said that they have never visited as well heard about the center at the airport. In our subject opinion, location of this center is not proper due to the reason that when tourists get off their flights, they have searched enough information to get to their hotel; therefore they want to come to the hotel immediately for check-in process before doing the other things. Hence, most of them ignored the center. Whereas, in the center of Hanoi there is only one center which is located near Hoan Kiem Lake, the other areas such as Ho Chi Minh mausoleum and West Lake also very popular for tourists havent any centers which can support for tourists to find the information. About Hapro Tourism Information Center or Hapro TIC (www.ticvietnam.com) which is established in 2006, it has contributed a big role in providing tourists with free information and knowledge of Hanoi in particular and Vietnam in general. Hapro TIC
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has two other centers in Da Nang and Ho Chi Minh cities. Hanoi-based Hapro TIC is mainly composed of an information service section with 2 agents (4 in total with 2 work shifts), free Internet access section, tour booking services, and Vietnam culture and tourism books for sale. Besides, Hapro TIC in Hanoi also rent its center to other extra services including Hanoi Moments souvenir boutique, Asiana Travel Mates travel services, Gloria Jeans Coffees, and currency exchange service by Lien Viet Bank. Hapro TIC provides free information service assists travelers to find information and direction faster, which helps develop Hanoi tourism industry. Besides, its good facilities support travelers to search for information like Internet free access, free maps, and stocks of various kinds of pamphlets and brochures. Additionally, it also has a group of English-proficient agents with good behavior, attitude, knowledge and communication skills. All interviewed customers were quite satisfied with the provided effective information or service and want to use it again. Despite all its strengths, Hapro TIC also incurs some problems in its operation process. English and Vietnamese are the main languages used to assist travelers; therefore, targeted customers are limited to only Vietnamese, English native speakers and ESL speakers. Furthermore, four agents in free information section is a modest number compared to an increasing number of walking travelers to Hanoi. In addition, this center also faces with problem of outside decoration and location. The center place is difficult to be recognized among thousands of shops and stalls on Dinh Tien Hoang Road, while its decoration is not outstanding enough to catch up tourists. Hence, tourists can mistake it with other shops and ignore them. Even when we asked a tourist come from Melbourne, Australia Mr. Greg Woods who stood in front of the tourism information center, he did not know about this center. The reason he stood there only because he wants to use free internet of the center to contact with his relatives. And even us, when we came there to collect information, we also had to spend some minutes to find this center, because the companys name board is hang up too high compare with the view of the viewers; moreover it is hidden by the trees in front of it which has hampered the service access. Owing to these reasons, when we interviewed three tourists around Hoan Kiem Lake, none of them know about this center. Besides Happro Tic, around Hoan Kiem Lake there are also some others small stores named information center; however, in reality it is only for the purpose of booking tour but not providing free information for tourists. The other source of information which tourists can get is from their hotels. However, the tourist who has asked his hotel to get information said that the hotel just provided him with general information and they still had to base on the other sources. This is also a weakness which needs to be improved more for a better tourism information system in Hanoi to develop walking tour as well as other forms of tours.
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Conclusions Drawing from the findings, there are some problems to develop WT in HN and the problem of ineffectiveness information is the most outstanding one. In brief, information system includes these main following problems: - Shortage of websites about Vietnam and Hanoi tourism with detailed tips and advice for walking travelers - Ineffective signposts system both in quality and quantity - Lack of free information center for walking tourists - Unqualified tour guide both in foreign languages and tourism knowledge V. RECOMMENDATIONS Drawing from all findings above, there are some recommendations to improve the ineffectiveness of providing information for traveling in Hanoi generally and for developing walking tour in Hanoi particularly. First, it is highly appreciated if all of official tourism websites provide more detailed information about traveling in Hanoi to tourists, especially information related to events, activities that celebrate up coming 1000-year-old Thang Long anniversary. Second, the large number of signposts with detailed instructions in some popular foreign languages besides Vietnamese such as English, French, German, Spanish, Japanese, Korean, Chinese need to be installed in higher density in order to help travelers locate themselves as well as find the way easily. In addition to signposts, it is a good idea to put some big map boards in some places which have large spaces like Tokyo does. Furthermore, it is necessary to set up multilingual instruction boars and maps at every bus stop to encourage tourists to use public transportation more and more. Next, both state-owner and private organizations should join hand to establish more tourism information centers that follow Hapro TIC model around Hanoi, especially in places where are highly concentrated by tourists such as around West Lake, Temple of Literature, museums, parks, markets Further, in addition to professional staff, it is students who are major in tourism or culture, history from Universities and colleges in Hanoi could contribute to the success of these centers by work there in form of internship. More to the point, it is better if the staff in these centers can speak some popular foreign languages such as French, Spanish, German, Japanese, Korean, Chinese besides English only because those from these nations constitutes a large proportion in the total number of tourists to Hanoi now. Additionally, the Hanoi authority is strongly recommended to require all taxi drivers to post the tariff up clearly, then regularly examine their odometers as well as strictly punish lawbreakers to assure the rights and reinforce belief of travelers. Moreover, information pertaining to taxi price as well as that of other means of public transportation should be placed both in websites and map boards on the roads. Equally important, Hanoi should have more rigid regulations for tour guide qualification. In order to be a tour guide of Hanoi, a person has to receive a certificate
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that demonstrates both his foreign language skills and tourism knowledge. Hanoi may also establish a forum for tour guides to update information of Hanoi and to learn more from one another as well. VI. FOUR SUGGESTED TOUR PROGRAMMES IN HANOI 1. A walk through three religions of Vietnam Our first suggested itinerary is Three integrated religions in Vietnam tour which introduces history and influences of three main religions in Vietnam. They are Confucianism, Taoism, and Buddhism. First, tourists gather in front of Temple of Literature (Confucianism) to discover the first Vietnamese university. Then we move by bus or bike to West Lake area where we visit Quan Thanh Temple (Taoism) and Tran Quoc pagoda (Buddhism). Temple of Literature (Confucianism) Quan Thanh temple (Taoism)
Religions in Hanoi have not been totally discovered and studied. This walking tour can give travelers unique amazing experiences of Hanoi religions philosophies and history. The walking tour will be carried out in the morning or afternoon. Specially travelers can take rest time for shopping, snack, and entertainment at West Lake area. 2. A night walk in Hanois Old Quarter The purpose of this walking tour is to enjoy the peaceful, quiet and glistening atmosphere of Old Quarters nightlife and enjoy night dishes in Hanoi, which have potential for main tourism products of Hanoi. Our tour will have the following itinerary in order: first night market of Old Quarter (from Dong Xuan market and Hang Ngang Street to Hang Dao Street), then to Ta Hien Street, Hang Bong Street, Hang Gai Street, Tong Duy Tan Street and finally Cam Chi Street. Taking part in this itinerary, walking tourists can go shopping in night market of Old Quarter, and then visit Ta Hien Street, which is famous for beer bars for foreigners. Afterward, tourists can enjoy Hanois night nosh on Tam Thuong gate, Hang Gai Street, Tong Duy Tan Street and Cam Chi Street, which are cuisine streets of Hanoi, and To Tich and Ly Quoc Su Streets. Here you can enjoy baked cuttle-fish, Pho, fried fermented pork roll, noodle, pickled fruit juice, etc. It is noted that night market in Old Quarter only open on Saturday and Sunday. It means that this tour will operate on Saturday and Sunday. The reasons why we want to suggest this tour because walking tour in night will avoid many problems like too heavy traffic, dirty dust and vendors which a walking tour in day will suffer. In addition, in summer, the weather of night is better than that of day. 3. A walking tour for architecture lovers This walking tour program is intended for people in love with Hanoi architecture which is a blend of French and Vietnamese. Its time schedule is from 8 a.m. to 8 p.m.
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Tourists will start walking from Sword lake in Dinh Tien Hoang Street, turn to Ly Thai To Street to visit Hanoi Opera House, then to Ngo Quyen Street where The North palace (Bac Bo Phu) are situated. Next, tourists travel along Tran Hung Dao Street where many French-style buildings exist to Phan Boi Chau Street where they can enjoy delicious lunch in Quan Ngon restaurant. After having lunch, tourists can travel to Dien Bien Phu Street to visit Hanoi Flag Tower Contemplation, come to Hoang Dieu road where Thang Long Imperal City is located, and from Phan Dinh Phung road to Hung Vuong road to visit Presidential palace, Ho Chi Minh Mausoleum, and One Pillar Pagoda is next door. From Hung Vuong road, tourists turn to Tran Phu street and travel to Tong Duy Tan Street and Cam Chi Alley by bus or on foot to enjoy dinner. The tour will end at Cam Chi Alley. 4. A fashion and art themed walking tour in Hanoi The walking tour is likely to last 3 hours from 8 a.m. to 10 a.m. Walking travelers will begin the trip at Apricot gallery on 40B Hang Bong Street, which is one of the capital's most successful galleries gathering the top-ranking artists from different generations. Next, Tan My Design in 66 Hang Gai Street is a new shopping experience in Hanoi, which combines feelings of old Hanoi with modern contemporary architecture and design. Tan My Design features some of Vietnams finest designers Fashion, Accessories and Home wares as well as Tan My Designs own brand. Then tourists can have a chance to visit Khai Silk in 96 Hang Gai Street, one of the Vietnams most successful chains of silk boutiques which specialize in clothes and other silk products. Afterward, tourists travel to Vietnamese House on 92 Hang Bac Street for a collection of gems, handicrafts, small ceramics, etc. and the final destination is Furniture gallery on 8B Ta Hien Street for furniture products. The tour program may include some services such as English speaking tour guide, shopping, Hanois finest espresso, and light meals at Tan My Design caf. For more information for this walking tour program, tourists can refer to these websites as follows: http://www.culturalprofiles.net/viet_nam/units/683.html, http://www.tanmydesign.com/, http://www.hotels-in-vietnam.com/hotels/Travel_Vietnam/shopping-in-hanoi.html. VII. CONCLUSION In this research report, we would like to portray the general picture of walking tour in Hanoi, Vietnam. From the first step, we provided you with our research methodology and the process of finding. Problems for walking travelers have been deeply analyzed and synthesized to offer you the most insightful view on Hanoi tourism service situation, especially its information system and effectiveness. Meticulous recommendations are also given with the best consideration many factors of information on websites, street signposts, tour guide qualification, and models of free information center multiply. Unfortunately, due to the lack of human capacity and time resource, the report may contain some unavoidable errors or mistakes. To some extent, we, however, believe that this report can be helpful
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REFERENCES
No author, Walking tour, [online]. Available at URL: http://en.wikipedia.org/wiki/Walking_tour (Accessed 10 May, 2010) No author, The Classic Walk, [online]. Available at URL: http://classicwalksparis.com/paris/tours/classic-walk (Accessed 10 May, 2010) No author, The French revolution walk, [online]. Available at URL: http://classicwalksparis.com/paris/tours/french-revolution-walk (Accessed 10 May, 2010) No author, Fashion walks, [online]. Available at URL: ` http://www.paris-walks.com/crbst_6.html (Accessed 10 May, 2010)
No author, Vatican walking tour, [online]. Available at URL: http://www.enjoyrome.com/walking/vatican.html (Accessed 10 May, 2010) No author, Ancient and old walking tour, [online]. Available at URL: http://www.enjoyrome.com/walking/ancient.html (Accessed 10 May, 2010) No author, Vietnam cultural profile, [online]. Available at URL: http://www.culturalprofiles.net/viet_nam/units/683.html (Accessed 12 May, 2010) No author, Welcome to Tan My Design, [online]. Available at URL: http://www.tanmydesign.com/ (Accessed 12 May, 2010) No author, Shopping in Hanoi, [online]. Available at URL: http://www.hotels-in-vietnam.com/hotels/Travel_Vietnam/shopping-in-hanoi.html (Accessed 12 May, 2010) Tic Tourism information center, The window to Vietnam, [online]. Available at URL: http://www.ticvietnam.com/en/ (Accessed 12 May, 2010) No author, n.d, Tourist Attractions, [online]. Available at URL: http://www.hanoitourism.gov.vn/home (Accessed 10 May, 2010) Frommer Introduction to Hanoi, [online]. Available at URL: http://travel.nytimes.com/frommers/travel/guides/asia/vietnam/hanoi/frm_hanoi_019701000 1.html (Accessed 10 May, 2010)
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ROLE OF AUDIT IN VIETNAM

Written by: Pham Quynh Anh, Nguyen Thi Thu Phuong (1KT-08) Nguyen Thi Lien, Le Thi Huyen Trang (2KT-08) Vu Thi Ngoc (3KT-08), Dang Anh Thu (1KT-08) Supervisor: Chu Huy Anh
ABSTRACT Independent or external audit is playing an increasingly important role in Vietnamese economy. Not only does it strengthen investors confidence in enterprises businesses but independent audit also enhances the managerial effectiveness by providing the managers with advisory. Based on the secondary data, this research gives an overview of the development and scale of Vietnamese independent audit industry. Especially, the study focuses on the roles of independent audit in Vietnamese economy, the achievements it has gained and the drawbacks it has overcome. From these points, some recommendations are suggested to improve the independent audit practices in Vietnam.
Part A: Introduction In recent years, Vietnams economy has been rapidly developing with the integration into the world economy. As a result, the demand of audit in general and independent audit in particular are increasingly higher and higher. Despite being a new profession in Vietnam, the number independent auditing firms has been rising over the years. Their efforts are to bring about transparent financial statements, ensure the compliance of the laws, and help investors make accurate decisions. Although the profession is still young and still needs a lot of improvement, independent audit has made many undeniable contributions to the development of a healthy economy in Vietnam. Particularly, the purpose of our research is to give a panorama of auditing in Vietnam with scale, development, competitive advantages and disadvantages of Vietnamese auditing firms, then analyze the main roles of auditors to the economy and to other interested parties. Therefore, our research is divided into three main contents: the overview of Vietnamese independent auditing, the development and roles of independent auditing in Vietnam, and recommendations to the development of Vietnamese auditing system in the future. Part B: Findings I. Overview of the audit in Vietnam Audit is a large topic that the research cannot focus on all sides of the field, therefore, it only concentrate on Vietnams external audit, which is getting more and more interest of public today 1. Overview of independent audit of Vietnam 1.1 Development Independent audit is one of 3 types of audit classified by subject, which includes State audit and internal audit. Independent audit is periodic or specific purpose (ad hoc)
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audit conducted by external (independent) qualified accountant(s). Its objective is to determine, among other things, whether (1) the accounting records are accurate and complete, (2) prepared in accordance with the provisions of GAAP, and (3) the statements prepared from the accounts present fairly the organization's financial position, and the results of its financial operations. Therefore, it is necessary for businesses in a market economy that is typical of competition. Being aware of the important role of independent audit in the development of the economy, on May 13 1991 the government decided to establish two independent audit firms, namely Vietnam audit company (VACO) and Vietnam audit service company(ASC) according to decision 164-5-TC/QD/TCCB, now Vietnam audit and accounting company (ASSC), which initiated the independent audit practice in Vietnam. 19 years has seen the dramatic growth of Vietnamese independent audit in both quantity of firms and auditors force and range of service.
Growth in revenue of Vietnames e independent audit indus try
Num ber of c e r ti fi e d a u d i to r s
Scale of Vietnamese Independent audit

1500 171 N u m b e r o f a u d it fi r m s 2000 1500 1000 500 0 13 2 1991 2001 2005 2009 Year 531 34 1234 200 150 100 50 0
2500 2000 1500 1000 500 0 1991
B illio n s V N D
2200
108
Certified auditor Firm
622
2005 year Revenue(billions VND)
2009
Source: VACPA Figure 1: Growth in revenue of Vietnamese independent audit industry Figure 2: Scale of Vietnamese Independent audit Two graphs above illustrate the expansion in scale of Vietnamese independent audit in terms of revenue and quantity of firms as well as the increase in certified auditors. 1.2 Scale
Top ten audit firms in Vietnam 2009
BDO Vietnam Mazars AISC G.T AASC A&C Deloitte PwC E&Y KPMG
31,805 37,200 39,113 62,134 77,384 89,616 266,324 273,130.41 323,089 333,669
Revenue (million VND)
Source: VACPA
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Currently, independent audit firms are classified into 3 types: 136 limited companies, 23 member firm of international network, 6 foreign companies, and 6 partnership companies, and vary in scale. While foreign companies account for 55% market share, the rest firms are small and medium enterprises. In terms of revenue, in top ten audit firms earning the biggest revenue, 5 of them are foreign companies and 5 ones are member firms of international network. 2. Legal framework for Vietnamese audit practices. Up till now, legal framework established for ground rules in Vietnamese independent auditing has consisted of decrees and circulars and regulations of the government and Ministry of Finance (MOF), Vietnamese standards of auditing as well as accounting law. 2.1 Decrees, circulars and regulations relating independent audit The Vietnamese government issued decree 105-2004 and decree 30-2009 to regulate auditors, audit firms, the validity of audit results, the cases that are required to be audited and other things relating to independent audit. According to these decrees, in order for an audit firm to be established and to operate in Vietnam, it must meet the following requirements: 1) The firm must employ at least 3 auditors holding the auditing license, including Director or General director. If the firm is a joint-venture firm or a limited liability company, Director or General director must own at least 10% of chartered capital. Director or General Director must have 3-year experience of auditing after gaining the auditing license and must not hold administrative or managerial position in other firms. 2) Within 30 days since obtaining operating license, the audit firm must inform MOF of the establishment of the auditing firm and the list of auditors employed by the auditing firm. 3) While operating the firm must have at least 3 full-time auditors. Violating this condition in 6 consecutive month, the firm must stop provide auditing service. Besides the above decree, the MOF issued the circular 60/2006 to give the detailed guideline of standards, conditions to establish and operating of auditing firms. In addition to decrees and circulars, regulations are imposed to control the quality of accounting and auditing service and to select the auditing firms to undertake the audit of the stock issuers, listed companies and securities trading companies. 2.2 Vietnamese standards of auditing Standards of auditing are basic principles of auditing profession and relations derived from the auditing process. To date, the MOF has issued 37 standards in 7 batches to offer auditors guidelines and directions to apply. In response to the development and growing role of independent auditing, the independent auditing law has built and it is going to be passed by National Assembly in May 2010.
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3. Pros and cons of Vietnamese auditing 3.1 Competitive advantages of Vietnamese auditing As the globalization and the integration of Vietnam into the world market, Vietnamese auditing system has developed as well as massively increasing quantity of auditing firms. This leads to a fierce competition among auditing firms, especially between Vietnamese ones and foreign ones in way of involving customers. In one current statistic, these foreign firms, Ernst & Young Vietnam, KPMG Vietnam and PricewaterhouseCoopers, serve many large multinational companies and together with Deloitte Vietnam, hold a 55 percent market share (2010, audit giants raise eye-brows with loss report). Therefore, only residual 45 percent of market share is for domestic firms, which requires them to make differentiation and build their own brand. The first superior point is the low fees of auditing services. In the opinions of Bui Van Mai, Secretary General of the Vietnam Association of Certified Public Accountants (VACPA), to the same client, foreign firms in Vietnam often charge a very high fee, 10 times to even 20 times as much as local firms do. There are many inverse explanations about this situation. In terms of positive attitude, local firms can reduce their cost to charge lower because of the governments favor and guarantee. Meanwhile, beside tax obstacle, foreign firms in Vietnam impose a very high price as taking advantage of reputation from parent companies. However, the others think that owing to auditing procedure deduction, domestic firms are possibly competitive to multinational firms, following mistakes in the results. Actually, to kill off local firms, many foreign companies also keep price below cost, this leads to a loss of VND 96 billion (US 5 billion) of three biggest auditing firms. Therefore, it is undeniable that lower price is a competitive advantage of Vietnamese auditing firms. Secondly, local firms also understand domestic market more widely than foreign ones. It is obvious to see that from the option of target customer of the local ones. Vietnamese auditing market can be divided into three segments with three main kinds of client: multinational groups, big invested Vietnamese companies, and small and medium scale enterprises. Both international accounting firms and foreign auditing firms choose conglomerates, which have large operation and finance scale. However, Vietnamese accounting firms mainly serve Vietnamese companies. Big auditing firms serve big Vietnamese corporations, while smaller firms serve smaller companies which do not intend to attract foreign investment (2010, saigontiepthi, Low fees cause auditing firms losses). Beside the reason of insufficient technique and human resource, local firms choose this kind of client because they are an expertise in this segment. They truly understand characteristics of culture, economic and politics, so they can give auditing services such as financial statements or advisory plans under the Vietnamese law and the government policy. 3.2 Competitive disadvantages of Vietnamese auditing Although Vietnamese auditing firms are now confident to compete with foreign firms, they also have weaknesses that need to be improved. After 15 years of growth,
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the gap between local firms and international firms has been narrower. However, According to the Vietnam Association of Certified Public Accountants, local auditing firms are understaffed as there are only around 1,100 certified auditors in the country and just 111 of them have international qualifications. On average each auditor has to audit 46 companies and organizations a year (2010, audit giants raise eye-brows with loss report). It means that our firms are in short of quality and professionalism, also raising difficulty for Vietnamese auditing firms to gain the market share from foreign firms. Furthermore, one problem is about reputation and prestige. Obviously, international firms have reached worldwide, so they are very famous and believable. Meanwhile, local firms are even newly born and developed, and the target market is only domestic clients, which makes us less competitive. As a result, in the programs out of border, international firms are prospective. To improve these main weak points, local firms need to upgrade quality of services, technique, and human resource. Many firms become members of big international auditing firms to have support from parent companies. Other firms cooperate to help each other with holding seminars, workshops of professional skills. It is also the main way of development in Vietnamese auditing firms for the time going. II. Role of external audit The market economy requires all enterprises, which operate in all sectors, must have accurate, timely, and reliable financial information. All annual results of operation of all enterprises are reflected on financial statements including: balance sheet, income statement, cash-flow statement, and presentations of financial statement. Because of many different causes, the business- owners who are in charge of issuing financial statements want to conceal the loss or weak points of financial results. Conversely, those who are interested in financial results and financial situations of enterprises (investors, shareholders) want honesty and transparency. Those factors lead to formation of independent audit companies. The independent audit companies have highly professional staff to providing reliable information for both internal and external users. 1. For internal users: Audit plays an important role in operating business of any enterprises of various types and sizes. Firstly, the managers of the enterprise need honest and transparent information on financial reports to decide right actions in all phases of management. It is obvious that business owners cannot control all the thousands and thousands of financial transactions happen in the enterprises. Only an audit can provide such information: the receipts of capital, monitoring and managing all the business activities. Secondly, independent auditors contribute professional guidance and improve accounting activities in the companies. All activities, especially financial activities are the combination of the various specific transactions. Whereas, the regulations and policies from the government always change in the different period of time. The
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auditors comments will help business owners to detect errors and violation of law. It not only helps businesses limit the risk but also find out potential financial strengths in the internal business. Last but not least, audit ensures the transparency of financial information of the companies. At the present, Vietnam is implementing open door policy, multilateral investment both not only in domestic but also oversee so the government is very interested in attracting investments from abroad (direct and indirect). These foreign investors always require audited financial statements to evaluate exactly the financial situation of the companies, which they intend to invest. It is said that the transparency is the most valuable asset to the enterprise itself. When a company can be trusted with by investors, business partners, it will create better conditions for raising capital, finding the potential business partners, obtaining bank loan, etc. 2. For investors Transparency in financial reporting is extremely important especially to investors. Investors make investing decisions based on financial reporting of the companies. Transparency of the financial statements is essential for financial decision making of investors. The more transparent information investors get the less risk they can encounter. Investors would make noise if they rely on dubious financial statements. It can be argued that one of the most reliable resources for investors is independent audit. The main purpose of an audit is to enhance the transparency of financial situation and management system by providing written reasonable assurance from an independent source. It should provide a true and fair view of financial statements in accordance with an accounting standard. In the process of preparing and declaring financial information, there are a lot of problems arising such as benefit contradictions and differences in information using objectives. Those factors lead to lack of reliability and certainty in accounting information. In fact, a lot of companies intentionally make financial statement beautiful by cooking books to attract investment or capital. The reason for this practice is that the company is under pressure to achieve the objectives and plans of revenues, profits or maintain market shares. To create profitable figures, they would find many ways to overstate revenues and assets, understate expenses and liabilities, or make improper use of reserves. This is not too difficult to implement because the accounting standards are flexible, allowing the application of various accounting methods and many professional assessment of the subjective view of the managers. Some common practices the companies often abuse are transactions hiding, accounting standard variation or timing obscurity and so on. The create practice is quite difficult to be detected by investors, because investors normally do not have adequate level of profession to understand financial information. Obscure statements also hide the level of debt, thereby also hiding potential bankruptcy of the company. Even, in many cases, it is difficult to examine whether accounting information is right or wrong. Therefore, investors really need professionalism and credibility from the third party-independent audit.
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In recent years, due to rapid economic growth, there are more and more commercial and financial frauds in Vietnam. Although these fraudulent were not as serious as the cases of other countries, they have had negative impact on Vietnam economy and created bad publicity on Vietnamese companies especially the ones listed on the stock market. According to Stox.vn statistics, as of 20.4.2009, of 357 listed companies, at least 194 companies have a difference of business results before and after auditing. For many companies, difference between business operating results was quite large (over 10%). Some typical example can be mentioned are financial fraud of Bong Bach Tuyet Company, Bien Hoa Join-stock company- Bibica, and the latest case come from Vinaconex with 263,292 billion VND difference between before and after auditing financial statement. In this situation, the role of audit becomes more and more important. In summation, independent audit plays an important role in public and investing community. It helps to ensure the transparency of financial information, which is crucial for investment decision. It also contributes to the consistency of economic growth. III. Achievements and scandals of Vietnams audit 1. Achievements 1.1 Establishment of the Vietnam Association of Certified Public Accountants (VACPA) The Vietnam Association of Certified Public Accountants (VACPA) is an organization of practicing auditors in Vietnam. Before VACPAs establishment on 15 April 2005, the Ministry of Finance directly manages and operates all auditing activities. The foundation of the association meets the development requirements of accountancy profession in Vietnam. The objectives of VACPA are to maintain and develop accountancy profession, improve quality of accounting, auditing and financial advisory services in Vietnam through training technical update courses, professional ethics and service quality control, information exchange for its members, as well as to integrate with other associations in the region and all over the world. 1.2 Promulgation of ethical standards in Accounting and Auditing practice Standard of morality is a sensitive concept of any industry existing in society, in the field of accounting and auditing this standard is extremely important and required high level. According to Ms. Trinh Hong Nguyet, General Secretor of Vietnam Association of Certificated Public Accountants (VACPA), the Standard of morality is built to bring the independence, objective, prudence, and confidentiality. Declared in December 1, 2005, the principles are the first official correspondence, which consists of a variety of rules and guidelines applying the standards of morality for the accountants as well as auditors in order to make the profession of the auditing in Vietnam. 1.3 The transformation of management model and ownership of auditing enterprise The decree 105/2005/NP-CP on independent auditing has exposed some inadequacies. As a result, the Prime Minister issues the decree 113/2005/ND-CP that
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amends and adds a number of articles in the previous one. It specified that auditing enterprises might be established and operated in one of four types of entities, which include limited liability company, partnership, private enterprise, and enterprise under the Law on Foreign Investment in Vietnam. Accordingly, auditing firms with foreign owners will always be founded and operated as limited-liability model under the Foreign Investment Laws. There will be no joint stock company and no state-owned enterprise. The transformation from stated-owned model to one of the four types above is not only compulsory but also imperative for businesses to improve the management capacity and ability to compete. The renovation enhances the independence, objectivity, transparency. It satisfies the innovation requirements of the Law on Auditing and the requirement of global economic integration. According to Ms. Ha Thi Thu Thanh, CEO of Deloitte Vietnam Company limited, transformation of ownership types is judged as a crucial step forward for each firm as well as for the general development of audit in Vietnam. 1.4 The formation of website vaa.vn In March 2007, the website of Vietnam Association of Accountants and Auditors (VAA) was officially online at www.vaa.vn. Not only be an official information channel about accounting and auditing in general, VAA in particular, but the website also increases the interaction between domestic and foreign companies. Moreover, it is a new tool for VAA to manage the practicing of accounting. In fact, vaa.vn is considered as a useful information resource about auditing and accounting. It provides a huge amount of updated news relating to the technical areas of accounting an auditing and the entire business community. In addition, there are varieties of guideline for preparations and mock exams for the practicing certifications available on the website for anyone interested in accounting and auditing. 1.5 Lays of foundation of auditing & accounting in Vietnam according to international standards According to VACPAs statistics, there are more than 150 auditing enterprises and 1,100 practicing auditors. Only a number of businesses develop their own internal audit program. The scale and quality are quite different among the programs. International audit firms also implement their own audit program. In Vietnam, it is a relatively complex task, especially for small companies. Consequently, based on the revised International Standards on Auditing, which are to be applied from this 15 December 2009 and considered to be applied in the country, VACPA has implemented a project Sample Audit Program funded by the World Bank. The Sample Audit Program (SAP) is designed to guide the nature, timing, and extent of essential audit procedures, ranging from planning, executing to finalization, to auditing the financial statements of manufacturing or trading companies. As said by Mr. Nguyen Thanh Lam, Director of Hanoi office of DTL Auditing Company, the Sample Audit Program provides auditing enterprises with a coherent process from start to finish. Hopefully, the quality of auditing will be improved in the coming audit season 2010 2011 with the new regulations.
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2. Scandals Besides all good points are mentioned about, the auditing in Vietnam can not avoid some troubles for recent years. 2.1 Bach Tuyet Cotton Corporations scandal In 2008, Bach Tuyet Cotton Coporation (Cobovina Bach Tuyet) shocked all investor by being revealed that the firm had said to be profitable while it made loss. In 2004, the financial statements after auditing showed that BBC lost 2,121 billion VND. However, in 2005, a company named A&C was invited to audit the financial statement of BBC, which released that the business made profit of 982 million VND. Although the auditor from A&C had opinions excluding some terms like the lack of reserve for inventory, use of reserve salary to pay insurance and payment for advertising a new product not included in financial statement. In 2006 and 2007, another company took part in auditing the activities of BBCAISC. In 2007, BBC required to re-check some items in financial statement for year ended 2006, therefore, the earnings after tax of Cobovina was negative 8448 billion VND. The edited data was showed on the beginning of the financial statement for year ended 2007. After that, BBC started to adjust some transactions to match the earning from the previous years. As a result, in 2007, BBT had a loss of 6809 billion VND and in the first 6 month of 2008, the firm had a loss of 4537 billion VND and stopped operating. This scandal was revealed in 2008 and the State Securities Commission of Vietnam (SSC) fined BBT 90 million VND and reprimanded A&C and AISC. The punishment SSC gave to the two auditing companies was considered to be unfair and made many investors disappointed. However, according to some experts, objectively, the deep reason of this case was that BBT had provided unfaithful information leading to the mistakes in the financial statement. In addition, SSC was responsible for disclosing the information without re-checking to affect benefits of the investors. 2.2 AACCs illegal consultancy According to the investment license that the management board of industrial parks in Dong Nai province issues, Grobest is immune from corporate income tax for four years since its business is profitable and it is subject to 50 percent of tax reduction for the next four years. However, in order to receive such treatment, the corporate must ensure the export of aquatic products and seafood accounted for more than 50 percent in the first year and go up to 60 percent, and then reach three quarter of the total revenue. In fact, in 2004, the firms export only made up approximately 5 percent, 30 percent in 2005, and nearly 42 percent of its total revenue in 2006. Because the corporate did not meet the commitment, it should not been entitled to treatment. Confronting such problems, Grobest invited AACC to give them tax consultancy services about petition for Ministry of Finances or General Department of Taxations ratification that allowed Grobest to be tax-exempt for four years of its profits and be cut 50 percent corporate income tax for the following seven years. In exchange for this service, Grobest had to pay a fee of $155,000 USD and 10 percent of the amount of tax saved if its business had profits from 2006 to 2011. In 2007, when Tax Department of Dong Nai province carried
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out an investigation about tax-exemption and reduction, the truth of the scandal was revealed. As a result, Grobest must pay a tax arrears of more than 36 billion VND and a lot of tax staffs were prosecuted. Apart from Grobest, AACC also gave tax consultancy services for many other businesses with foreign investment in Dong Nai and some other surrounding provinces such as Taya (Vietnam) electric wire and cable Joint Stock Company, Asia Nutrition Technologies Vietnam, Tung Kuang Industrial joint stock company and Southern Steel Sheet Company. 2.3 Mistake of auditing chartered-capital in 2009 The auditing and consulting Sai Minh was reprimanded because of the mistake it made about the chartered capital of 28.8 billion VND of the Toan Cau insurance jointstock company in February 28, 2008. The Ministry of Finance had shutdown this auditing firm. According to the decree numbered 17329/BTC-CKT in December 10, 2009, Mr. Tran Phuoc (Auditor card: 1049/KTV) who signed in the auditing report and Mr. Nguyen Phu Hien (Auditor card: 0534/KTV) who signed in the capital auditing report of Toan Cau insurance joint-stock company in March 31, 2008 the director were suspended for 1 year. Meanwhile, Sai Minh Company was required to carefully check the auditing process in order to avoid crucial mistakes and insure the quality of its service. 2.4 Inconsistency in accounting treatment of some listed companies and vague information disclosure Along with the overall decline of the stock market in the end of 2008, pressure of the losses due to reserve of declined stock on the listed firms leads to the inconsistency in accounting treatments among them and among auditing enterprises. Up to 20 April 2009, there were 357 listed businesses on both Hanoi Stock Exchange and Hochiminh Stock Exchange. At least 194 of them revealed disparities in business results before and after being audited. The most noticeable case was the differences in business results of one business of Kinh Do Group - Kinh Do Corporation (KDC). With the difference in after-tax operating income of about 202.987 billion VND (operating income declined from a profit of 142.376 billion VND to a loss of 60.602 billion VND), KDC were ranked as the most noteworthy case. A subsidiary of Kinh Do Group also had a large gap between operating income before and after being audited that is North Kinh Do Joint Stock Company (NKD), with operating income dropping from 39 billion VND to nearly 1 billion VND. Sacombank, one of the most prestigious firms in Vietnam also had a gap in pre-tax profit of 133 billion VND before and after the audit as well. In the case of Nam Vang Corporation (NVC), the rate of the difference reached to 8,500 percent, from a profit of 0.529 billion VND to a loss of 44,423 billion VND. Another one was Minh Phu Seafood Corporation (MPC), which had difference rate of 1,043.94%. According to the statistics on the website stox.vn, there were 47 businesses with the difference rate of more than 50%. Most recently, after auditing Vietnam Construction and Import-Export Joint Stock Corporation (Vinaconex), the
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Corporations after-tax profit of the year 2009 fell 97.84% compared with that before the audit. There were a number of reasons that the businesses could rely on to explain for the investors about the differences, such as the way revenues and costs are recorded in real estate businesses or the way financial investments are set aside in financial businesses. One more cause could be the revaluation of the exchange difference among foreign loans. A financial expert, Mr. Dinh The Hien stated that the businesses had inconsistent financial information and large differences without any reasonable explanation could not be accepted. It only created opportunities for those who grasped the information, often the insiders, to gain high profits; outside investors suffered a loss. For that reason, the State Securities Commission of Vietnam should introduce sanctions in order to punish the enterprises announcing inconsistent information to manipulate the market. Part C: Conclusion and recommendation 1. Conclusion This research is carried out in the purpose of providing an overview of the auditing profession and its important roles in recent years in Vietnam. In 15-years development, although auditing in Vietnam has faced with many challenges, it has obtained many significant achievements. One of the outstanding successes of audit is the establishment of VACPA-the Vietnam Association of Certified Public Accountants. Thanks to the foundation of this association, not only auditing but also accounting quality are being managed efficiently and systematically. In addition, promulgation of ethical standards and transformation of management model and ownership of auditing enterprise are also considered encouraging results. Furthermore, Vietnamese auditing companies own some competitive advantages relative to foreign ones such as low fee and expertise of domestic market. Some weaknesses of independent audit in Vietnam include low reputation and lack of quality and professionalism. These disadvantages are being improved by upgrading services, technique, and special human resource training. As a relatively underdeveloped auditing system, scandals relating to information disclosure or illegal consultancy are unavoidable. In order to partly solve these problems, we need to continue to improve the system of auditing law and enhancing the role and activities of the professional associations to support state agencies to control independent audit practice. Due to the lack of professionalism in financial analysis by Vietnamese investors, auditing has become one of the most reliable resources for public and investing community. The role of auditing is gradually gaining appreciation by the public, investors, and enterprises. That is the optimistic signal, promising a significant development of Vietnamese independent audit. 2. Recommendation After being a member of the World Trade Organization (WTO), almost all industries in Vietnam in general, and the field of auditing in particular, have had a great
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number of opportunities as well as challenges. Chances to learn and to enhance Vietnams audit in the global market are always accompanied by fierce competition of foreign auditing firms. The report gives some recommendations that may help the auditing field of Vietnam will be stronger and synchronized with international standards. Firstly, the system of law should be improved. In the field of external audit, the Government has formed a relatively adequate and comprehensive system of law bringing into play its effects in directing and operating audit activities for nearly 20 years. Nevertheless, the system is starting to be unsuitable up to now. It should be amended by promulgating the Law on external audit and the guidelines, updating and promulgating Auditing standards in accordance with international ones, and regulating on administrative violations in the independent auditing field. Secondly, enhancing the role of professional associations can support government agencies to intensify control over the practice of external audit. An auditor must be a member of an auditing association that provides training, updated information frequently and continuously for them. The associations not only accommodate their members with professional knowledge but also manage their quality and professional ethics. Despite many recent reformations, Vietnams administrative structure is still inefficient compared to the organizing and operating structures of the associations in the market economy. Hence, enhancing the associations operating roles is an efficient solution that may help Vietnams audit stronger in the present and in the future. Part D: References
Chuyn i m hnh qun l v chuyn i s hu cng ty kim ton nhm nng cao nng lc hot ng v c hi pht trin. Available at URL: http://www.kiemtoan.com.vn/modules.php?name=News&op=viewst&sid=900 (Accessed May 16, 2010) Cc cng ty kim ton c lp: "Sng ngm" e da cht lng. Available at URL: http://cafef.vn/2010041805295147CA36/cac-cong-ty-kiem-toan-doc-lap-song-ngam-de-doachat-luong.chn (Accessed May 16, 2010) 10 s kin k ton kim ton ni bt nm 2007. Available at URL: http://www.congnghemoi.net/TaichinhKetoan/ChitietKetoan/tabid/1621/mid/4418/ArticleID/10 6262/tid/1588/dnnprintmode/true/language/viVN/Default.aspx?SkinSrc=[G]Skins/_default/No+Skin&ContainerSrc=[G]Containers/_default/ No+Container (Accessed May 16, 2010) 10 S kin k ton ni bt nm 2005. Available at URL: http://www.kiemtoan.com.vn/modules.php?name=News&op=viewst&sid=23 (Accessed May 16, 2010) 10 S kin kim ton, k ton v thu ni bt nm 2008. Available at URL: http://kiemtoan.com.vn/modules.php?name=News&op=viewst&sid=1910 (Accessed May 16, 2010) 10 s kin ni bt trong lnh vc k ton, kim ton v thu nm 2009. Available at URL: http://kketoan.duytan.edu.vn/uploads/Files/63399277549353903610%20s%E1%BB%B 1%20ki%E1%BB%87n%20n%E1%BB%95i%20b%E1%BA%ADt%20trong%20l%C4% A9nh%20v%E1%BB%B1c%20k%E1%BA%BF%20to%C3%A1nc%C3%B4%20T%E1%BA%A5m.doc. (Accessed May 16, 2010)
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MANAGEMENT ACCOUNTING: FRAMEWORK AND PRACTICES IN VIETNAM CASE STUDY:NATEXCO

Written by: Tran Hong Nhung, Nguyen Thi Hoai Thu (1KT -07) Tran Duy Nam, Vu Phuong Thao, Bui Thi Hai Yen (2KT -07) Supervisor: Do Van Anh
ABSTRACT Management accounting (Managerial accounting) has appeared and developed in Vietnam for about 15 years. The recent Decree No 53/2006/TT-BTC of Ministry of Finance was issued on June 12th, 2006, guiding the application of management accounting in business. In fact, a great number of enterprises have not understood clearly and thoroughly about the content as well as the way to set up a management accounting system. Moreover, there has not had any expertise and experienced consultant organization to give advice and guidelines enterprises to build managerial accounting system. From this fact, our group chose a specific company Nam Dinh Textile to explore their management accounting system and base on their information the chief accountant provided to define whether this system worked effectively and helped managers in making decision or not. Our research includes three main parts: first, study on framework of Vietnam management accounting under the laws and regulation; second, the comparison between managerial accounting system in Vietnam and in United States and last but not least, and the application in Nam Dinh Textile Company. Recommendations for the company and some suggestions for further research are given at the end of report.
1. Introduction Accounting can be divided into two fields financial accounting and management accounting. Financial accounting is used much more popularly than managerial one because it focuses on reporting to external parties such as investors, government agencies, banks and suppliers. Meanwhile, management accounting focuses on information for internal decision makers of a business. These two accounting fields contribute considerably to the success of the enterprises. However, up to now, management accounting in Vietnam has not been gained proper attention from the enterprise side, or if it has, most enterprises do not know how to operate a complete and efficient management accounting system. From this fact, finding the reason why managerial accounting has still not developed in Vietnam is our groups main concern. To achieve this goal, Nam Dinh Textile Company a manufacturing company was chosen for case study so that we can base on provided information from the companys accounting department to explore how management accounting system was carried out and whether it brought a lot of benefits for the managers decision, in specific, and for the whole company, in general. From that, it is easy for us to know the main reasons for the hesitance in apply managerial accounting system in the company. In this report, we mentioned about some regulations guiding to apply this system, some limitations in Vietnams managerial accounting system compared to the standards
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in this field of developed countries and the important part about the application in Nam Dinh Textile Company. 2. Literature review Management accounting is the process of preparing management reports that provide accurate and timely key financial and statistical information required by managers to make day-to-day and short-term decisions. These reports typically show the amount of available cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and in-process inventory, and may also include trend charts, variance analysis, and other statistics (http://www.businessdictionary.com/) As can be seen from this definition, unlike financial accounting which produces annual reports mainly for external stakeholders such as creditors, investors, and lenders, management accounting generates monthly or weekly reports for the firm's internal audiences such as department managers and the chief executive officer. The process of management accounting refers to different stages such as: cost analysis: understanding about the material and labor costs(both direct and indirect, both fixed and variable), as well as cost of goods sold cost-volume-profit analysis: analyzing the relationship between cost, volume, profit to determine appropriate production index; break-even point analysis: finding out the point which maximize the profit given the resources; pricing analysis: determining sales price for products; budgetting: building up budget plans for production and sales; Besides, management accounting also includes other fields such as research on inventory, fixed asset and salary methods, etc.. in the corporation. Management accounting plays a very imprtant role in managerial system. The provision of accurate, relevant, reliable and timely accounting information will aid management in taking managerial and economic decision for the efficient management of the organisation and the attainment of the overall organisational goals and objectives. Management accounting must be done by each corporation under control and instructions of goverments. In Vietnam, the definition, the applied subjects, aims as well as framework of managment accounting is regulated in the circular number 53/2006, issued by the ministry of Finance. 3. Methodology Our research aims at two aspects: analyzing the framework of management accounting in Vietnam and considering its practices in reality. First, in order understand the framework of management accouting in Vietnam, we mostly base on secondary data. The information comes from the circular 53/2206 of the Ministry of Finance and Law on Accounting. Besides, we also use the book and internet
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resources to have more understanding of management accounting in general and its practices in Vietnam particularly. Second, we chose a public company, stating Nam Dinh textile company (NATEXCO) as the case study so that our group could examine the application of management accounting to this business. We designed an interview questionaire and arranged an appoinment with Ms. Hoai, chief accountant of NATEXCO on May 12th 2010. In this interview, we asked questions about the company history and its products, accounting department and especially different elements of management accounting such as: costs, salary, inventory, fixed assets, pricing, etc. Moreover, we asked about her assessment on management accounting and her giving solutions to these problems. We also requested Ms. Hoai to provide us with some accounting materials of NATEXCO in the past through our email (attached in the Appendix). These data helps us have a truly look in NATEXCO management accounting so as to evaluate the level of application of it in NATEXCO. 4. Management accounting frame work practices in Vietnam 4.1. Summary of Vietnamese accounting law documents: Unlike financial accounting, information provided by management accounting is used inside the companies and affects decision making. However, the concept of management accounting is quite new in Vietnam. It is only used outspread in recent years and official documents of government about this field are also limited, which is proved by the existence of only two legal documents: Vietnamese accounting law in general and Circular No. 53/2006/TT-BTC which guides implementation of management accounting in enterprises. 4.1.1. Vietnamese accounting law: Accounting Law was issued in June 17, 2003 to uniform accounting practices in Vietnam. Its aim is to meet the requirements of State agencies, enterprises, organizations and individuals for supplying relevant, timely and transparent information in management and administration activities. As indicated in the law, the subjects of application include enterprises funded and not funded with the state budget, individuals and cooperation, from all economic sectors. These could be Vietnamese enterprises or representatives of foreign organizations on Vietnam. The practices of accounting include collecting and processing accounting, keeping track of financial revenues and expenditures, and supplying information for internal and external uses to meet the requirements of explicit, understandable and accurate data. Besides, information must ensure the continuity of accounting periods as well as be arranged in a comparable and systematic manner. Collection or spending, administrative or non-administrative activities of both state and non state funded enterprises are the main objects of accounting. Items of business activities are assets, liability, capital, revenues and expenditure, tax, etc
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The fields of accounting comprise of financial accounting, management accounting, general accounting and detailed accounting. The Ministry of Finance is responsible for guiding the application of accounting practices suitable to each field. The law also indicates how monetary units are used in calculations for both local and foreign enterprises. The normal accounting period might be an annual, quarter or monthly accounting period. The content of accounting practices is the most important part of the Law. Regulations are set about the practice of Accounting vouchers, book-keeping accountants and accounting books, financial statements, accounting inspections, asset inventory, preservation and archival of accounting records. The case of division, separation, consolidation, merge, ownership transformation, dissolution or bankruptcy of accounting units are also taken into the consideration. Regarding the operation of accounting systems, each organization must organize their accounting staff to meet the requirements of law provisions. The law ruled out criteria, rights and duties of accountants and chief accountants. The law of accounting came into effect from the first of January 2004, and ceased the effectiveness of the 1998 Accounting and Statistics Ordinance. 4.1.2. Circular No. 53/2006/TT-BTC: After Law on Accounting as well as other instructive documents has come into existence, on June 12th 2006, the Ministry of Finance has promulgated the Circular No.53/2006/TT-BTC in order to assist the application of management accounting for manufacturing and trading enterprises. The subjects of applications are enterprises in production, trading and service sectors. Appropriate contents in the Circular can be used by financial and banking enterprises like insurance company, stock and investment companies, credit fund as well as other financial organizations. According to the circular, the process of management accounting includes the collecting, processing, analyzing and supplying economic and financial information in response to effective management requirements to give the right financial decision within accounting units. To be different from financial accounting, management accounting is to provide information internally for managers about production and operating activities. For any aspect of management accounting, the cost of any unit, work and product is seriously taken into consideration. This is quite important to review the implementation of revenue, cost and profit plans to manage assets, materials, capital, debts as well as to select information for long term and short term decision. Based on the implementation of past decision, corrective actions should be taken to make budget estimation production and other activities. The main contents of the management accounting include: Products cost and unit price management accounting; Sales and sales results management accounting; Cost-
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volume-profit analysis; Appropriate information Selection for decision making; Production and sales budget; Management accounting of some other items namely: Fixed asset management accounting; Inventories management accounting; Labor and salary management accounting and Debts management accounting. 4.2. Comparisons between Vietnam and US management accounting: 4.2.1. Similarities: As mentioned above, only two legal documents about management accounting is not enough and will create difficulties for companies to apply because they do not know which method is suitable, how to deal with problems met when using and so on. However, these documents still open directions for internal accounting system because they provide basic background information. Therefore, these two materials and the book Cost Accounting: A managerial emphasis (Horgen C T, Foster G & Datar S, 13th ed. Prentice Hall, 2008),which is considered as a source of documents about US management accounting, are quite similar in term of definition, subjects, units, rules, responsibilities, main contents of management accounting, etc as mentioned in the summary of Circular No. 53. For example: in cost accounting, the most important part in management accounting, there are the same criteria to classify costs into categories like variable, fixed and mixed costs or direct, indirect, controlled and uncontrolled costs. Moreover, job costing and process costing methods in these sources are presented similarly. 4.2.2. Differences: However, Vietnams management accounting is at the early stage of development comparing with US ones, so information in official documents is still more theoretic, general, stops at basic points and does not give out needed detail to help companies implement effectively. This will lead to differences in contents of management accounting between two. Firstly, in the Circular No. 53, a lot of theories, mostly definitions, are mentioned and many methods are listed out. However, there is no information about how to apply methods in real condition of companies, advantages and disadvantages of these to help companies choose the ones that are suitable for them. In addition, the terms are used without further explanations and examples to make them more understandable; for instance: in section (1.2.2) about cost management, there are two cost accumulation methods namely: direct method and allocation method. It seems to be vague when mentioning that direct method is used in case costs related to one cost object and the other is to more than one cost object without citing what is cost object to make it clearer and more easily to apply although it is a key word. Moreover, it is the unequal weight because job costing method is described more detailed than the others which are referred to the names without further explanations about what they are and how to use them; however, it is almost theoretic because of no example beside complicated guide by words. Among these other methods, target
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costing, coefficient costing and cost exclusion basing on secondary products costing methods that are unpopular are mentioned while a much more accurate method, activitiesbased costing, are not. In addition, nothing about advantages and disadvantages of all methods as well as steps and proper conditions to apply exists in this circular. Taking job costing and process costing as examples, job costing is used for unique products and for custom orders when each job, product, or batch of products cost separately while process costing is done when production involved continuous process of similar items and cost assigned according to set periods of time, not according to specific jobs. However, if companys condition does not belong to these above like: products or services differ greatly in volume and manufacturing activities and/or overhead costs constitute a significant portion of total costs, activities-based costing method should be considered because it provides an accurate but high cost measurement. Furthermore, cost-volume-profit analysis which requires calculating contribution margin, break-even point, cost structure, operating leverage and so on is a crucial in management accounting, so formula, format and application should be added to make a standard. It is also the same cursory situations for sales and sales result management, information selection for decision making, budget setting and costing for fixed assets, inventory, labor and salary, debts due to lack of detailed explanations and guides. After all, one area that is very necessary but received little concern or even ignored in management accounting in Vietnam is performance measurement because its importance may be assessed inappropriately or offset by its costs. However, this state must be reconsidered due to the fact that performance measurements will point out the effectiveness of the business in financial and non-financial results in order to have prompt adjustments. They are balanced scorecard and accounting-based ratios namely: return on investments, residual income, economic value added, return on sales and so on. If it is not used, companies will not know how well or bad they did and something not good might happen. It is known that to have an effective management accounting in this newly integrated period of Vietnam it will take a long time to help Vietnam government together with companies approach gradually and develop to improve entire system. 5. Case study: Application of management accounting in Nam Dinh Textile one member of state responsibility limited company (NATEXCO) 5.1 Company background: HISTORY Nam Dinh Textile company (NATEXCO), founded in 1920, is considered one of the oldest companies in Vietnam. The head office is located at 43 To Hieu, Ngo Quyen, Nam Dinh city. The company came into being by French when they invaded Vietnam in order to exploit the countrys resources. From Vietnams liberation in 1945 up to now, it has been the member of The Vietnam National Textile and Garment Group. In the past, with the role of the flagship of textile and garment industry in Vietnam, Nam Dinh textile
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used to be a famous brand within the country. The company contributed a lot to development and income of the whole country in the very early time after independence. However, when Vietnam economy stepped into the new stage of innovation and intergration, due to outdated machines and management system, the company was unable to catch up with other foreign competitors. It made NATEXCO face up with huge bad debts that the company could not pay back to the debtors. Aiming at saving the company out of its recession, in 2005, Vietnamese government had an effort on writing off a bad debt of NATEXCO, equalling 222 billion VND (Duc T., 2005). At the same time, the government made suitable adjustments to operation and management of the company. In July 2005, Nam Dinh textile company was changed into Nam Dinh Textile one member of state responsibility limited company, with 133 billion VND of charter capital according to Q 185 signed by the prime minister Nguyen Tan Dung (Linh S., 2005). The director is Mr. Dao Quang Hiep. Accompanied with this change, the company expanded its operation to new fields beside textile industry. At the end of 2007, the Hanoi Securities Trading Center undertook auction sale of 2,930,000 shares (par value at 10000 VND/ share) (Kiu M.,2007).
Photo 1: Nam Dinh Textile Company in the early 1920s (yahoo.com)
Since the establishment, NATEXCO has been specializing in producing fibre, cloth, garment products and other services. The table below lists NATEXCO main garment products in term of output and characteristics:
Products Fibre Visco Rayon Tuytsilen Pe/Co, Cotton, Petex Others Output (per year) 100 tons 300,000 meters 2,000,000 meters 2,000,000 meters 800,000 products Characteristics Pe/ cotton or cotton (Average indice: Ne 32) Companys traditional products Made from Australia and New Zealand lambs fleece; European standard; Exported to Japan Include: Kaki, Garbadin, Caro, etc. Include: trousers, jackets, chemises, etc.
(source: vnnet.vn) What is more, since the companys reformation in 2005, NATEXCO has been investing in some other industries, such as: hospitality (restaurants, hospitals, etc.), transporatation (accomodation cars, store services, etc.), real estate and construction. 5.2 Mangement accounting in NATEXCO
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COSTS MANAGEMENT The factory applies both direct method and allocated method in term of cost accounting. Under direct method, the cost incurred only involved in cost subjects such as fibre, cloth and garment products. So, the factory allocates costs into machine hours directly. Under allocated method, the cost incurred involved in many cost subjects. With this allocated method, they can record expense quite exactly correspondent with production level. The cost object of the factory is a finished product. The method of calculating cost of production which company is applying is according to types of products and tasks. They gather and allocate direct material costs, direct labor costs and overhead costs for each seperate task, each particular product or a group of products. Moreover, the factory estimates overhead costs of each task and each product at the beginning of the period; then at the end of the period, they adjust the difference between actual overhead costs and estimated ones. Doing this way can help NATEXCO minimize the differences between actual overhead costs and estimated values. Besides, Nam Dinh textile caculates the costs of goods sold in monthly period. Monthly is an appropriate time because the companys production takes place in a small scale. RELATIONSHIP AMONG COST, VOLUME AND PROFIT Studying on the relationship among cost, volume and profit relates to three very important factors: sale price, quantity and cost (both fixed and variable). Moreover, understanding the relationship among these involve in analyzing the break-even point (in term of quantity, sales, time..), which is very important for manager to make right decisions about future production and sale process. However, in Nam Dinh Textile company, these following studies are still not available. Accounting departmant has not done research on break-even point as well as having a deep understand about these three factors yet. The reason, stated by the chief accountant, is mainly because of lack of the cost for these activities. Besides, human resouces of these practices are very limited in term of skills and time to do such practices. Therefore, accounting department in NATEXCO assigns the price of each product not basing on break-even point analysis but basing on determining the price that can make up for the costs and get the expected profit. BUDGETING Firstly, it is important to understand what budget is and how it operates as well as its importance to managers decisions. Budget is a formal written statement of managements plans for a specified time period, expressed in financial terms. Its cycle includes four steps: planning the performance of the organization, providing a set of specific expectations, investigating variations from plans, and planning again, considering feedback and changed it. It is said that budgets are an integral part of management control systems because of some benefits it brings to the firm. It helps to build up association and promote communication among subunits within the company. Besides, it is also one of the
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effective tools to evaluate employees performance by comparing the actual quantity with the planned one. One more advantage is motivating managers and other employees. It can be explained when the executives set achievable goals for their subordinates, they will work harder to achieve it. However, there are still some challenges existing in administering budgets, which makes many medium and small size companies in Vietnam hesitate to use it. Nam Dinh Textile Company is among them. The chief accountant of this company explained that budgeting is a time consuming process that involves all levels of management. Moreover, as can be easily understand that the company needs to adjust plans in accordance with conditions changes. Nowadays, everything is changing so fast and unexpected situations can happen anytime. These are the reasons the top management of Nam Dinh Textile Company decided not to use it until now. MANAGEMENT ACCOUNTING FOR OTHER ITEMS Management accounting also concerns some important items such as: fixed assets, inventory, salary and debts. It is obvious that the main objective of management accounting is to provide meaningful information so that the managers can base on this information to make decisions and fulfill an organizations goals. FIXED ASSETS In term of fixed assets, management accountant needs to show the effectiveness of using and managing fixed assets of each unit and the whole company as well as the demand for using these fixed assets. This will help managers to define methods to explore these fixed assets in an effective way and consider investing in new fixed assets. As provided, the main fixed assets of Nam Dinh Textile are plant, machines and means of transportation like truck. Actually, workers who directly operate machines and truck understand more clearly about the effectiveness of these fixed assets than management accountant does. However, in this company, each unit works separately and association among departments is limited. As mentioned above, association is one of the benefits when applying management accounting. It is the reason why management accountant does not have enough and quality information related to using fixed assets to provide proper advice for manager. INVENTORY Secondly, inventory is an important item for the company, especially manufacturing company like Nam Dinh Textile Company. One of the objectives of managing inventory is to establish list of materials and more importantly, to organize management accounting in term of the quantity and value of beginning and ending inventory, cost of goods sold as well as purchase and sales units. To do that, the company needs to determine the accounting method to calculating inventory. As chief accountants answer, this company applies weighted average method. It is learned that LIFO results in the lowest income, FIFO the highest and weighted average an amount in between. In fact, the provided information about inventory has helped managers a lot in making decision about which inventory items the company should purchase more and which buy less as well as the effect of price changes on sales revenue and cost of goods sold.
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As stated in point c, articles 6.2, Circular 53 of Ministry of Finance to guide about management accounting, enterprises establishes standard costs of raw materials, materials for each product and set up the reserve level for each list of inventory; however the company does not budget for any items including inventory. SALARY Salary is also one important concern of enterprise. In fact, payroll scale of each industry has stated in Decree 76/2009 applied from November 1st, 2009. Textile industry is not an exception. Payroll scale of this industry includes six levels and is divided into three groups depending on the hardness level and the complexity of the job. However, as Ms Hoai said that the company does not follow this regulation about payroll scale. She said the company used these scales to calculate insurance, social assistance. Meanwhile, they calculated salary based on each product and job the workers had completed. To evaluate the performance and contribution level of each employee to pay salary, accountant looks at timekeeping table. Salary is sensitive issue, so it is hard to ask about the specific amount salary this company is paying for their employees. However, Ms. Hoai considered that the company has paid higher amount than the level the government regulated. LIABILITIES Lastly, about liabilities, this company calculated bad debts according to debt time of each debtor (typical a year). Actually, accountant has a liability ledger to record the detail information such as debt holders name, the amount, payment date and the quality of debts. This information provided by accountant helps managers to consider carefully about liability policy: tighten of flexible for each kind of customers depends on their reputation, which can be seen from liability ledger. PERFORMANCE EVALUATION Management accounting in Nam Dinh Textile has not been paid much attention and has still been disregarded. As can be seen in NATEXCO, budgetting a very important stage in management accounting is not yet undertaken. Moreover, the company does not analyze the relationship among cost, quantity and profit as well as not figuring out break-even point. The lack of these very important steps in management accounting is partially able to explain the inefficiency of NATEXCOs management accouting as the chief accountants comment. Therefore, the managers in NATEXCO can not base on information which is brought to by management accouting to make right decisions to the company. According to the chief accountant of NATEXCO, it is necessary for the company to assess the performance of management accounting carefully and up to date new regulations to complete an effective decision making system.
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5.3 Recommendations: After analyzing the framework of the management accounting in Vietnam theoretically and the application of management in one of state company named NATEXCO, we would like to give some recommendations to improve the efficiency and effectiveness of practices of NATEXCO management accounting. Firstly, the company should evaluate the performance of management accounting after a Photo 2: NATEXCO now (namdinh.gov.vn) fixed period of time (quarterly or yearly). Then they can find out their strengths, their weaknesses of their performance and overcome these drawbacks. As a result, the information submitted to manager will be adequate and precise. Secondly, the company should establish one department to research on the relationship between cost, volume and profit from production and sale activities in operation progress of the factory (monthly, quarterly and yearly). From that, they can find out methods to maximize profit, reduce manufacture cost, or diversify products. Besides, the company should carry out deep analysis of breakeven point to schedule manufacture and business plan appropriately. Thirdly, the company should search the content and method to set up the budget for all categories. Moreover, they should flexibly apply budgetting, adjust appropriately with their conditions and economic condition in each period. Finally, the director and the other managers should pay attention to norm plan so as to link all the departments. 6. Conclusion and limitations Our research has a look at the management accounting in term of framework and practices in Vietnam. After the study, there are many issues which still exist. The issues often arise when Vietnamese companies apply the goverment regulations into practices in reality. For example, performance measurement is not good enough or companies do not pay much attention on research on cost- volume profit or beak-even point models, resulting in very bad quality of information. Due to lack of time resource and human resource, our research has some drawbacks. First of all, we can not undertake a survey on different companies in different fields. Thus, the result from NATEXCO case study only does not fully reflect management accounting practices in Vietnam. Second, when comparing between Vietnam and United States management accounting, our reference of United States framework mostly base on the book Cost Accounting: A managerial emphasis (Horgen C T, Foster G & Datar S, 13th ed. Prentice Hall, 2008). In reality, there are many books that write about this topic because the practices of management accounting are very various.
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Therefore, there might be something that may conflict among the book, leading to some not exact analysis on management accounting which are in practices in United States. We suggest further research on analyzing deeply drawbacks of Vietnam management accounting and figuring out worthy solutions to complete the famework and upgrade the effectiveness in management accounting operation in companies in Vietnam. REFERENCES
Managerial accounting [online], available at URL: http://www.referenceforbusiness.com/ encyclopedia/Man-Mix/Managerial-Accounting.html (accessed: May 16, 2010). 2009, Doanh nghip kh tun th bng lng [online], available at URL: http://www.vietnamforumcsr.net/default.aspx?portalid=1&tabid=336&itemid=5634 (accessed: May 18, 2010). Business dictionary [online], available at URL: http://www.businessdictionary.com/ (accessed: May 16, 2010). Circular 53/2006/ TT BTC [online], available at URL: http://www.kiemtoanvietnam.vn/index.php?option=com_content&view=article&id=321:thongt-532006tt-btc-hng-dn-ap-dng-k-toan-qun-tr-trong-doanh-nghip-&catid=81:k-toan-kimtoan&Itemid=122 (accessed: May 15 2010). Cng ty c phn dt la Nam nh [online], available at URL: http://vnet.vn/Business/?b=395 (accessed: May 16,2010). Chi, K. 2007, Khu hao v cc phng php tnh khu hao ti sn c nh [online], available at URL: http://www.saga.vn/Taichinh/Ketoan-Kiemtoan/Ketoantaichinh/4652.saga (accessed: May 16 2010). Duc, T. 2005, ngh xo 222 t ng n cho dt Nam nh [online], available at URL: http://dantri.com.vn/c76/s76-87209/de-nghi-xoa-222-ty-dong-no-cho-det-nam-dinh.htm (accessed: May 16, 2010). Horgen C. T., Foster G. and Datar S. 2008, Cost Accounting: A managerial emphasis, 13th ed. Prentice Hall. Kiu, M. 2007, Dt Nam nh u gi gn 3 triu c phiu [online], available at URL: http://vneconomy.vn/65406P7C642/det-nam-dinh-dau-gia-gan-3-trieu-co-phieu.htm (accessed: May 16, 2010). Khai, Q. 2006, Phng php tnh hng tn kho [online], available at URL: http://www.tapchiketoan.com/ke-toan/tai-san-ngan-han/phuong-phap-tinh-gia-xuat-hang-tonkho-ph.html (accessed: May 16 2010). Linh, S. 2005, Dt Nam nh thnh cng ty TNHH [online], available at URL: http://w13.vnexpress.net/GL/Kinh-doanh/Chung-khoan/2005/07/3B9E0649/ (accessed: May 16, 2010). Nam nh xa v nay [online], available at URL: http://namdinh.gov.vn/Default.aspx?TabID=735 (accessed: May 16,2010). Nga, N. X., H thng thang, bng lng: Quy nh v hng dn xy dng [online], available at URL: http://www.cpoclub.net/news_detail/181/He-thong-thang,-bang-luong--Quydinh-va-huong-dan-xay-dung.html (accessed: May 18,2010). The ministry of Finance [online], available at URL: http://www.mof.gov.vn/ (accessed: May 15 2010). The Vietnam national textile and garment group [online], available at URL: http://www.vinatex.com/ (accessed: May 16 2010). Trng, . L. 2008, Lch s tin ho ca k ton qun tr [online], available at URL: http://www.saga.vn/Taichinh/Ketoan-Kiemtoan/Ketoanquantri/12664.saga (accessed: May 18,2010). Vietnam accounting law [online], available at URL: http://ketoanducha.com/upload/ducha/Luat_Ketoan_170603.pdf (accessed: May 15, 2010).
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ACCOUNTING FOR FIXED ASSETS

Written by: Nguyen Thi Ha, Hoang Thu Hang Bui Thi Minh Hoat, Le Thi Kim, Dinh Thi Thoi Supervisor: Dinh Le Mai
Abstract Accounting for fixed assets seems to be of growing concern for almost every company in the world. As firms expand their business with a larger scale, fixed assets tend to grow correspondently. The accounting for fixed assets, therefore, cannot be ignored because it helps firms to manage their assets effectively and efficiently. However, there exist some variations between the accounting for fixed assets under Vietnam Accounting Standard and International Financial Reporting Standards. Due to certain condition and policy of each country, the variations are possible but the whole still share a lot of similarities to the common standard. In this paper, the procedure to account for fixed assets under Vietnam Accounting Standards will be analyzed. In addition, some comparison with the international practice as well as examples will also be made. It is hoped that this paper will help foreign investors; especially students who are studying international school in Vietnam be aware of the accounting practice in both international scale and country scale.
I. Introduction Accounting for fixed assets seems to be an important practice for every company all over the world because fixed assets often take up the largest percentage in a firms asset. However, the practice is not alike for every country. Generally, most of the countries financial reporting practices are based on a common standard referred as International Financial Reporting standards (IFRS). There are still some variations due to the certain conditions and development of each country. The so-called Vietnamese accounting standards, although, share a lot of similarities to IFRS, the variations still exist. In continuing its way to harmonize with international financial reporting standards, VAS has had some changes reflected in many other decrees or circulars over years to reach to the common standards. On talking about the differences between Vietnamese accounting standard and international accounting standard or IFRS the question arising is how to help students who study in international university or foreign accounting practice in Vietnam aware about Vietnamese practice? The answer to the question is also the purpose of this paper. More specifically, the practice to accounts for fixed assets under Vietnamese accounting standards will be gradually analyzed in this research. To make the situation clearer, examples will also be given to help a deeper understanding of the reader. While under IFRS fixed assets are often referred to property, plant, and equipment, under VAS fixed assets can be divided into two forms: tangible fixed assets and intangible fixed assets. The accounting for these two main types of fixed assets will be gradually presented as below.
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II. Fixed assets in enterprises 1. Definition and criteria to determine (According to Vietnamese Accounting standard, supplemented by Decision no. 206/2003/QD BTC dated 12 Dec 2003 and circular no. 203/2009 TT BTC dated 20 Oct 2009 by the Ministry of Finance) Definition: Fixed asset is assets in the physical forms (tangible fixed assets) or value form (intangible fixed assets) to perform one or some particular functions in the operation and business activities of the company; fixed asset has big value and usable in a long period of time, in conformity with the criteria of tangible fixed assets a. Criteria to recognize tangible fixed assets: - Future economic benefit is probably obtained - Historical cost is measurable - Useful life is estimated at more than 1 year - Its value is equal or greater than10 million VND Note: IAS or IFAS does not have the forth criteria in determining tangible fixed assets. When determining the components of tangible fixed assets, the enterprise should apply the above criteria on a case by case basis. Separate parts, such as tools and swages, may be consolidated and apply the criteria of tangible fixed assets to such aggregate value. Accessories and auxiliary equipment are often considered as movable and thus accounted as expenses. Major accessories and maintenance equipment can be determined as tangible fixed assets when their useful lives last for over 1 year. If they are only used in association with tangible fixed asset irregularly, they shall be accounted as separate tangible fixed asset, capitalized and depreciated over the period shorter than the life of related tangible fixed assets. In each specific case, total cost of tangible fixed asset may be allocated to their components and separately accounted for each one. This is applied in case when each component of an asset has different useful life or they contribute to create different economic benefits to the firm. b. Intangible fixed assets: all fixed assets satisfy the above 4 criteria but not in the group of tangible fixed assets. (More details given in part Intangible fixed assets) 2. Classification of fixed assets: a. Fixed assets used for operation process of enterprises. - Tangible fixed assets: +Houses, plants, architectural objects + Machine, equipment + Means of transportation and conveyance system + Managerial tools + Perennial tree garden, animals yield products and labor for humans. + Other tangible fixed assets - Intangible fixed assets: land, trade mark, brand name, patent.
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b. Fixed assets the company uses for social welfare, security, military in the company can be classified as fixed assets for business operation c. Fixed assets the company stores for other divisions or for the Government are classified in conformity with the common regulation. 3. Determination of acquisition cost of tangible fixed asset In conformity with the regulations, in all cases, increase or decrease of tangible fixed asset should be reflected in historical cost. Historical cost is all the costs incurred to get the asset and putting it into the ready- for use condition or position. 3.1 Historical cost of tangible fixed assets a. procured tangible fixed assets Historical cost of procured tangible fixed asset= purchasing price+ taxes(excluding refundable tax amount)+ expenses attributable to put the assets into ready-use state such as registration fee, transportation, loading and unloading, installation, ground preparation and trial run cost, registration fee, etc. It is quite similar to criteria in IFAS which states that Procured fixed assets= purchasing price+ attributable costs + site restoration costs. Example: Hoa Phat company buys a machine at the price of 50 million Vnd, installation cost is 2million, ground preparation cost is 2 million Vnd Cost of machine = 50+ 2+ 2= 54 million Vnd When procured tangible fixed assets are houses, architectural objects...with land use right, then the cost of assets must be determined separately with the cost of land. In case, procured tangible fixed assets are paid by deferred payment method, their historical cost must be accounted at the purchasing price promptly paid at time of purchase. The difference between price promptly paid and payable amount will be considered as the expense in the payment period, except in case that difference is accounted into the historical cost of the tangible fixed asset according to the regulation of capitalizing borrowing expense (costs attributable to the construction investment or production of uncompleted assets shall be capitalized or added to the value of that assets/capitalized interest cost for self-constructed assets) Costs incurred, if just indirectly related to the procured tangible fixed assets, will not be included in the historical cost of the asset, b. Tangible fixed assets purchased from exchange form Historical cost of a tangible fixed asset purchased in the form of exchange for a dissimilar one or other assets can be determined = the reasonable value of the received one + taxes+ attributable expense to put the assets into ready use. Example: Company A exchange a machine A (15 million VND) for a dissimilar one B (18 million VND reasonable value), property tax: 200, 000 VND, transportation cost: 100,000 VND.
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Historical cost of received one= 18million+ 200,000+ 100,000=18,300,000 VND Historical cost of a tangible fixed asset purchased in the form of exchange for a similar one/from its sale and exchange for the right to own similar one, then the historical cost of the received one can be determined = net book value of the exchanged one. c. Self constructed or self produced tangible fixed assets Historical cost = actual cost of asset + attributable cost to put the assets into readyuse state. In these cases, it is obligation to exclude all internal profits and unreasonable expenses like wasted labor, materials, supplies... In excess of normal levels in the process of self constructed or produced. According to circulation No. 203/2009 TT BTC of the Ministry of Finance: - Historical cost of self-produced assets = selling price + other attributable costs. - Historical cost of self-constructed assets= total costs at the time of putting to use. Example: Company B self-construct a building by 1 billion VND borrowed from AB bank, interest rate= 10%/year. Historical cost of the building= 1 billion+ total interest expenses d. Tangible fixed assets augmented from other sources (donation, present, assignment, contribution from other owners) - Sources are from donation, present or excess due to recording error: historical cost = costs evaluated by the Committee of evaluation. - Tangible fixed assets from the contribution of other owners: Historical cost is reasonable value most shareholders accept or based on the reevaluation of the Committee of evaluation. (According to circulation 203/2009 TT BTC of the Ministry of Finance) Example: A corp. receives a machine presented by shareholder C. Its value is 100 million VND, related costs= 2 million (transportation, trial run cost) Total historical cost = 100+ 2= 102 million VND e. Financial lease tangible fixed assets When tangible fixed assets are leased in the form of financial lease, their historical costs can be determined according to the regulations of the accounting standard section 06 lease. Historical cost of financial leasing tangible fixed asset in book of lessee is fair value of the asset at the time of leasing.(more details are given in the part of financial lease fixed assets) f. Tangible fixed asset is from internal transfer or assignment: Historical cost = reasonable value evaluated by the Committee of evaluation + other expenses or the book value of the transferring division. Example: department A receive a fixed assets from other division B in the company. The revaluated value is 15m, installation cost is 1m Total historical cost = 16m
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g. Tangible fixed asset is from investment & construction by the method of bid. Historical cost = closing adjustment price+ other related costs Example: X Construction Company delivers a building to company B with the closing adjustment price: 2 billion VND. B pays X in cash Dr 211 tangible fixed assets: 2billion VND Cr cash: 2billion VND 3.2 Historical cost of tangible fixed assets of individuals, owner of private company, limited company, or corporation without the bill or record, is the reasonable value the company evaluates by its own, and the company will be responsible for the accuracy of that value. 3.3 Historical cost of tangible fixed assets can be changed in the following cases: a. Reevaluate the value of tangible fixed asset in conformity with the regulations b. Improve the assets c. Remove or replace one or some components of the asset 3.4 Tangible fixed assets can be accounted according to the net book value Net book value= historical cost - accumulated depreciation 3.5 Capital cost or expenditure - Cost incurred is recognized to included in historical cost of the tangible assets if these costs help improve the current conditions of assets and contribute to create higher productivity of the assets in future - Maintenance cost or repair cost for the purpose of sustaining or restoring the current capacity to bring about the current profit is just considered as expense. Note: commonly, historical cost determination of tangible fixed assets under VAS and IFRS are similar. 4. Record for the increase or decrease in value of tangible fixed asset 4.1. Accounts used - Account 211 tangible fixed assets 211: houses, architectural objects 2112: Machinery, equipment 2113: means of transportation 2114: managerial tool 2115: long lived trees, animals give products 2118: other tangible fixed assets 4.2. Record for the increase in tangible fixed assets a. When tangible fixed assets increase due to purchase: - Dr account 211 tangible fixed asset: purchasing price excluding tax
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Dr account 133: VAT deducted Cr account 111,112, 331: Cash/cash at bank/ payable to the seller - Costs related to put assets into ready-use state: Dr account 211 tangible fixed asset Dr account: 133 VAT deducted Cr account 111, 112.. cash/cash at bank Under IFRS: Dr assets (houses, land, equipment) Cr cash Company purchases an equipment at the price of 315 million VND including VAT(5 %), pay by working capital; transportation and loading/ unloading costs are 2,1 million VND including VAT(5 %). Company pays tax by discount method. These related cost are paid by cash. Example: VAS: (unit: million VND) Dr account 211 tangible fixed asset: 302 Dr account 133 VAT deducted: 15.1 Cr account 411 working capital: 315 Cr account 111 cash: 2.1 - IFAS: Dr assets: 302 Dr tax expense: 15.1 Cr cash: 317.1 - Import tax when purchasing tangible fixed asset from foreign country is included in historical cost of assets: Dr account 211/ 213 tangible/intangible fixed assets Cr account 3333: Import or export duties - VAT amount of tangible fixed asset is deducted: Dr account 133 VAT deducted Cr account 33312 VAT for imported goods Note: with firms not in group of paying VAT in discount method, their VAT amount will be included in historical cost of the asset - If tangible fixed asset is bought from used funds, we can base on the historical cost to transfer these cost into business capital Dr account: 414 fund for development and investment Dr account 441: Capital for investment and construction Cr account 411 working capital b. Buying tangible fixed assets in installment method: accountant records: Dr account 211 tangible fixed asset Dr account 133 VAT deducted Dr account 242 long term prepaid expense
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Cr account 331 payable to seller Under IFRS: Dr assets Cr account payable - As well as periodic payment to supplier: Dr account 331: payable to supplier Cr account 111, 112 cash/cash at bank Under IFRS: Dr account payable Cr cash (installment amount) - Interest amount due to late payment is accounted into expense: Dr account 635 financial activity expenses Cr account 242 long term prepaid expense Cr account 142 prepaid expense Example: A corp. buys equipment at the cost of 20million VND, VAT (5%) in discount method, installment amount is 7.4million VND/years in 4 years. Interest expense: 20%/year. VAS: Unit: million (m) VND Dr 211 tangible fixed assets: 20m Dr 133 VAT deducted: 1m Dr 242 long term prepaid expense: 18m Cr 331 payable to seller: 39m Periodic payment: Dr 331 payable to seller: 7.3m Cr 111 cash: 7.3m IFAS: Dr assets: 39m Cr account payable: 39m Periodic payment: Dr account payable: 7.3m Cr cash: 7.3m c. when company is presented or sponsored the tangible fixed asset, record: - VAS: Dr account 211 tangible fixed assets Cr account 711: other revenue Cost directly related to tangible fixed assets presented, sponsored is accounted in historical cost: Dr account 211 tangible fixed assets Cr account 111, 112,331 cash/cash at bank/ payable to seller
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- IFAS: Dr assets Cr contribution income/ other income Example: C present a computer to company B with the market value of 24 million VND. Installation and trail run costs are 1million VND by cash. VAS: - Dr 211 tangible fixed assets: 24m Cr 711 other revenue: 24 m - Record costs related: Dr 211 tangible fixed assets: 1m Cr 111 cash: 1m IFAS: Dr equipment: 25m Cr cash: 1m Cr other income: 24 m D. when using self produced products: converts it into tangible fixed assets: Dr Cost of good sold: account 632 Cr account 155 finished good Cr account 154 work in process cost - as well as record increasing in tangible fixed assets: Dr account 211 tangible fixed assets Cr account 512 internal sales revenue - installation, trial operation cost related: Dr account 211 tangible fixed assets Cr account 111, 112, 113- cash/cash at bank/ cash in transit Under IFRS: Dr Assets(houses, land, machine) Cr donation/ contribution revenue Convey a fixed assets in managerial division into tools with historical cost of 19m, accumulated depreciation is 9 million, the net book value is allocated in 2 years starting from this year. VAS: Dr 211 tangible fixed assets: 10 m Cr 512 internal gross sales: 10m IFAS: Dr assets: 10m Cr revenue: 10m
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d. tangible fixed assets in exchange for the similar one: Dr account 211 tangible fixed assets received one Cr account 214 depreciation Cr account 211 tangible fixed assets exchanged one e. Tangible fixed asset in exchange for the dissimilar one - When delivering the asset, record the decrease in asset Dr account 811: other expense Dr account 214 depreciation expense Cr account 211 tangible fixed assets At the same time, record the increase in revenue: Dr account 131 account receivable Cr account 711 other revenue Cr account 3331 VAT When receiving the asset: Dr account 211 tangible fixed assets Dr account 133 VAT deducted Cr account 131 Under IFRS: - Exchange of assets in the loss case: Dr new assets Dr accumulated depreciation- old one Dr loss on disposal of assets Cr old assets Cr Cash - Exchange of assets in the gain case: Dr new assets Dr accumulated depreciation- old one Cr cash Cr gain on disposal of old one Cr old assets Example: A exchange an asset to X. historical cost is 20m, accumulated depreciation 10 m. The new one value is 25m, depreciation value is 5m, Vat 5%. VAS: - When delivering the asset, record the decrease in asset Dr account 811 other expenses: 10m Dr account 214: 10m Cr account 211 tangible fixed assets: 20m - At the same time, record the increase in revenue: Dr account 131 account receivable: 21m Cr account 711 other revenue: 20m Cr account 3331 VAT: 1m
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- When receiving the asset: Dr account 211 tangible fixed assets: 20m Dr account 133 VAT deducted: 1m Cr account 131 account receivable: 21m IFAS: - Exchange of assets in the gain case: Dr new assets: 20m Dr accumulated depreciation- old one: 10m Cr gain on disposal of old one: 10m Cr old assets: 20m f. When the construction finishes, and asset is used: Dr account 211 tangible fixed assets Cr account 241 construction in progress - If assets are not satisfied with the criteria of tangible fixed assets, record: Dr account 152, 153- raw materials/tools and supplies Cr account 241 construction in progress - When company is assigned the assets, based on the historical cost, depreciation and residual value to record: Dr 211 tangible fixed assets: historical cost Cr 214: depreciation expense Cr 411 working capital residual value Note: when company finds out that there is an increase in value of tangible fixed asset due to the error in recording: Dr account 211 tangible fixed assets Cr related accounts And the depreciation expense is included in production and business cost: Dr account 142 prepaid expense Dr account 627, 641, 642 general operating expense/selling expenses/administrative expenses Cr account 214 depreciation of fixed asset 5. Record the decrease in tangible fixed assets: a. Company sells tangible fixed assets: - Record decrease in value of assets: Dr account 214 depreciation of fixed assets Dr account 811 other expenses residual value Cr account 211 tangible fixed assets historical cost - Revenue from sale: Dr 111, 112, 131 cash/cash at bank/ account receivable Cr account 711 other revenue Cr account 3331 VAT
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- Firm pays tax by direct method: Dr account 111, 112, 131 Cr account 711 other revenue About the tax: Dr account 711 other revenue Cr account 3331 VAT - Costs related to selling process: Dr account 811 other expenses other revenue Cr account 111, 112 cash/ cash at bank Example: Company sold one tangible fixed assets, historical cost is 300 million VND with depreciation: 120 million, sales price is 220 million including VAT 20 million VND. It received cash through transfer of credit account a. Under VAS Dr account 811 other expenses: 180 million Dr account 214: 120 million Cr account 211 tangible fixed assets: 300 million Dr account 112: 220 million Cr account 711: 200 million Cr account 333: 20 million Under IFRS Dr cash: 220 million Dr accumulated depreciation: 120 m Cr assets: 300 million Cr gain from sale: 40 million
b.
b. Company liquidates the assets: - Record decrease in tangible fixed assets: the same in sale of assets - Record cost incurred related: Dr account 811 other expenses Cr account 334,338, 111, 112 payable to employees/other payable/ cash/ cash at bank - Revenue from the liquidation: Dr account 111, 112, cash/cash at bank Cr account 711 price without tax Cr account 3331 VAT - Pay tax by direct method: Dr account 111, 112 cash/cash at bank Cr account 711 other revenue Under IFRS: Dr depreciation expense Cr accumulated depreciation Dr cash Dr accumulated depreciation of machine (Dr Loss on disposal of assets) Cr machine (Cr Gain on disposal of machine)
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Example: Liquidation of fixed assets with the historical value is 120 million VND, net book value is zero, liquidation cost + liquidation price = 0. Under VAS Dr 214: 120 million Cr 211 tangible fixed assets: 120 million c. When transferring tangible fixed assets to other divisions: Dr account 1361investment in subsidiaries: net book value Dr account 214: depreciation of fixed asset Cr account 211 tangible fixed assets/ 213: historical cost Example: Department A transfers its assets to other division in the company with historical cost of 17m, accumulated depreciation 10m: Dr 1361 investment in subsidiaries: 7m Dr 214 depreciation of fixed asset: 10 Cr 211 tangible fixed assets: 17m 6. When auditing, company finds out the deficiency of fixed assets but not yet sees the reasons, it can use the historical cost, depreciation, and net book value to record the assets - Assets used for operation and business activities: Dr 214 Depreciation expense of fixed assets Dr 138 Other account receivable Dr 411 working capital operation capital Dr 811 other expenses Cr 211 tangible fixed assets tangible fixed assets Under IFRS: Dr depreciation expense Cr accumulated depreciation Example: After auditing, A find out that its fixed assets value is 20 million VND lower than its book value without the reasons. VAS: Dr account 214 depreciation expense: 20million VND Cr account 211 tangible fixed assets: 20 million VND IFAS: Dr depreciation expense: 20millionVND Cr accumulated depreciation: 20 million VND 7. When transferring tangible fixed assets into tools, swages, record: a. If the net book value is small, allocate it on the cost of objects used in the accounting period: Dr account 627, 641, 642 residual values (general operating expense/selling expenses/administrative expenses) Under IFRS No record, just write off the assets out of the book.
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Dr account 214 depreciation expense Cr account 211 tangible fixed assets historical cost b. If the residual value is big, transfer it into prepaid expense to allocate gradually to cost of other objects: Dr account 142 prepaid expense net book value Dr account 214 depreciation of fixed assets Cr account 211 tangible fixed assets historical cost -Then allocating gradually to others: Dr account 627, 641, 642 general operating expense/ selling expenses/administrative expenses Cr account 142 prepaid expense: allocation amount. 8. To illustrate, please refer to the following example: Hoa An company, producing Green bean cake, pays tax by discount method. Its operation on April, 2010 was related to some increase and decrease in tangible fixed assets. Record the journal entry: 8.1. It purchased machine and paid through transferring the credit account, purchasing price without tax is 400 million VND, VAT is 40 million VND. 1.a Under VAS Dr account 211 tangible fixed assets: 400million Dr account 133 VAT deducted: 40 million Cr account 112: 440 million Cr account 009 fundamental discount capital: 400 million Under IFRS Dr machine: 400 million Dr tax expense: 40 million Cr cash: 440 million
1.b
8.2. Company sold one tangible fixed assets, historical cost is 300 million VND with depreciation: 120 million, sales price is 220 milliion including VAT 20 million VND. It received cash through transfer of credit account a. Under VAS Dr account 811: 180 milliion Dr account 214: 120 million Cr account 211 tangible fixed assets: 300 million Dr account 112: 220 million Cr account 711: 200 million Cr account 333: 20 million Under IFRS Dr cash: 220 million Dr accumulated depeciation: 120 m Cr assets: 300 million Cr gain from sale: 40 million
b.
9. Dispositions of plant assets A disposition of a plant asset is the sale, exchange, retirement, involuntary conversion, or abandonment of the plant asset
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Account 211 tangible fixed assets Account 2112: building Account 2113: machine Account 2114: transportation Account 2115: equipment 9.1. Sale of plant assets Companies record depreciation for the period of time between the date of last depreciation entry and the date of sale Decrease of fixed asset Dr Ac 214- Depreciation expense Dr Ac 811 other expenses- book value of asset Cr Ac 211 tangible fixed assets- Original cost of asset Money receives when sale asset Dr Ac 111, 112, 131 cash/cash at bank/VAT deducted Cr Ac 711 other income- without tax Cr Ac 3331- VAT Expenses when sale asset Dr Ac 811 other expenses Cr Ac 111, 112 cash/ cash at bank 9.2. Involuntary conversion Involuntary conversion: fire, flood, theft, or condemnation To illustrate, a corporation has equipment but its fired, then the insurance company compensate with price $500,000 which substantially exceeded the $200,000 book value of the plant and land (cost of $400,000 less accumulate depreciation of $200,000). This made the following entry: Dr Ac 112 cash at bank 500,000 Dr Ac 214-Accumulated Depreciation 200,000 Cr Ac 211 tangible fixed asset 400,000 Dr Ac 111, 112- extra amount 300,000 9.3. Exchange: The proper accounting for exchange of nonmonetary, such as property, plant, and equipment, is controversial. An exchange has commercial substance if the future cash flows change as a result of transaction. That is, if the two parties economic position change, the transaction has commercial substance. 9.3.1 Exchange with the same price Dr Ac 211- Original cost of old fixed asset Dr Ac 214- Accumulated Depreciation Cr Ac 211- Original cost of the new 9.3.2 Exchange without the same price When Co. A gives fixed asset for Co. B, Co. A records transaction as follow:
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Dr Ac 811 other expenses- book value of old asset Dr Ac 214- Accumulated Depreciation Cr Ac 211 tangible fixed asset- original of old asset When Co. A receives new tangible fixed asset Dr Ac 211 tangible fixed assets- original of new asset Dr Ac 133 VAT deducted- depreciation of GTGT tax (if any) Cr Ac 131 account receivable- fair value of the old In case, Co. A receives extra money when price of old asset is higher than the new: Dr Ac 111, 112 cash/ cash at bank- extra amount Cr Ac 131 account receivable In case, Co. A pays extra money when price of old asset is less than the new Dr Ac 131 account receivable Cr Ac 111, 112 cash/ cash at bank 10. Fixed assets under financial lease According to Vietnamese Accounting Standards, A financial lease is a lease whereby the lessor transfers most of the risks and rewards associated with the ownership over an asset to the lessee. The ownership over the asset may be transferred at the end of the lease term. The cases leading to financial lease may include: a/ The lessor transfers the assets ownership to the lessee at the end of the lease term; b/ At the inception of the lease, the lessee has the right to purchase the leased asset at a price expected to be lower than the reasonable price at the end of the lease term; c/ The lease term accounts for most of the economic life of the asset even if the ownership is not transferred; d/ At the inception of the lease, the present value of the minimum lease payment accounts for most of the reasonable value of the leased asset; e/ The leased asset is of a special-use type which can be used only by the lessee without major modification or overhaul. Lease contracts will be also considered financial lease contracts if they fall into at least one of the following three cases: a/ If the lessee cancels the contract and pays compensation for damage associated with the contract cancellation to the lessor; b/ Incomes or losses from the change in the reasonable value of the residual value of the leased asset are associated with the lessee; c/ The lessee is able to continue leasing the asset after the lease contract expires at a rent lower than market rents. Recognition: With financial lease, the account used is 212- financial leased assets. The historical cost recorded at the inception of the lease terms is based on section 06: lease in VAS. The recognition is as follow: At the inception of a financial lease, the lessee will recognize the financial leased asset as an asset and liability in its balance sheet with the same value equal to the
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reasonable value of the leased asset. If the reasonable value of the leased asset exceeds the present value of the minimum lease payments for the lease, the present value of the minimum lease payments shall be recorded. The discount rate used for calculating the present value of the minimum lease payments for the lease will be the interest rate implicit in the asset lease contracts or the interest rate inscribed therein. If the interest rate implicit in the lease contract is undeterminable, the lessees incremental borrowing interest rate will be used for calculating the present value of the minimum lease payments. Initial direct costs incurred in connection with financial leasing activities, such as costs for lease contract negotiation and signing will be recognized into the historical costs of the leased assets. Theoretically, accounting for leased assets under VAS is quite similar to IFRSs. However, in practice the situation seems to be more complicated because of the differences in the account as well as tax system. Under VAS, the journalizing process is as follow: Before the acquisition of the leased assets: company recognizes for the attibutable to the acquisition of the leased assets: negotiation cost, transaction cost, ect. Dr account 142 prepaid expense Cr account 111/112/: cash/ cash at bank The prepaid for the assurance of the lease contract: Dr account 342 long term liability Dr account 244 long term collateral and deposit Cr account 111/112: cash/cash at bank Acquisition of the leased assets: Dr account 212: fixed assets under financial lease (excluding VAT) Cr account 342: long term liability (present value of the minimum lease payment or reasonable value of the leased assets) The initial direct cost is included in the historical cost of the leased asset: Dr account 212- fixed asset under financial lease Cr account 142 prepaid expense/111cash /112 cash at bank (the amount equal to the amount recorded above) At the end of the fiscal year, basing on the lease contract, determine the lease liability for the next period Dr account 342 long term liability Cr account 315 Long term loans due to date Periodically get the bill to pay lease liability To record the lease liability and interest expense Dr account 635 financial activities expenses (current interest expense) Dr account 315 Long term loans due to date (including value added tax) Cr account 111/112 cash/ cash at bank
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Periodically depreciate the leased assets to operating expense or capitalize to construction in progress Dr account 623/627/641/642/241/executing machine using expense/general operating expense/ Dr account 009 fundamental discount capital Cr account 214- Depreciation of fixed asset To illustrate, there is an example as follow: X is a construction company which pay VAT on deductible base. In January 2004, Company X had the following activities related to financial lease fixed assets: 1. Buy a financial lease asset at the end of the lease term. X paid in cash the amount of 30,000,000VND. The historical cost of the financial leased assets was 400,000,000VND, the depreciated amount was 380,000,000VND. 2. X also returned another financial lease asset to the lessor at the end of the lease term, the historical cost was 200,000,000 VND and it has been fully depreciated. 3. Use transfer payment to pay for the lease expense with the amount of 135,000,000VND in which the initial expense: 100,000,000VND, interest expense: 25,000,000 VND, VAT expense: 10,000,000VND 4. Acquire another financial lease asset from company Y. the total expense was 400,000,000 VND (VAT not included), the current expense was 40,000,000 VND. Other attributable expenses which had been paid already were 10,000,000VND. Requirement: journalize the entries Solution: 1. a. Dr account 211- tangible fixed asset 400,000,000 VND Cr account 212- financial lease fixed asset 400,000,000 VND b. Dr account 211- tangible fixed asset 30,000,000 VND Cr account 111- cash 30,000,000 VND c. Dr account 2142 - accumulated depreciation under financial lease 380,000,000VND Cr account 2141- depreciation expense (tangible fixed asset) 380,000,000VND 2. Dr account 2142 accumulated depreciation under financial lease 200,000.000 VND Cr account 212 fixed asset under financial lease 200,000,000 VND 3. Dr account 315 long term loan due to date Dr account 133 VAT deducted Dr account 635 financial activities expenses Cr account 112 cash at bank 4. Dr account 212 fixed asset under financial lease Cr account 111 cash Cr account 315 long term loan due to date Cr account 342 long term liability 100,000,000 VND 10,000,000 VND 25,000,000 VND 135,000,000 VND 410,000,000 VND 10,000,000 VND 40,000,000 VND 360,000,000 VND
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11. Methods of depreciation Depreciation http://www.investorglossary.com/depreciation.htm is the reduction in the value of an asset from wear-and-tear or obsolescence. It is not a matter of valuation but a mean of cost allocation to expense in a systematic and rational way to those periods expected to benefit from use of the tangible assets. According to VAS, Economic benefits yielded by tangible fixed assets shall be gradually exploited by the enterprises through the use of these assets. Nevertheless, other factors, like technical backwardness, wear-and-tear of these fixed assets due to their non-use, often cause reductions in the economic benefits which the enterprises expect these assets would bring about. Therefore, when determining the useful life of tangible fixed assets, the following factors must be such as: the extent of use capacity or output of such asset: the extent of wear-and-tear, depending on the use process, the enterprises repair and maintenance of the asset; from the replacement or renovation of the technological chain or changes in the market demand for the products or service turned out by the asset; legal constraints in the asset use... Enterprises need to estimate service lives of assets because it differs from its physical life. The useful life of tangible fixed assets shall be determined by the enterprises mainly on the expected use extent of the assets. In fact, the estimated useful life of fixed assets may be shorter than their actual useful life. In most cases, a company estimates the useful life of an asset based on its past experience of the same or similar assets. According to Finance Ministers Decision No 206/2003/ QD-BTC, there are 3 main methods of depreciation: Straight-line depreciation method; Declining-balance depreciation method; and Units-of-output depreciation method. Basing on real conditions applied for each method, firms can choose an appropriate method suitable for their own kind of fixed assets. Then, they must register their depreciation method to tax agency before depreciating. The chosen and registered one will be implemented consistently during usage of these fixed assets. 11.1. Straight-Line Depreciation Method of computing depreciation in which the depreciable cost (historical or purchase price) of a tangible capital asset is reduced by an equal amount in each accounting period (usually a year) over the asset's estimated useful life. Straight line depreciation is computed as a fixed expense by dividing the asset's depreciable cost by the number of years the asset is estimated to remain in service. Suitable where the usage of an asset remains generally uniform despite the asset's age, it is the simplest and most common method of computing depreciation. For easy computation, the depreciation rate may be converted to a percentage of the depreciable cost. Steps of calculating as follow: Determine the useful life of the asset in years Determine the salvage value of the asset after its useful life Deduct the salvage value from the purchase price of the asset Divide the number of useful years into the total in step number 3
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As an example, ABC Ltd. bought a new machine on 1 st Jan 2002. The following information is provided: Cost $11,000 Salvage (residual) value $ 1,000 Usage (useful life) 5 years Required: Show the depreciation expenses and net book value using Straight-line method. Solution: Depreciation per year: (11.000 - 1.000)/5 = $2.000 Year 31 Dec 02 31 Dec 03 31 Dec 04 31 Dec 05 31 Dec 06 Beginning value 11,000 9000 7000 5000 3000 Depreciation 2000 2000 2000 2000 2000 Accumulated depreciation 2000 4000 6000 8000 10000 Net book value 9000 7000 5000 3000 10000
11. 2. Declining-balance depreciation method The declining balance depreciation method is an accelerated method since a large part of the cost of the fixed asset is expensed at the beginning of the life of that asset. To calculate declining balance depreciation the depreciable basis of the fixed asset is multiplied by a factor. The depreciable basis is the book value of the fixed asset - cost less accumulated depreciation. The factor is the percentage of the asset that would be depreciated each year under straight line depreciation times an accelerator The declining balance rate is multiple by the book value of the assets at the beginning of each period. The depreciation charge reduces the book value of the asset each period, applying constant-declining balance rate to lower book value result in lower depreciation charges each year. This process continues until the book value of the asset equals its estimated value. Refer to example above; show the depreciation expenses and net book value using Reducing method at 40% per year. Solution: - Year 1 (at 31 Dec 02): Accumulated depreciation: (11.000 1.000) x 40% = 4.000; Net book value: 11.000 - 4.000 = 7.000 - Year 2 (at 31 Dec 03): Accumulated depreciation: (7.000 1.000) x 40% = 2.400; Net book value: 7.000 - 2.400 = 4.600 - Year 3 (at 31 Dec 04): Accumulated depreciation: (4.600 1.000) x 40% = 1.440; Net book value: 4.600 1.440 = 3.160 - Year 4 (at 31 Dec 05): Accumulated depreciation: (3.160 1.000) x 40% = 864; Net book value: 3.160 - 864 = 2.296 - Year 5 (at 31 Dec 06): Accumulated depreciation: 2.296 1.000 = 1.296; Net book value: 2.296 1.296 = 1.000 = residual value
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11.3. Units-of-output depreciation method The units of production method of depreciation are based on an assets usage, activity, or parts produced instead of the passage of time. Under the units of production method, depreciation during a given year will be very high when many units are produced, and it will be very low when only a few units are produced. For example, A new milling machine is purchased for $22,500. It is expected that the machine can last for 16,000 hours. Determine the depreciation charge for a year when this machine was used for 2,600 hours. Solution: The salvage value can be estimated as 10% of first cost or $2,250. Charge for one hour of use is determined as follows: Charge/hour = (22,500 - 2,250)/(16,000) = $1.266/hour As the machine is used for 2,600 hours, the depreciation charge is Depreciation charge = (2,600)(1.266) = $3,291.60 DURATION FRAMEWORK FOR THE USE OF FIXED ASSETS Issued with circular 203-2009-TT-BTC by the Ministry of Finance dated 20 October 2009 Categories of fixed assets A- Dynamic machinery and equipment 1. Dynamic generators 2. Electrical generators 3. Electrical transformers and power source equipment 4. other machinery and equipments B. Working machinery and equipment 1. Tools 2. Mining and construction machinery 3. Tractors 4. Machines used for agriculture and forestry 5. Oil, petrol and water pumps 6. Metallurgical equipment for manufacture of building materials, terracotta, porcelain and glassware 7. Specialized equipment for manufacture of chemicals 8. Specialized machinery and equipment for manufacture of building materials, terracotta, porcelain and glassware 9. Specialized equipment for manufacture of optical and electronic component, and for precision mechanical engireering
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Minimum useful lives (years) 8 7 7 6 7 5 6 6 6 7 6 6 5
Maximum useful lives (years) 10 10 10 10 10 8 8 8 8 10 10 8 12
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10. Machinery and equipment used for manufacture of leather, for printing stationery and cultural products 11.Machinery and equipment used in the textile industry 12. Machinery and equipment used in the clothing industry 13. Machinery and equipment used in the paper industry 14. Machinery and equipment for production and processing of grains and foodstuffs 15. Machinery used in the film industry and in health services 16. Telecom, information, electronics, informatics and television and machinery and equipment 17. Machinery and equipment for production of pharmaceutical drugs 18. Other working machinery and equipment CMeasurement equipment and laboratory instruments 1. Equipment for measurement of and experiment on mechanical, sonic and thermodynamic volumes 2. Optical and optical spectru equipment 3. electrical and electronic equipment 4. Analytic measurement equipment used in physical chemistry 5. Radioactivity measurement instruments and equipment 6. Equipment used in specialized sectors 7. Other experimental and measurement equipment 8. Moulds used in the casting industry D- Transport equipment and means of transport 1. Means of transport by road 2. Means of transport by railway 3. Means of transport by waterway 4. Means of transport by airway 5. Equipment for conveyance via pipelines 6. Equipment for goods discharge and lifting 7. Other facilities and means of transport E- Managerial tools 1. Calculating and measuring instruments 2. Electronic equipment, machinery and software for the purpose of management 3. Other managerial instruments and facilities F- Buildings and Architectural works 1. Subtantial buildings
7 10 5 5 7 6 3 6 5
10 15 7 15 12 12 15 10 12
5 6 5 6 6 5 6 2 6 7 7 8 10 6 6 5 3 5 25
10 10 8 10 10 8 10 5 10 15 15 20 30 10 10 8 8 10 50
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2. Building of other kinds 3. Storehouses, tanks, bridges, roads, air runways, parking lots, drying yards, ect 4. Quays, dams, sewers, canals, harbours and docks slipways and so forth 5. Other architecral works G- Livestock and perennial platations 1. livestock of all kinds 2. Industrial and perennial plantation; and orchards 3. Lawn and green areas. H- other types not in the above categories III. Intangible assets 1. Definition:
6 5 6 5 4 6 2 4
25 20 30 10 15 40 8 25
Intangible fixed assets mean assets which have no physical form but the value of which can be determined and which are held and used by the enterprises in their production, business, service provision or leased to other subjects in conformity with the recognition criteria of intangible fixed assets. 2. Criteria for recognizing intangible fixed assets: First of all, the certainty to acquire future economic benefits brought about by the asset. The second criterion is that the assets historical cost must be measurable. The useful life is estimated to last for over one year is the fourth criteria and all value criteria prescribed by current regulations are met will be the last criteria for deciding which assets can be intangible fixed asset. Accounting of intangible fixed assets which are classified by groups of fixed assets of the same nature and use purposes in the enterprises operations, including: + The right to use land for a definite term; + Trademarks; + Distribution rights; + Computer software; + Licenses and right concession permits; + Copyright, patents; + Preparation formulas and methods, models, designs and prototypes; + Intangible fixed assets being developed. 3. Determination of historical cost of intangible fixed assets: Historical cost means all costs incurred by the enterprises to acquire intangible fixed assets as of the time of putting these assets into use as expected.
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a) Historical cost of separate-intangible fixed asset consists of the purchasing price (minus (-) trade discounts or price reductions), taxes (excluding reimbursed tax amounts) and expenses directly related to the putting of the asset into use as planned. b) Historical cost of a procured intangible asset is the purchasing price plus taxes (not including reimbursable taxes, related costs counted to the time of putting the assets into use as expected. c) Historical cost of intangible fixed asset under exchange form is the reasonable value of vouchers issued in relation to capital ownership. d) Historical cost of intangible fixed asset created from within the enterprise is the costs directly related to designing, constructing and experimenting prototypes or models before they are put into production or use, designing tools, molds, jigs and swages related to new technologies, designing, constructing and operating economically infeasible trial workshops for commercial production operations, designing, developing and manufacturing on a trial basis substitute materials, tools, products, processes, systems and services, new or improved. All costs incurred in the research stage (including activities of researching into and developing new knowledge, exploring, evaluating and selecting final options, The application of research results, or other knowledge, The exploration of alternative methods for materials, tools, products, processes, services, Formulas, designs, evaluation and final selection of alternative methods for materials, tools, products, processes, systems, services, new or further improved) and costs for having trade name, issuing right, consumer list shall not be recognized as intangible fixed assets but as production and business expenses in the period. e) Historical cost of intangible fixed asset which is allocated by the State, donated or presented, is determined according to the initial reasonable value plus (+) the expenses directly related to the putting of the assets into use as planned. f) Historical cost of intangible asset being the right to use land is the cost of having legal land using right plus other cost for leveling the surface, compensation.In case the corporations rent the land that cost is allocated to business expenses, not intangible fixed asset. 4. Methods for posting the accounts (all journal entries are based on Vietnamese accounting standard) a) Posting the account for purchasing intangible fixed assets: - Where intangible fixed assets are bought for manufacturing goods, services, including VAT that is calculated according to discount method. In Vietnam: Debit account 213 - Intangible fixed assets Debit account 133 VAT deducted - VAT deduction of fixed asset Credit account 111 -Cash or Credit account 112-Cash in bank or Credit account 331 - Payable to seller
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For example a company buys patents from one person with 5% VAT, pay by cash, the transaction will be: Debit account 213 - Intangible fixed assets VND 500,000,000 Debit account 133 VAT deducted VND 25,000,000 Credit account 111-Cash VND 525,000,000 or Credit account 141 Advances VND 525,000,000 or Credit account 331 - Payable to seller VND 525,000,000 - Where intangible assets are purchased for manufacturing goods and services, not levied by VAT Debit account 213 - Intangible fixed assets Credit account 112, 311Credit- Cash in bank Payable to seller With the above example, but the company does not be eligible to pay VAT, the transaction will be recorded as follow: Debit account 213 - Intangible fixed assets VND 500,000,000 Credit account 112, 311Credit- Cash in bank VND 500,000,000 b) Purchasing intangible fixed assets that are paid by deferred payment mode, mortgage: - In case intangible fixed assets are purchased for manufacturing goods, services, levied by VAT that is calculated by discount method. Credit account 231- Intangible fixed assets Credit account 242- Long-term prepaid expenses Credit account 133 VAT deducted Credit account 331- Payable to seller - If intangible fixed assets use for producing goods, services not levied by VAT or levied VAT directly: Debit account 231 - Intangible fixed assets Debit account 242- Long-term prepaid expenses Credit account 331- Payable to seller - Interests return from purchasing intangible assets with deferred payment mode every term Debit account 635-Financial activities expenses Credit account 242- Long-term prepaid expenses or Credit account 142 - Prepaid expenses Making payment to seller: Debit account 331- Payable to seller Credit account 111,112 Cash/ cash in bank c. Intangible fixed assets purchased in form of exchange: * Intangible fixed assets purchased in form of exchange for a similar intangible fixed one: When receiving intangible fixed assets purchased in form of exchange for a similar intangible fixed one and use immediately for manufacturing activities:
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Debit account 213 Intangible fixed assets (receiving) Debit account 214- Intangible fixed assets depreciation Credit account 213- Intangible fixed assets (exchange) * Intangible fixed assets purchased in form of exchange for a dissimilar intangible fixed one: - Recognizing the decrease in intangible fixed assets for exchange: Debit account 214- Fixed assets depreciation Debit account 811- Other expenses Credit account 213- Intangible fixed assets - Simultaneously reflecting income from exchange of fixed assets Debit account 131- Accounts receivable Credit account 711- Other income Credit account 3331- Value added tax Recognizing the increase in intangible fixed assets receiving from exchange: Debit account 213 - Intangible fixed assets Debit account 133 - VAT deducted Credit account 131- Accounts receivable d) Value of intangible fixed assets that are created from within enterprise in the development stage: * When having costs in the development stage, if result is not satisfied the definition and standard for recognizing fixed assets, that costs will be recorded as manufacturing costs or long-term prepaid expenses. Debit account 242 - Long-term prepaid expenses Debit account 642 - administrative expenses Credit accounts 111,112,152,153 Cash, cash in bank * When the result of development stage meet definition and standard of recognizing fixed assets, recording as follow: - Real costs that arise within the stage in order to become historical costs will be recorded as: Debit account 241 - construction in progress Debit account 133 - VAT deducted Credit accounts 111, 112,152,153,331 Cash, Cash in bank, payable to seller - At the end of the stage, accountant must record real costs become historical costs: Debit account 213Intangible fixes assets Credit account 241 - Construction in progress e) When purchasing intangible fixed assets is the right to use land accompanying with houses, accountant should record separately the right to use land as intangible fixed assets, house as tangible fixed assets: Debit account 211Tangible fixed assets Debit account 213 - Intangible fixed assets Debit account 133 - VAT deducted
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Credit accounts 111,112,331 Cash, cash in bank, payable to seller f) Purchasing intangible fixed assets from exchange payment by documents that related to the right to own capital of joint stock companies, historical cost of intangible assets will be the legal value of those documents, recorded as follow: Debit account - Intangible fixed assets Credit account 411 - Working capital g) When the enterprises have donated or presented intangible fixed assets that used for manufacturing activities: - When receiving the donated and presented intangible fixed assets: Debit account 213 - Intangible fixed assets Debit account 711- Other income - Costs related to donated and presented intangible fixed assets: Debit account 214 - Intangible fixed assets Credit accounts 111,112- Cash, cash in bank - For depreciation of intangible fixed assets, it is recorded as follow. For example, the depreciation expenses are VND 135,807,740. The transaction recoding will be: Dr account 627 General operating expenses VND 135,807,740 Cr account 2143 Intangible fixed assets depreciation VND 135,807,740 - When company increases adjustment for depreciation with the amount of VND 367685825 Dr 009: VND 367685825(off- balance sheet account) (009: depreciation capital) Recording decreased adjustment (depreciation): Dr account 2143 Intangible fixed assets depreciation VND 231,878,085 Cr account 627 General operating expenses VND 231,878,085 (367685825-135807740=231878085) IV. Revaluation (Impairment) of fixed assets Under IFRS impairment refer to the write off of long lived assets (PPE and intangible assets) whose carrying amount is not recoverable. Under VAS, there still exists the impairment of both tangible and intangible fixed assets, however, the practice seems to be more flexible. When there is an increase in the value of fixed asset like land, the revaluation will be recorded. Account used: 412- increase/decrease amount in revaluation of fixed asset - If the revaluation result shows an increase in the value of fixed assets, the difference will be recorded as: Dr account 211 tangible fixed assets/213 intangible fixed asset Cr account 412 difference upon assets revaluation - If the revaluation result shows a decrease I the value of fixed assets, the different will be recorded as: Dr account 412 difference upon assets revaluation Cr account 211 tangible fixed assets/213 intangible fixed asset - If there is a change in the depreciation expense due to the revaluation of the fixed assets, the adjustment should be made as: + With increase in depreciation expense:
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Dr account 412 Difference upon assets revaluation Cr account 214 accumulated depreciation + with decrease in depreciation expense: Dr account 214 accumulated depreciation Cr account 412 difference upon assets revaluation V. Management of fixed assets Fixed assets management refers an accounting process that seeks to track fixed assets for the purposes of financial accounting, preventive maintenance, and theft deterrence Fixed assets are essential for company to generate goods and services, but without accurate method of keeping track of these assets it would be very easy for the company to lose control of them. Therefore, fixed assets management seems to be always necessary. As a result, companies reduce expenses through loss prevention and improved equipment maintenance. They reduce new and unnecessary equipment purchases, and they can more accurately calculate taxes based on depreciation schedules. .Many organizations face a significant challenge to track the location, quantity, condition, maintenance and depreciation status of their fixed assets. A popular approach to tracking fixed assets utilizes serial numbered Asset Tags, often with bar codes for easy and accurate reading. Periodically, the owner of the assets can take inventory with a mobile barcode reader and then produce a report. (www.en.wikipedia.org) An example of fixed asset management can be as follow: VI. Conclusion In conclusion, the step to account for fixed assets is a continuous procedure which starts with the determination of historical cost. Then the procedure continues with the record for the increase and decrease in fixed assets along with their depreciation/amortization and revaluation. In comparison with IFRSs the procedure is quite similar, however, in reality the practice seems to exist some differences because of the appearance of Vietnamese code system. In addition, the replacement of the circulars or decision made by Ministry of Finance to fit with the new situation of Vietnam has leaded to the adjustment in practice as well. Yet the purpose of the adjustments is still to reach a common goal- finding the way to harmonize with IFRS. Particularly, in the context of Vietnams integration in WTO, outsourcing or off shoring happens more regularly. It seems to always necessary for current accountants as well as potential accountants and other related parties (investors, managers, etc) to be aware of both Vietnamese and international practice to equip themselves with deep knowledge and help them have better investment decision or management measurement.
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REFERENCES
1. Nhi Vo Van, 2006, K ton ti chnh, l thuyt v s , Labor and Social Affair publish house. Accessed at 28th April 2010. 2. http://en.wikipedia.org/wiki/Fixed_assets_management. Accessed at 22 May 2010 3. Loan Dang Thi, 2009, k ton ti chnh trong cc doanh nghip, national economic university publish house. 4. Vietnam government, Vietnam accounting standard, Available at http://www.webketoan.vn/forum/attachment.php?attachmentid=7337&d=1256885510 Accessed at 4th May 2010. 5. Ministry of finance, Quyt nh 15/2006/Q-BTC, Available at Error! Hyperlink reference not valid. Accessed at 4th May 2010.
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SCIENTIFIC RESEARCH PAPER REPOS CONTRACTS: LAW AND APPLICATIONS IN VIETNAM

Written by: Nguyen Hong Hanh Tran Viet Kien, Nguyen Thi Quyen Supervisor: Nguyen Quynh Anh
ABSTRACT The rule higher risk, higher return has made the derivative market become an important part of the whole market. It not only provides market participants with hedging tools but also speculative tools for making profits. Vietnam is an emerging market with a lot of chances for growth and plenty of risks as well. In the country, though the derivative instruments still have not much developed, some of them have widely been used. Our research aims at conducting analysis on sale and repurchase agreement (also known as repo), a derivative market tool in Vietnam. Emphasises are placed on law aspects and the market participants behaviors within the laws. Especially, throughout the research report, the question of why recently repo captures a lot of attention is step by step solved. In particular, our paper looks into the repo tool in both stock and bond market, the participants in each market, their benefits and behaviors within the law platform in Vietnam. Finally, key findings and recommendations are presented in the conclusion part.
PART I. Introduction 1. Introduction The Vietnamese financial market has undergone massive changes in recent years. Since the initiation of the stock market in mid-1998, the Southern East Asian has developed from the stage of an emerging economy to a more advanced market with a myriad of financial products and services, many of which are far from similar to Vietnamese investors. The Sale and Repurchase Agreement, commonly known as Repo transaction (for simplicity, we will use the term repo consistently in our research) is one such instrument that has captured much attention among the market participants in Vietnam of late. The introduction of Repo has a profound effect on many players, from cash-rich individual investors who find it as a source of easy money to banks and other financial institutions who recognize in it the potential of diversifying their securities holdings and remedying maturity mismatch. Even local government has stepped in the Repo transactions in an effort to stabilize the financial markets in certain instances. What is repo then that could stir up frenzy in an already turbulent and highly sensitive market of Vietnam? We will in turn look at the different aspects of a repo transaction, its constituent players and their roles. Hopefully, in the process, new light could be shed on the century-old market instrument yet still holding wonders to many. 2. Methodology This research was conducted with our greatest effort and care despite time limit. A secondary research approach was employed to gather information, data and materials which were then incorporated in our paper as convincing evidences, and
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references. Our group took advantage of the Internet as a cheap and easy access to human rich knowledge and information source in order to search for needed materials. Popular searching engines such as google.com, yahoo.com assisted us much in the process of collecting documents, facts and figures. In order to increase the reliable and quality of the information, sources such as official websites of government authorities, famous online newspapers, and websites of big corporations are given priorities to the others. Our text book Bank asset and liability management by Moorad Choudhry proved to be a useful reference source of knowledge. Primary research approach was also used. Emails asking for consultation are sent to expertise people in the field that are our instructor Ms. Nguyen Quynh Anh and Ms.Tran Phuong Thao from Trang An securities firms about confusing related issues. PART 2. Analysis 1. Repo transactions in Vietnam: 1.1 Overview A repo agreement is loosely defined as a transaction in which one party sells securities to another, and at the same time, and as part of the same transaction, commits to repurchase identical securities on a specified date at a specified price.i Though the definition seems straightforward enough, the nature of the transaction, its counterparties and their respective roles as well as the practice of the market in which it takes place will exert a certain level of ambiguity. For example, is a repo agreement essentially a dual transaction in which the agreements to sell and buy back are made simultaneously or two separate transactions of reverse positions actually constitute a repo agreement? The question turns out to be the key feature that separates a classic repo and a sell buy back repo. In a classic repo one party will enter into a contract to sell securities, simultaneously agreeing to purchase them back, while a sell/buy back repo means an outright sale of a bond on the value date and an outright repurchase of that bond for value on a forward date. In addition to those types, there exists tri-party repo in which a third-party is contracted to act as an agent of both the seller and buyer. However in Vietnamese market a repo transaction is, for most parts, conducted on the classic and sell/buy back basis. The procedure of executing a repo contract (or so one may label this second-length process) is fairly simple. Imagine an individual customer has noticed some good buy after long and arduous hours of screening the dashboard. Unfortunately, he has already fixed up most of his portfolio and is short of cash to cover a surfing or a speculative investment. It is time to turn to a repo transaction. After the terms and conditions of the contract are agreed upon (the brokerage firm normally present to its customer formal and standard contracts with uniform provisions), our quick-thinking investor just has to sign in the form and the wired amount is immediately transferred into his account for further investment. No more smart money goes to waste! Also at the termination date, just a few moments are spared to transfer back the funds plus the repo rate. A notice is then sent to customers, stating their repo contracts with the firm have expired accordingly. The procedure for a sell/buy back repo is essentially the same except for some technicalities.
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The main terms and conditions of a repo contract include the following: - The legal status of counterparties to the transaction - Rights and obligations of the counterparties - Collateral: could be stock, bonds other securities and for some instances other assets such as real estate. - Repo interest rate, repo term, margins and deductions applied, revaluation method - Other terms and conditions 1.2 Laws and applications regarding repo market The rapid expansion in the repo market may necessitate a comprehensive and detailed body of regulations to ensure the instrument is employed with ease and free of misinterpretation. In the absence of laws governing repo, undesired outcomes may arise in the process of market formation. The years 2006 and 2007 have seen an impressive development of repo market in terms of trading volume, number of deals and institutions with a repo desk. Is the legal system of Vietnam capable of keeping pace with the dynamic nature of the business? This issue will be looked at with some detail later in our report. 2.Repo transactions with bonds 2.1 The government and Open market operation The strategic move of Vietnams Ministry of Finance in establishing a stand-alone market for trading bond early in March 2008 has a direct impact on repo transactions. Now let us look briefly at the main participants in a bond-repo transaction. The most prominent participant into a repo market is undoubtedly the State Bank of Vietnam (SBV). While it is a fairly new market instrument to most individual investors, a repo transaction was, in effect, executed by SBV as early as in 2000 by means of Openmarket-operation. Since then, the number and value of deals have been increasing through the years. The trading value of several open market transactions is presented in figure 1.1. Ngy u gi 02/05/08 02/14/08 02/15/08 1/21/2009 1/22/2009 1/22/2009 1/23/2009 1/30/2009 3/18/2009 3/19/2009 9/29/2009 9/30/2009 Hnh thc giao dch Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo Reverse Repo K hn (ngy) 14 7 7 14 14 14 14 14 14 14 7 7
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Gi tr trng thu (t VND) 3,000 1,000 3,000 3,000.00 3,800.00 5,000.00 11.54 1,100.00 872.00 6,000.00 6,000.00
Li sut trng thu (%) 17.30 25.00 30.10 8.00 8.00 8.00 8.00 7.50 7.50 7.00 7.00
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It is apparent from the table that an upward trend in the volume of reverse repo transaction, or the open market operation looked from the perspective of commercial banks. Although it is not explicitly stated as a repo transaction, the essence of one such operation resembles that of a repo contract. An open market operation requires the purchase/sale of a block of government bond by means of open bidding to commercial banks and a subsequent reverse transaction. The purpose of the operation is to adjust some key economic variables, including inflation and interest rate and to improve shortterm liquidity in the banking system without changing the money supply. Due to the short term nature of the objectives desired, Repo is an ideal medium with the term as low as 6 days. Thus our government has strong interest in repo as a versatile instrument in stabilizing the macro environment. The other counterparty to this transaction is large commercial banks and state-owned banks and other credit institutions. Although the operation is labeled as open market, at earlier stages, non-market power has to be utilized to achieve SBVs goals. That is, commercial banks are forced to take part in the transactions while their strategic directions may dictate otherwise. In recent years, however, a more subtle and market-oriented approach is in place so that Open-marketoperation comes closer to its true meaning in Vietnam. 2.2 Repo market between credit institutions and individual investors In 2006, BIDV (Bank of investment and development of Vietnam) issued new bonds with value of more than 2.200 billion VND for 10 and 15 year maturity. The issue had provided the bond market with high quality bonds suitable for the purpose of repo trading. In addition with their involvement with SBV, commercial banks and financial institutions also carry out repo contracts with individual investors although their financial resources mean they have a different standing and incentives in association with the transactions. The key difference is that repo activities with individual investors are profit-driven. By advancing cash to investor and accepting bonds as collateral, banks earn short term profit on those transactions in the form of repo rate. By convention of the Vietnamese market, the repo rate is based on the prevailing rate on short-term loans. Short term interest rate can change substantially over the course of several days but the repo rate is locked in for each contract. For this reason, the effective cost of repo for individual investors, also being the fee income for banks may prove volatile. Nonetheless, the instrument is useful for diversifying banks income and strengthening their balance sheet. On the other hand, individual investors also benefit from a repo contract as a readily available source of funds to cover short positions in their portfolios. The anecdotal investor in the previous section may well illustrate this point. In some circumstances, banks and credit institutions also use repo as a short term financing method, in the same way as individual investors do. For example, in late 2008, Agriseco (Agriculture and rural development bank) introduced the repo contract with 15-day term. Investors entering this contract purchase government bond for a 15 day period. Agriseco was committed to buy back the bonds at the same price when the period expired, plus a monthly interest of 0.475% for customers with an
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account at Agriseco and 0.4625% for those who do not have one. These terms are quite attractive compared to the normal savings deposits rate. It came as no surprise that Agriseco was able to mobilize more than 10,000 billion VND from repo activities alone in 2004. The implication of repo may come further than simply mobilizing funds, it also means that bank can make corrections to their asset and liablity by contracting repo if asset-liablity mismatch (the differing maturities of asset and liability) exists. 2.3 Repo transaction in interbank market Up to this point, we have deferred the discussion of repo instrument in one of most the most dynamic environment the interbank market. In developed economies, repo transactions are a commonly used as a short term financing instrument in interbank market, especially for the purpose of making up the shortfall in the required reserves. However, in Vietnam there are little empirical evidence to show that a similar interbank repo market exists. The interaction of banks and credit institutions on a repo basis, on the other hand, mostly come in form of bond trading on the exchange. In fact, 70% of all the volume of bond transactions are implemented through the repo mechanism. Thus the integration of repo mechanism has changed the bond trading practice fundamentally. The versatility of a repo contract, which allows for terms of 6 days up to 9 months and differing trading values, may be a plausible reason for its popularity among credit institutions. 2.4 Laws and applications on the bond repo market Although there is currently no set of laws explicitly governing the practice of repo transaction with bonds, certain regulations of the open maket operation as stipulated in the State Bank of Vietnam Code can be applied for this market segment. More specifically the Decision NO.85/2000/QD-NHNN14 of March 9, 2000 by State Bank of Vietnam provided for the term, bidding rules, interests rate and other provisions that can regulate the use of bond repo. However, one pitfall that need to be kept in check is that according to the Decision, only short term notes, bonds (or otherwise valuable papers) are allowed for the purpose of open market operation. The repo contract itself, for the most parts, is a short term market instrument. This restriction somewhat limits the power of repo intrument in the open market operation scenerio. 3. Repo transactions with stocks 3.1.Mutual impacts of stock repos and Vietnam securities market Vietnam securities market and stock repos market have mutual influences on each other. When the securities market booms or bursts, the stock repos market experience rapid growth or slowdown accordingly. At the same time, the latter used as a financial leverage tool make the funds in the securities market increase then contributes to the boom of the former. Meanwhile, when the securities market loses its value and liquidity, repos transactions may worsen the situation. The booming period of Vietnam securities market began from year 2006 to 2007 mainly due to the favourable economic development. In 2006, according to Vietnam
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general statistic office website, the economy of the country grew at 8.17% - a high rate in the region and the world. In addition, after Vietnam successfully held the APEC summit and joined the WTO, there were high expectations in the ongoing development of the economy. In the year 2007, the economy continued prospering. On 1/1/2007, the Securities Law was put into practice providing legal frames for the development of the securities market (TTXVN, 2007). Consequently, the securities market in Vietnam thrived during the years. VN-index hit its peak at the score of 1170 at the beginning of 2007. To increase profitability, many investors engaged in repos transactions. They put up their OTC stocks as collateral in securities firms or commercial banks to obtain funds while at the same time promised to buy them back. The funds were then used to buy other attractive securities in the market. This made the trading volume and value increase substantially. A record of 15million stocks and investment fund certificates traded at 1259 billion VND was made on 26/9/2007 (Nhat Linh, 2007). Stock price also rose as a result of higher demand. Many stocks reached their top prices such as SJS (728,000 VND/share), FPT (665,000 VND/share), DHG (394,000VND/share), REE (285,000VND/share), SSI (255,000VND/share), SAM (250,000VND/share), KDC (246,000VND/share), VNM (212,000VND/share), ACB (292,000VND/share) This in return motivated investors to borrow more and more via repos. At some point, investors were willing to pay a P/E ratio of 40 (Le Dat Chi Truong Minh Huy, 2010). In 2008, the economy of Vietnam was negatively influenced by the world financial market. GDP in 2008 was just 6.18%, much less than those in the previous years. Moreover, the inflation rate in Vietnam in year 2008 was markedly high at 19.89% (compared with 12/2007) and 23% (compared to year 2007). To fight inflation, the government imposed a restriction on the monetary policy causing obstacles for the economic growth. As a result, many enterprises announced loss or a decrease in the profit such as DPM, PVF, HPG... (Anh Vu, 2009) Seeing this bleak economic picture, investors revised their expectations to a more realistic level. By the end of 2008 VN index hit its bottom at 286.85 score. As stock prices were volatile and VN-index lost its score, many investors ceased participating in the securities market making the liquidity of the market decrease. The average trading volume stood at 8.02 million stocks and investment funds certificate with a total value of 482 billion VND. The lowest trading volume recorded was on HASTC with 272300 stocks with a value of 10.35 billion VND (Tuan Truong, 2008). Moreover, since the securities market did not bring much profit anymore, investors engaging in repos could not purchase back their stocks or deposit more money when the price of the stocks used as collateral fell below initial margin. As a result, securities firms and commercial banks had to sell the stocks held as collateral in those repos contracts to cut loss. However, at that time the market already lost its liquidity and stock price was low, a substantial supply of stocks drove the stock price and the securities market value to a lower level.
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In the year 2009, the economy of Vietnam started to recover as a result of the governments effort, especially its stimulus package of 160 thousand billion VND. Though the countrys GDP was at 5.23%, it was among the top economic growth rate in the world. Contrary to the bleak picture in 2008, many enterprises announced making profit such as Nhit in Ph Li (PPC) with profit before tax in the first 5 months at 500,2 billion VND, (168% planned profit), REE achieved 60% planned profit before tax in the first 5 months, with nearly 150 billion VND Moreover, 3 big corporations Bao Viet, Vietcombank, Vietinbank successfully made their IPOs on the stock market. These factors helped boost the security market (Bch Hng - Ngc Chu, 2009). Since the securities market started recovering, the demand for repos transaction has been increasing. According to Ms.Cao Th Hng Deputy CEO securities firm VIS, many firms started offering repos transactions after ceasing this activities for a while due to the slump in the securities market in 2008 (VnEconomy, 2009). In the current year 2010, as many investors believe that the securities market in Vietnam will grow and volatile in an upward trend (Quang Sang, 2010), the liquidity and value of the stock market would improve. Therefore, repos contract as a financial leverage may regain its popularity just as several years earlier. 3.2. Participants Repo is done widely by the Security firms in the developed financial markets. The collaterals in such contracts are mostly bonds. However, in Vietnam, stock repo is also a popular activity. Most of stocks in repos are stocks in OTC market, the rest are the blue chip stocks. Moreover, this repo market attracts a lot of attentions because the active participants are the individual investors who make up the most of the security market. As mentioned in the development of Repo activities, repo was prosperous in 2006 and 2007. It is a substitute for pledged stock, which appeared in VN earlier. Both stocks pledging and repo are considered to be ways for investors to buy securities before actually paying, which is restricted according to Vietnams securities law. Basically they are two types of secured loans and investors often use money from these loans to invest in the stock market. However, Stock pledging is the contract between a financial institution and an investor, whereas in a repo, contracts are signed between security firms and individual investors. In compare with pledged stock, repo brings the party which needs to borrow money some flexibility. Firstly, investor can change the stocks in the repo contract if agreement is reached between 2 parties in repo. Secondly, repo is more convenient for short term borrowing because of fewer procedures involved. 3.2.1 Parties that enter a repo In a repo contract, individual investors use their current stocks as collaterals for entering a repo. Their counter party is a security firm. The repo process take place as mentioned in our overview of repo previously.For these investors, repo bring them some benefits. First of all,with the long term investors, repo is an choice to get credit for their long term investment. In reality, during the downturn of the stock market from 2008,
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liquidity of the market reduces. Therefore, investor with long term goal can make use of Repo to get fund instead of trying to outright selling their current stocks (http://vneconomy.vn) Secondly, Repo acts as a financial leverage to boost net return. Investors, besides their equity, can access to this borrowed fund to invest more in stock market. According to the published data, Repo, together with other other financial leverage such as stock pledged and margin trading, has booted the stock market up to 100-200 %.(http://vnexpress.net) During 2006 and 2007, through repos, investors got fund and made a short term investment in stock to grasp the substantial growth of Vietnams stock market. However, due to the excessive use of this instrument and other financial leverage instruments, risk that investor faced increased. As a rule in using financial leverage, it can bring the investor superior profits or substantial losses. When the stock market in VN got into some problems due to financial crisis, the VN index reduced from a peak of about 1,000 than down to 286.85 in 2008 and just 235 in 2009, many investors got stuck in repo contract. Due to the loss in stock investment in general, they can not repurchase the stocks acting as collaterals, also, they are attacked by margin variation called by the securities firm and the banks that provide funds for these repos. 3.2.2. Parties that enter a reverse repo Security firms enter a reverse repo to provide credit for individual investors against collateral. Each security firm has its own choice of the stocks to be accepted in its repo. Other factors such as assessed value of the collateral, repo fee, etc. are calculated and presented in repo contract made by each security firm. Because there has been no official law or guidelines regulating this field so each bank has its own policy regarding the repo activities. For example, at Sai gon Hanoi Security firm (SHS), the value of a loan does not exceed 40% market value of the collateral and not exceed 2 time of par value of the securities as collateral. The list of securities accepted as collateral at SHS is stock of Eximbank, Bao Viet Corporation, Habeco, Sabeco. The maturity is up to 6 months. Repo at Petrol Vietnam Security (PVS), however, is carried out in large block (at least 20.000 stocks) with repo value equals par value. In this business, Security firm will use its own fund. Many of them, however, have cooperated with a financial institution to get fund for this service. The role of financial institutions will be presented later in our report. Security firms first motive to enter a reverse repo is that Repo is profitable field. The interest rate is high when repo is in high demand. In 2006, the average rate is 1.15%/month.In 2007, this rate is between 1-1.15%/month (http://www.vinacorp.vn).In 2008 and 2009, the rate can be up to 1.85%/month.It is noticeable that in 2008 and 2009, although the stock market is down and repo activities is somewhat reduced, the rate is till high because investors either unwilling to sell a large number of their OTC stocks or unable to sell them due to the low liquidity of market.
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Morever, due to the fierce competition in the market, security firms provide Repo as a service to attract more investors to come to trade and keep the loyal customers. According to the published figure, up to the 30th of April, 2009, the number of security firm in Vietnam is 105.This number is the result of of 7.5 times increase compared with figure of 2005. These security firms have a wide network with branches and dealing rooms. Currently, 80% of the market share belongs to 20 out of 105 biggest security firm such as SSI, VCBS, ACBS, BCVS and SBS. (http://duthaoonline.quochoi.vn).The rest has to compete hardy for the 20% of market share left. The firms, therefore, try to increase the services including Repo service. In addition, in the period when the stock market was down and full of uncertainty, a newly established security firm with plenty of equity fund could engage in Repo to use this fund in a profitable way while waiting for the stock market back to its normal upward trend. 3.2.3 Other finacial institutions Financial institutions mentioned here mainly are finance companies and banks. In Repo market, commercial banks play a dominate role. These financial institutions act as parties which smooth the repo process. Security firms often has contract with banks to get funds for a reverse repo. For example, AVSC had contracts with Agribank; Nam An and Au Lac with Eximbank (http://atpvietnam.com).In case of Eximbank in 2008, lowest amount for lending in a repo was 50 million VNV/investor and no ceiling is applied for the lending amounts. However, if with a large repo contract, the investor has to file for the repo with Eximbank on his/her own. The value of loan was up to 50% market value of the collaterals. Joining the repo process, banks often provide fund for securities firm under a agreed credit line. Banks when performing its role as intermediaries in a repo contract, earn a high interest rate.For example, in 2008, Nam A bank provided 100 billion VND for the investor of BIS with the maturity up tp 3months, interest rate was 16.5%/year (atpvietnam.com) This high interest rate partially due to the fact that the repo interest rate is not regulated by a ceiling as a normal loan. Moreover, on 28th May 2007 the SBV release the Instruction No.03/2007/CTNHNN on control of scale and quality of credit and loans for investment, stock business to control inflation and to impulse economic growth (http://www.sbv.gov.vn). According to this instruction, the proportion of loan for stock investment can not exceed 3% of the total loan made by a bank. Commercial banks are, therefore, put under pressure to limit its fund resources in its traditional and profit field.i.e., stock pledged. The loan market for stock investment is then quickly exploited by Security firm through their Repo service. By cooperating with Security firms in a Repo as presented above, these commercial banks can somewhat maintain their benefits in the stock investment lending but still meet the regulators requirements. 3.3. Law and applications Repo is a derivative instrument that should be governed by the Security law. In Vietnam, it is the SSC that directly manages the matters regarding securities and the
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stock market. As detailed in the previous sections, stock repo in Vietnam has attracted a lot of attention of major stock market participants due to their own benefits in a repo. However, stock repo has not yet had a trading platform. Therefore, this has created some obstacles for the two counterparties in a repo process. For security firms, they have to mange the risk on their own without a standard among the market. In fact, each security firm has to decided on its own the kinds of stocks accepted for repo, the repo value, the terms in its repo contract.Security firms was considered to have taken too much risks when their customers,on a large scale, were unable to meet the contracts requirements. According to Ms.Vu Thi Kim Lien, the vice chairman of SSC, the market at the middle of 2008 experienced unpredictable downturn due to the risks from repo. For individual investors, because there is no guidelines and rules that control their behaviors, many investors overuse this financial leverage. In 2006 and 2007, when the stock market had substantial growth, many investors make use of repo service and other financial leverage such as stock pledged and margin trading to invest more in stock market, which create a magnified demand and make investing in stock market of Vietnam is expensive because the stock is overvalued. In 2008 and the beginning of 2009, when the market is down, these investors suffer and not able to fulfill their obligation under repo contract. Due to this fact, in May of 2008 the State Security Commission (SSC) has release a official dispatch, the 990/UBCK-QLKD, which asked for the temporary termination of signing new repo contract until the rules are to be made to govern a repo transaction. This official dispatch only request for the cease but does not prohibit security firm from carrying out Repo. Therefore, many security firms, after a short period of ceasing the repo service, decided to restart this field. As a result, in June of 2009, the SSC had to release the second official dispatch to once again ask the security firm stop their repo service (http://www.ssc.gov.vn) In attempt to building a trading platform of Repo activities as promised, a draft of circular for repo transaction was made by SSC and opinion of major market participants was collected regarding the content of the draft. In this draft, there are some conditions for the security firm to be allowed to provide repo service and conditions for the parties who enter a repo. Some other terms to standardize a repo contract are also stated. Especially, four strict conditions are required for a stock to be accepted in a repo.First, the operating period of the company is at least 5 years. Secondly, the charter capital can not be less than 50 billion VND and that company does not have a cumulative loss.Finally, ROE of the 2 previous years is to be greater than 10% and that company must be a public company registered with SSC. This draft has proved a substantial effort to standardize a repo contract and guiding security firms to make a safer repo However, the publics opinion, at a large proportion, consider the requirements are too strict, which will restrict the repo development. For example, as illustrated on the security investment (8/10/09), the condition of 5 year operation can reduce substantially
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the number of stock to be accepted for a repo because a large number of Vietnams companies are newly established. Beside, there is also disapproval about the limit for the total value of repo contracts for individual investors, which is not to be greater than 1% of equity fund of security firm and not exceed 5million VND. While this draft of SSC was not successful, the draft of law on credit institutions, which repo is to be subject to, arose a lot of markets attention. This draft was presented at the 6th section of the 12 National Assembly at the end of 2009 and will be voted against at the 7th section of the 12 National Assembly which opened on May 20, 2010. The second point in article 8 of the draft prohibits institutions other than banks from activities of providing credit. Repo, actually, is the activity in which Security firms provide credit for its customers. Therefore, repo is subject to this draft law. The draft law however, is in contrary with the security law which allows security firm to lend customer within a limit amount. It is therefore a question mark whether which law Repo is to be regulated by. However, If there is no amendment, from the first of January 2011 when this law comes to effect, security firm is not likely to be allowed to continue carrying out such activity like repo, margin trading. While all of these laws have not yet come to effect, security firms decided on their own to restart their repo service. After the first official dispatch of SSC about the temporary termination of repo activity in May 2009, at the mid of August, some security firms with the support of their banks restarted the Repo business. However, these companies have made some changes to make repo safer with stricter criteria. Security firms have realized the need to reduce their exposure of risk through such actions as evaluating their customers and analyzing more carefully the behavior of collateral on stock market. According to Mr. Nguyen Van Trung, the deputy director of VNS, in 2009, VNS made some changes in carrying a repo such as shorten the repo contract maturity, reduce repo rate and stricter selection of the stocks to be accepted for a repo. VIS chooses stocks that have high liquidity to put in its list (Vneconomy, 2009). Nguyen Ngoc Chung, Vice CEO of ACBS reveals that ACBS only signs repo contract with investors of good creditworthiness and willingness. Customers who own accounts at ACBS are also given priorities. ACBS is also planning to collaborate with CIC to improve its accuracy in judging the financial capacity and legal status of investors (Ngoc Thuy, 2009) Besides, Securities firms employ other methods such as limiting repo contract term to maximum 6 months as at SHS or funding only 30-40% market value of the collateral stocks (Ngoc Thuy, 2009) Repo contract at this time was also considered to be safe because the stocks price was on the way back to intrinsic value. Also, during the 2008 and 2009, due to the illiquidity of market, repo is considerd to be a channel for investor to get fund for long term investment (www.thesaigontimes.vn).
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PART 3. Recommendations 1.Investors Individual investors are considered most vulnerable when they use financial leverage tools such as repo with a view to boosting profitability. Vice Professor, Doctor. Pham Quang Trung, Vice Rector of National Economic University advised investors to turn to financial leverage tools only when clearly identifying a long term and sustainable increase in the market score. In order to reduce risk when surfing, individual investors should put the leverage amount under control and conduct thorough analysis on the movement of the market as well as the stock they invest (TCTC online, 2009) Acording to Dau tu chung khoan dien tu, investors should not only rely on repo as a financial leverage tool but others such as margin to reduce risk to themselves as well as the whole market. For example, engaging in margin, investors may deposit 70% of the amount needed to buy securities and borrow commercial banks the rest. Should the securities lose its price by a certain amount, the investors have to make more deposit. Banks do not sell stock collaterals as cash is deposited so there is little impact of a default on the market as a whole. It is also safer for investors as it prevents them from taking excessive risk. 2. Securities firms Many securities firms ceased repo operations in 2008. After the market signaled recovery, this operation was revived. However, much stricter policies and procedures have been widely applied in order to control risks associated, three main types of which are price risk, liquidity risk and counterparty risk. 3. Government authorities For long, investors and financial institutions have called for a legal frame for securities investment in Vietnam. As a result, the Law of Securities was put into force on Jan 1st 2007 and then draft of Law of Credit Institution is being scrutinized for approval by the National Assembly on May 2010. However, one article in the Draft concerning the activities of securities firms has been found to be in contrast with the Law of Securities. It is necessary that two sets of law be consistent with each other for the convenience of applying. Besides, once the Law of Credit institution prohibits securities firms from offering repo service, commercial banks will be the only institutions to take charge in this kind of service. Thus, clear and thorough guidelines to increase safety in repo transactions should be also provided by the government.
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DANCE WITH VIETNAM INFLATION 2005-2010

Written by: Nghiem Truong Son, Pham Thanh Cong (BA-08) Le Bich Thuy (AC-07), Bui Thu Van (BA-07) Supervisor: Pham Thi Hoa Nhai Executive Summary Vietnam, a rising tiger, in the Southeast Asia has been a destination for many investment projects. With the current growth rate, Vietnam assures a promising business hub in ASEAN community. Inflation has been, however, a factor that hampers Vietnams sustainable development. To become globally competitive, Vietnam first has to employ flexible monetary policies to curb its inflation. In this report, Vietnamese monetary policies in the period of 2005-2010 are synthesized and analyzed to have better comprehension of Vietnam inflation rate, which went from 8.3% in 2005 and rocketed to 23.1% in 2008. Three periods of pre-recession, recession, and postrecession are deeply analyzed and critically dissected to offer an insight view on open market operation, reserve requirement, and discount rate manipulation to control Vietnam inflation. In order to achieve the aimed inflation in 2010, Vietnam needs to be transparent in the capital and policies, further close coordination between the interest rate - exchange rate and credit and macro intervention when necessary. 1. Introduction to Vietnam inflation rate in 2005-2010 During the time of 2005-2010, Vietnam has successfully utilized three main measures to rein in the inflation rate in order to maintain the stable economy: the open market, reserve requirement, and discount rate. For the open market, treasury bonds have been issued in international and domestic market. Vietnam treasury bonds are highly appreciated by foreign investors. In October 2005, Vietnam treasury bonds are first issued in the international capital market. All 750 million USD bonds with an interest rate of 7.125% were bought in 30 seconds after issuing, which was a promising omen for a developing country. Recently on January 25th 2010, Vietnam issued treasury bonds for the second time in the international market and gained success by selling 1 billion USD 10-year bonds with an interest rate of 6.95%. In the domestic market, Treasury bonds were auctioned for the interest rate. A par value is 100,000VND/bond. Recently on April 24th 2010, Vietnam issued 1500 billion VND bonds for 3 types: 2-year, 3-year, and 5-year. The 2-year bonds were bought altogether with an interest rate of 11.3%. For the reserve requirement, Vietnam has changed the reserve requirement rate many times during 2005-2010. For example in 2009, required reserve rate went from 5% to 3% for loans below 12 months. In 2010, the required reserve rate goes up to 4 %.
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Under Decision No. 74/QD-NHNN, taking effect from February 1st, 2010 Deposit in VND Types of Credit Institutions Demand & below 12 months Up to 12 months Deposit in foreign currency Demand & below 12 months Up to 12 months
State-owned commercial banks (excluding the Vietnam Bank for Agriculture & Rural Development), Urban jointstock commercial banks 4% including Foreign Banks Branches in Vietnam, Joint Venture Banks, Finance Companies, Financial Leasing Companies Vietnam Bank for Agriculture & 3% Rural Development Rural joint-stock commercial banks, cooperative banks, 3% Central Peoples Credit Fund Credit Institutions with deposit balance subject to reserve requirement below VND 500 0% million, local credit funds, Vietnam Bank for Social Policies (Source: State Bank of Vietnam)
2%
7%
3%
1%
6%
2%
1%
6%
2%
0%
0%
0%
Table 1: Reserve required taking effect from February 1st, 2010 For discount rate, Vietnam central bank also manipulates for flexible monetary policies. Vietnamese discount rate ranged from 5% on April 10th, 2010 to 6% at the moment. Through its monetary policies, Vietnam inflation rate 2005-2010 has been tightly controlled. Year Inflation rate 2005 8.3% 2006 7.4% 2007 8.3% 2008 23.1% 2009 6.5% 2010 (est.) 7%
Table 2: Inflation rates in 2005-2010
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Inflation rate
25 20
15 Inflation rate 10
0 2005 2006 2007 2008 2009 2010 (est)
Figure 1: Inflation rates in 2005-2010. During the time of 2005-2010, Vietnam has encountered many challenges to sustain the economys growth. WTO membership from 2006 has given Vietnam many opportunities but at the same time more difficulty for Vietnam to adjust to the global playground. Moreover, the financial recession has also struck a hard blow on Vietnam economy. Three periods of 2005-2008 (pre-recession), 2008-2009 (recession), and 2009-2010 (post-recession) are carefully examined. In order to comprehend the whole image of Vietnam economic development from 2005-2010, Vietnamese monetary policies and their influences on GDP and unemployment rate in each period are thoroughly analyzed for better comprehension. 2. Methodology Data and materials are an essential part of a methodical and thorough report. In the process of conducting this research, our group has chosen secondary information for references due to the time limit and lack of human capacity. Our group utilized Internet search tools like http://www.google.com and http://scholar.google.com to find necessary information. Then it is our responsibility to sort out data from research report and well known journals, websites of research organizations and online newspapers. In addition, we also referred to annual reports by Asian Development Bank, the State Bank of Vietnam, and World Bank for reliable data. 3. Economic period analyses 3.1. Period of 2005-2007 3.1.1 The economic condition: In 2004, Vietnam economy developed impressionally with the new records of export (26 Billion USD), FDI (more than 4 Billion USD), Tourism (2.9 Million of
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international tourists), overseas national currency exchange (3.8 Billion USD), and the engagement of external aid in year 2005 (3.4 Billion USD). To proceed the success in 2004, phase of 2005 -2007 is the stable developing phase of Vietnam economy. Although at this time, Vietnam has to face up to the disadvantaged condition, the growth of GDP in these years is always at the high rate, above 8% (8.43% in 2005, 8.23% in 2006 and 8.46% in 2007). This is the second high rate in Asia and is only lower than the growth rate of China. Besides, other components of Vietnam economy also increase strongly and reach many huge 2007 is also the year marked a historical turning-point in Vietnam economy. 11/1/2007, Vietnam became a full-fledged member in World Traded Organization. That event has brought opportunities as well as threats for the young-industry of Vietnam.
Figure 2: Inflation rates in 2005-2007 In that period, inflation rate in Vietnam economics developed steadily. There is no change in the trend of inflation through each year and the inflation rate is almost lower than 10 percent. The rate always starts at the lowest point at the beginning of year and reaches the peak in last month of each year. Moreover the stable trend represented the stable development of Vietnams economy in this period. However, there is still a special point in the picture of inflation in the period of 2005 to 2007. Besides, there is a special point in the picture of inflation of Vietnam this time. In December 2007, the inflation rate increase suddenly and reach 12.6%, the highest rate within three years and the reason is at that moment, Americas economics are being affected by financial crisis and the crisis began to affect to other countries. 3.1.2 Monetary policies 2005-2007 3.1.2.1 Open market In order to manage the liquidity for credit institutions, in 2005 and 2006, State Bank of Vietnam held three open market operations session per week. Particularly, during the last days of years and before the Lunar New Year, Open market operations were run
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daily to assist the credit institutions ensuring liability and stabilizing the money market. In 2007, to restrict the speed of the raise in price of market, State Bank of Vietnam increased the number of transaction sessions from 3 times per week to daily Open market Operations transactions, increased the amount of bills to be sold, diversified term of SBV bill from 14 to 365 days; and determined the appropriate interest rate to withdraw money from circulation through this channel. The scale of open market operations had been expanded, and number of new players participating in the open market operations increased year by year. In 2007, there were 20 participants in open market operations, included state-owned commercial banks, joint-venture banks, and foreign bank branches. 3.1.2.2 Reserve requirement In 2005 and 2006, reserve requirements continued to be managed on the monthly average basis to help the credit institutions using their sources flexibly. The SBV still continued to pay interest rate for VND reserve requirement but not for excess reserves to prevent the liquidity surplus of SBV. In 2 first years, in order to reduce the pressure of increasing the mobilized interest in the market, to maintain the monetary stability, and to promote the economic growth, SBV still kept the constant reserve ratio. However, from the middle of 2007, because of the sharp increasing of inflation, SBV had to increase the reserve ratios by 1.5 -2 times in order to withdraw money and control total liquidity growth
Deposit in VND Credit Institutions Demand & below 12 months 2005 2006
State-owners commercial banks (excluding the Vietnam Bank for Agriculture & Rural Development), Urban joint-stock commercial banks including Foreign Banks Branches in Vietnam, Joint Venture Banks, Finance Companies, Financial Leasing Companies
Deposit in foreign currency Demand & below 12 months 2005 2006 2007 Up to 12 months 2005 2006 2007
Up to 12 months 2005 2006 2007
2007
5%
10%
2%
4%
8%
10%
2%
4%
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Vietnam Bank for Agriculture & Rural Development Rural joint-stock commercial banks, cooperative banks, Central Peoples Credit Fund Credit Institutions with deposit balance subject to reserve requirement below VND 500 million, local credit funds, Vietnam Bank for Social Policies
4%
8%
2%
4%
8%
10%
2%
4%
2%
4%
2%
4%
8%
10%
2%
4%
0%
0%
0%
0%
0%
0%
0%
0%
Table 3: Reserve Requirement from 2005 to 2007 3.1.2.3 Discount Rate In 2005, SBV had three times raising discount rate of 3 3.5 4 4.5 percent per year. And until the end of 2007, SBV still unchanged the discount rate of 4.5 percent. That policy made the borrowing money of commercial banks from SBV becomes more expensive and from that affected to almost persons as well as corporations. Increasing discount rate also raised the loan interest rate of commercial banks, narrowed fields of activities, and the result was decreasing in the benefit of corporations. 3.1.3 Effect In two year 2005 and 2006, there is not too much change in the monetary policy of SBV. The reason for this stability is stable development in Vietnams economics as well as global economics. However, in the last quarter in 2007, the inflation rate of Vietnam economics increase too fast; and in last month of this year, the inflation rate reached a peak at the rate of 12.6% - the highest rate within three years. One reason for this unusual trend was the effects of US crisis to Vietnamese economics. We also can see this effect through the big trade deficit of Vietnam. The US crisis decreased the amount of export to US market, therefore reduce the total export of Vietnam in 2007 and create the big negative net export in this year.
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Figure 3: Import and Export 2005-2007 Although being affected by US crisis in 2007, Vietnam economics still developed stably with timely and reasonable monetary policies. Therefore, Vietnam economy from 2005 to 2007 in general developed strongly. The GDP developed too fast, especially in 2007 GDP reached 8.46 percent the highest rate within nearby 10 years. The government was also very success when controlled the unemployment rate (the unemployment rate from 2005 to 2007 is 2.5 percent, 2.3 percent and 2 percent, respectively). 3.2. Period of 2008-2009 3.2.1 Economic condition As global financial crisis, around the world stock markets fell, many large financial institutions collapsed, and governments in even the wealthiest countries had to come up with rescue packages to bail out their financial systems. That situation put Vietnam in a great challenge with rocketing inflation rate along with escalating trade deficit and dwindling property market. While property market was frozen in high price, due to the volatility of the world price, trade deficit in the first six month of 2008 reached USD14.8 billion threatening the stability of balance of payment and putting heavy pressure on USD/VND exchange rate (VND depreciated largely in comparison with USD, while USD depreciated considerably over other frequently-traded currencies such as EUR, GBP, CAD and AUD). Moreover, in the first quarter of 2008 Vietnam suffered the highest quarterly inflation rate from 1995 up to now, 9.19%.
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Source: www.tuoitre.com.vn Figure 4: Inflation rate of the first 10 months 2008 Inflation rate in Vietnam rose so fast from only 2.38% in January 2008 compared with December 2007 to 20.5% in September. It is obvious that the negative influences of it on the economy as well as the living standard of Vietnamese people were not small. GDP growth rate of the first three months 2008 was only 3.1% which was much lower than the expected rate of government (6-6.5%). Unemployment rate also increased sharply from 2% (2007) to 4.7% (2008). At the end of June, the inflation rate got to 18.44% in comparison with 31th December 2007 and at the end of the year, this rate came up to 19.8%, with the rate of each month is stated as the table below:
Jan 2.38 Feb 3.56 Mar 2.99 April 2.2 May 3.91 June 2.14 July 1.13 Aug 1.56 Sep 0.18 Oct -0.19 Nov -0.76 Dec -0.68
Table 4: Monthly inflation rate 2008 In order to stabilize the economy, Vietnamese government had decided to set the targeted duty of the country at this time was reducing inflation. In January 2008, the government applied the package of eight solutions for improving Vietnam economic condition, which included making use of tight monetary policies, close control and improving the efficiency of government budget, concentrating on the development of industry, agriculture and service sector to ensure the equilibrium of goods and services, lessening trade deficit by boosting export and restricting import, practicing economization in both manufacturing and consuming, strengthening market management,expanding policies of social issues, and enhancing information and propagating to appeal to the cooperation of all citizens. In November 2008, when price level had the downward trend, the government turned to the new package of five solutions for dealing with recession. The next part will discuss how government used monetary policy to control inflation, stabilize macroeconomic condition and ensure sustainable development.
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3.2.2 Monetary Policy and its Influences On 30th January 2008, State Bank of Vietnam announced that it would raise three significant policy rates, effective from 1st February 2008. The base lending rate was raised from 8.25% to 8.75%, discount rate from 4.5% to 6% and refinancing rate from 6.5% to7.5%. Furthermore, at the same day, reserve requirement was also moved up. For VND and foreign currency deposits up to one year (including demand deposits), the compulsory reserve requirement was raised from 10% to 11%, and the reserve of the deposits of more than one year was raised from 4% to 5%. Government also sold VND20,300 billion of government bonds. By this way, the money supply could be reduced along with the decline in consumption and investment, leading to the fall in price level. However, due to this drop of demand, unemployment rate climbed while GDP plunged. After the race of raising interest rate of commercial banks, 19th May 2008, the government introduced the use of prime rate that does not allow commercial banks setting interest rate 150% above this rate. Prime rate was considered an effective tool for government to manage the market rate based on the sign of anti-inflation from goods and services market as well as money market. At this time, the prime rate was 12%. Two months later, this rate was raised to 14% following the tight monetary policy. In April-May 2008, the idea of using demand stimulation policy had been raised to deal with the problem of recession. However, at the end of 2008, this policy applied. In December, the government decided to used USD1 billion, followed by the package of USD6 billion, for motivating investment as well as consumption, pushing up the aggregate demand to avoid the economic collapse by compensating 4% interest rate for small- and medium-sized enterprise. Going along with expanding export and investment in construction, electricity, cement manufacture, expansionary monetary policies was also taken advantage of. VND 20,000billion of government bonds was bought back as the intention to increase money supply. Reserve requirement for commercial bank with over one year deposits declined from 5% to 3%. Value-Added Tax (VAT) also diminished from 10% to only 5% together with reduction in prime rate to 7%. Moreover, from 4th April 2009, enterprises who borrowed medium- or long-term debt, would receive the support of 4% interest rate by government. According to the report of government, by using this policy, the threat of economic recession in 2009 was not a big problem any more with 5.2% of GDP growth rate in 2008. However, analyzed by Mr. Tran Dinh Thien, President of Vietnam Institute of Economics, the demand stimulation policy has not gone in expected direction. Instead of going to manufacturing sectors, the capital came to stock market as well as property market that raised VN-Index 71% and hot growth in property market with the sign of bubble in April 2009. The criticism continued with the high pressure that the policy
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put on balance of payment as well as government debt by Mr. Bui Kien Thanh, an economic expert. Furthermore, the easy monetary policy created a good condition for inflation, raising the inflation rate of the first quarter 2009 to 14.5% compared with the same period last year. 3.2.3 Evaluation At a seminar on 31st December 2009, Mr. Nguyen Tien Thoa, the Director of Price Management Department, said that thanks to the governments efforts to forecast the situation accurately and adopt the right policies timely to prevent escalation in the cost of goods and services, Vietnam had successful kept inflation rate under control. Mr. Hisatsugu Furukawa, Japan International Cooperation Agencys monetary policy professional, also declared that Vietnams monetary policy was going on the right direction with the flexible change in interest rate and reserve requirement as well as market liquidity rise. However, he pointed out that the weakness of Vietnam monetary policy laid in foreign exchange market. There was a huge difference between supply and demand of foreign currencies, especially USD. Therefore, the black market became eventful even when the exchange rate in black market was much higher than the official exchange rate. The government should reconsider monetary system management with the purpose of maintaining the consistence for daily transaction. In addition, on the word of Mr. Tran Xuan Gia, Ex-Minister of Planning and Investment Portal, economic growth rate in 2008 was not low but the quality of market got worse that would put severe pressure on many year later, especially the burden of environment pollution. The monetary policy ran behind the economic condition so the result was not high. In the end of June, some recommendation was raised to ease the monetary policy and more idea about the necessity of demand stimulation policy and solution for deflation, was brought up. If the government implemented this policy sooner in the last quarter of 2008, the better result would be expected. 3.3 Period from the fourth quarter 2009-early 2010 3.3.1 Economic condition After nearly two years affected adversely by the recession from the U.S., Vietnam economy has been recovering step by step. The State Bank of Vietnam has tried to get out of consequence of inflation, however, in the fourth quarter of 2009, the inflation rate tend to increase up to now. It is seen that the CPI in February 2010 increased by 1.96% compared to the last month and also the highest level within last 17 months. The inflation was caused by four main reasons. First of all, a rise in electricity and gasoline cost and some basic utilities price had a strong influence on the cost of goods and services in the whole economy and rate of GDP growth. For detail, there was 6.8% increase in electric price from 1st March 2010, 6.5% rise in gasoline price and 28% - 47% incremental amount of coal price, which, accordingly, boosted almost all prices of other goods and services. Not only affecting the production costs of other goods and services, the climb in electric price created
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negative impact on consumers perception that the inflation rate would be higher in the future; therefore, the actual inflation rate was much worse. Besides, from April 2010, the base salaries increased 5%-10% depending on areas. This also raised the production cost of other goods and service and brought an increase in the overall prices in the market. Secondly, the adjustment of exchange rate is one component for the inflation rate to increase. The State Bank of Vietnam changed the exchange rate up to 19,100 dong for 1 dollar on February 2010. Vietnam is a developing country, needing many modern machine and other high-tech products from abroad; hence, the growth in utilities price after the adjustment of exchange rate is transparent. It is shown that the price of steel, milk,etc. changed their prices, up by 5%-10%. Thirdly, due to demand pulling, the prices of goods and service raised. When consumers demanded huge amount of goods or services for Tet holidays and suppliers could not be able to provide all at that time, it pushed the prices of food and other utilities increase significantly. Moreover, many consumers now believe more in the future economic growth, so they begin to buy more goods and services. Another problem is that in 2009, using stimulus packages and increasing government purchases urged demand of some goods. The consequence will remain in Vietnam economy in 2010. Fourthly, the simple reason for inflation growth is the State Bank of Vietnams money injection into the open-market. Credit development in 2009 went up to 37.74%, M2 up to 28.7% and the inflation level in 2010 could be born on because the timing lag is average 5-7 months afterwards. 3.3.2 Monetary policies With respect to reserve requirement, Until January 18th, 2009, the reserve ratio The State Bank of Vietnam applied is shown as follow: VND deposit Continuously and Over 12 under 12 months months 3% 1% 1% 0% Foreign currency deposit Continuously and Over 12 under 12 months months 7% 3% 6% 2%
All Commercial banks except BIDV bank BIDV Bank
Table 5: Reserve required until January 18th, 2009 However, this ratio has been changed from 18 March, 2010 for VND deposit: VND deposit Continously and under 12 months 4% 3% Over 12 months 2% 1%
All Commercial banks except BIDV bank BIDV bank
Table 6: Reserve required from 18 March, 2010.
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Clearly, The State Bank of Vietnam has been using tight monetary policy through increasing the reserve ratio by at least 1%, which contracts the supply of money, then raises the interest rate. To implement contractionary monetary policies, The State Bank of Vietnam has applied next is raising the discount rate. According to the decree 2232/QD-NHNN coming to effect from October 1st 2009, the discount rate that the commercial banks bear is 5% a year. Nevertheless, from just two months later, another decree, Q 2664/Q-NHNN, made the discount rate up to 6% into effect. To deal with inflation in next time, The State Bank of Vietnam reduced the amount of money injected into the open-market. In February 2010, The State Bank of Vietnam injected from VND 12 thousand billion to VND 15 thousand billion and also reinforced the open-market oreation 2 shifts per day. However, from March 4th 2010, the amount of money infection decreased significantly with one-shift-per-day operation. 3.3.3 The evaluation By contracting money supply, increasing interest rate and limiting money injection into open-market, the government is trying to restrain inflation. According to Mr. Ha Huy Tuan, Vice president of National financing Committee, said that although contractionary monetary policies focused on inflation problem, the government needed to implement them flexibly, especially not contract too tightly to firms. By that way, the government could ensure that CPI would not go up fast and still GDP can raise steadily. Furthermore, he also suggested that The State Bank of Vietnam should combine monetary and fiscal policies closely and consistently. It is recommended that due to FEDs easy monetary policies over the nest time, which will increase the price of goods and services overall, this also affects Vietnam economy by many channels such as imports, exports, etc. Therefore, the Vietnamese government shoud prepare and launch appropriate policies timely for Vietnam economy, dodging to minimum of effect from USA economy 4. Recommendations In 2009, the State bank succeeded in stimulating Vietnam economic growth rate of 5.3%, while inflation stayed at 6.5%. In 2010, the SBV is capable of meeting both objectives, but its growth targets can be dominant because the worlds economic situation will turn the switch more easily, creating conditions for faster growth than last year. To achieve 6.5% growth for 2010, perhaps the SBV must accept a higher level of inflation of 7%. An inflation of 7-9% can be acceptable. The administrative measure to increase base lending interest rate has been regarded as one of the causes of decreasing the abilities to mobilize capital from banks and thereby decrease liquidity in the financial markets. Instead of using the measure, SBV should regulate interest rates through open market operations or the sale and purchase on the valuable documents and thus draw on a pump or the amount necessary to adjust the money supply, and then achieve the expected interest rate. In 2010 as the economy becomes increasingly more
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stable, the central bank needs to use more monetary policy tools instead of administrative measures, such as open market operations, discount rate, rediscount rate, reserve required to regulate the money supply, as well as the inflation rate. The State Bank of Vietnam should make a move to a model of a central bank of a mature economy. Years ago, the financial indicators were considered State secrets, they have now been publicized. However, financial markets expect from Vietnam central bank more transparency through the publication of financial indicators such as indicators of money supply, interest rates, exchange rates, foreign exchange reserves. The publicity of these criteria does not only create peace of mind for the market about the SBVs monetary policies but also help to predict more accurately SBVs measures of inflation control. For harmony between growth and inflation, it should be transparent in the capital and policies, close coordination between the interest rate - exchange rate and credit and macro intervention when necessary. If those relationships are settled, the inflation will be curbed. 5. Conclusion In this report, we would like to portray the general picture of Vietnam inflation rate through Vietnamese monetary policies in the period of 2005 - early 2010. Vietnam has gone through the period of stable growth in 2005-early 2008, suffered from the financial recession during 2008-2009, and finally sustainable recovery from 2009 until now. Thus, the inflation rate has gone up and down following the dance directed by the State Bank of Vietnam. Owing to the lack of resources and limited time, some mistake or constraint is unavoidable. We, however, believe that to some extent this report would be useful in synthesizing Vietnamese monetary policies in 2005-early 2010. In the future, we would like to conduct further research on this engaging topic as well as inflations impacts on other macroeconomic variables and more analysis and comparisons between Vietnam inflation rate and its monetary policies and those in other countries. REFERENCES
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COUNTRY RISK ANALYSIS IN VIETNAM

Written by: Nguyen Thi Dieu Tuyet (3TC07), Nguyen Van Trang (2TC07), Nguyen Thi Bich Phuong (3TC07), Luong Thu Huong (3TC07) Supervisor: Nguyen Thu Huong ABSTRACT In the view of the rapid growth of international lending and foreign direct investments, the country risk analysis has become extremely important for the international creditors and investors. The paper outlines and illustrates a framework of country risk analysis in Vietnam that focuses on assessing political risks, financial risks, and overall risk rating based on some recent studies of reputable risk rating agencies. Targeted macroeconomic indicators of Vietnam and selected Asian countries in same region were collected throughout the period from 2007 to 2009 in order to conduct macro-assessment of risk factors as mentioned above. Analysis of secondary data showed that compared to other Asian countries such as Singapore, Thailand and China, Vietnam has higher risk level of political risk as well as financial risk. This was illustrated by Vietnams risk rankings, which was collected from the evaluation of famous rating institutions such as Euromoney, Coface and A.M.Best. Additionally, with the objective to reducing the country risk level of Vietnam, this study suggests that Vietnamese government should reform administrative procedures, and improve the enforcement of anti- corruption program as well as maintain flexible monetary and fiscal policies. PART 1: INTRODUCTION 1. INTRODUCTION The decision whether to conduct business in a particular country is fundamental to many MNCs. Investing in the countries with excessive risk may harm the corporations profits or create other potential adverse impacts to MNCs value. Thats why it is important for an MNC to assess country risk before making investment decisions. Moreover, country risk analysis is not only beneficial to the case of doing business in a new country but also advantageous to monitoring countries where MNC is currently conducting business. In all over the world, there are many specialized country risk rating institutions based on different criteria and weighting methods to evaluate. Unfortunately, there are not many studies available on country risk analysis in Vietnam. Understanding about this limitation, this research paper, based on secondary data and macro-assessment will try to focus on analyzing country risk in Vietnam in three aspects: political risk factors analysis; financial risk factors and giving overall picture about Vietnams country risk. Our research also draws conclusion about country risk in Vietnam and suggest some recommendations to both Vietnamese government and foreign investors.
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2. METHODOLOGY The purpose of our research is to analyze the overall country risk, including political and financial risk in Vietnam. Moreover, the way to assess these risks is the major concern of this paper. a. Method of data collection This research paper is based on the secondary sources: books, journals, magazines, and primarily form internet sources. b. Statistical Tools Used Simple tools like bar graphs, tabulation, line diagrams have been used. PART 2: LITERATURE REVIEW 1. DEFINITION OF COUNTRY RISK ANALYSIS Country risk refers to the volatility of returns on international business transactions considering several facts associated with a particular country. The concept evolved in 1960s and 1970s in response to the banking sectors efforts to define and measure its loss exposure in cross-border lending. It can be broken down into major components as economic, financial, currency and political risks. Except the political risk, all of the others are market-based and measurable. Certainly, all of the components have to be thought not only by itself but, specially, by the outcome of their interaction. The political risk approach is really relevant, due to most of the government decisions affects directly the economic agents, its expectations, behavior and the landscape where transactions are made. MERRILL LYNCH1 in its portfolio strategy for emerging markets (equities, bonds and commodities) uses to divide the portfolio according to its index weighting for each country). After, considering the ongoing behaviors of the global economy and the countries, the strategists define a recommended portfolio by adjusting the weight of each country (market weight, under or overweight) and the respective duration (short, neutral or long). Within the countries, similar approach is adopted for each asset. Thus, building the portfolio, Merrill Lynch does not have an econometric model to estimate the intrinsic risk of the countries despite following the behavior of many macroeconomic variables and other information to define the weight of the countries in its portfolio. 2. OBJECTIVES OF COUNTRY RISK ANALYSIS Nowadays, investing and trade over the world is very popular, therefore, understanding the country risk rating components, analyzing each components and combining the results will have a lot in success of investors or trader. Direct investment If a company looks for a place to invest, besides a normal business plan (market,
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Portfolio Strategy, http://www.gwu.edu/~ibi/minerva/spring2001/renato.ribeiro.pdf -99-
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suppliers, labor forces, location, energy, etc) they must concern about the legal environment as national regulations about profit transfers, special reduced tax for foreign investments and minimum term of them, political forces and its viewpoints about international capital, exchange rate regime, other macroeconomic aspects and so on. Financial investment In case of investment in the capital market, beyond some specific financial assessments (historical prices of companys shares, its returns, standard deviations, forecasts about the behavior of the market and the own company), the analysis has to emphasize the financial equilibrium of the country, especially in the short run, like its cash flow in terms of current account balance and reserves, besides the exchange rate and the perspectives of changes on the legal environment as well. Trade In international trade, exporters and importers need to look for all risks of the country in which they have partners. Why? Because the risk of the country can affect on the currency using in the commercial contracts or the kinds of international payment (L/C: if exporter worry about blockage of fund transfers in importers country ). 3. THEORIES OF COUNTRY RISK ANALYSIS This research paper is based on the secondary sources: books, journals, magazines, and primarily from internet sources and focus on two main factors: Political factors and financial factors. In this research, we have an overview of Vietnam situation, assess all industries, and give macro assessment. Country risk analysis rests on the fundamental premise that growing imbalances in economic, social, or political factors increase the risk of a shortfall in the expected return on an investment. An imbalance in a given factor produces different risks for different investments. According to the text book of International Finance subject: International Financial Management - eighth edition, Jeff Madura, Florida Atlantic University, two theory of political risks and financial risks are shown clearly again. Political risks are the risks that come from the actions of host countrys government and consumers in that country. An extreme form of political risk is the possibility that the host country will take over a subsidiary. The following are some of the more common forms of political risk: - Attitude of consumer in the host country: is a tendency of residents to purchase only locally produced products. If consumers are very loyal to local products, a joint venture with a local company may be more feasible than an exporting strategy. - Actions of host government: Various actions of government can affect the cash flow of an MNC (impose pollution control standards, additional corporate tax) - Blockage of fund transfer: Subsidiaries of MNCs often send fund back to the headquarters for purchase of supplies, remitted earning, In some case, host
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government may block fund transfers, which could force subsidiaries to undertake projects that are not optimal. - Currency inconvertibility: Some governments do not allow subsidiaries to exchange their income from host countries currencies into other currencies. Thus, an MNCs parent may need to exchange it for goods to extract benefits from project in that country. - War: Some countries tend to engage in constant conflicts with neighboring countries or experience internal turmoil. This can affect the safety of subsidiaries employees, their business operations an cash flows generated from such countries more uncertain. - Bureaucracy: it mentions about complicated procedures in the host country, which take time of MNCs to get and complicate their businesses. - Corruption: can adversely affect an MNC business because it can increase the cost of conducting business or it can reduce revenue. Various form of corruption can occur; for example, a subsidiary of an MNC can pay off the host country government to win the projects in that country. Along with political risk, financial risk factors should be considered when assessing country risk, including Current & Potential state of the economy and Indicators economic growth. - Current and potential state of the economy: for example, a recession severely reduces demand or financial distress cause the government to restrict MNCs operation. - Indicators of economic growth: + Interest rates: higher interest rates tend to slow the growth of an economy and reduce demand for MNCs products. Lower interest rates often stimulate the economy and increase demand for MNCs products. + Exchange rate: can influence the demand for the countrys exports, which in turn affects the country production and income level. + Inflation rate: can affect consumers purchasing power and from that the demand for MNCs products is also affected. Assessing inflation rate is very important because it indirectly affect a country financial condition by influencing the country interest rate and currency value. Therefore, a high level of inflation can lead to a decline in economic growth. Most financial factors are difficult to forecast. Thus, even if an MNC considers them in country risk analysis, it may still make poor decision because of improper forecast of the countrys financial risk factors. PART 3: VIETNAM COUNTRY RISK ANALYSIS 1. POLITICAL RISKS ANALYSIS 1.1 Actions of host government Actions of host government should be considered when assessing the political risks. A wide range of host governments actions can affect the cash flow of an MNC such as imposing special requirements or taxes, restrict fund transfers, subsidize local
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firms. It is interesting to note that not only strict regulations of government but also lack of restrictions in a host country has negative influence on the performance of foreign firms. Therefore, this paper will focus on discussing the risk of MNCs due to deficiency of Vietnamese governments enforcement of copyright laws. According to recent studies, Vietnam experienced the highest software piracy rate in Asian countries, 85%2 (top 10 out of 107 countries survey, the average of 107 countries is 59.9%). This was illustrated by this graph below
Figure 1: Software piracy rate in some Asian countries (Source: nation master.com) Due to the failure of Vietnamese authorities to enforce Intellectual Property Law against local firms that illegally copy the MNCs product, it is very risky for foreign firms conducting business especially in intellectual industry such as software, books, CDs. They may lose their price competitiveness over domestic firms due to their high expenses for research and development of new products, which has negative impact on MNCs revenues. According to BSA report, software producers lose an estimated $3 billion in sales annually in Asian for that this reason, and dollar losses at over 16.5 billion in the Asian Pacific due to piracy levels. 1.2 Blockage of fund transfers Another factor that foreign investors often pay attention when they assess the risk of a country that is the blockage of fund transfer. When you invest abroad, you cannot expect that the investment will last continuously or even for a very long period of time. Normally, investors want to invest in another country, get profit and transfer it back to the home country. Therefore, the blockage of fund transfer can eliminate their capacity to withdraw cash back to the home country. It can be seen that the policy of host country related to the blockage of fund transfer will affect the decision of investors a lot in investing in this country or another. With the Vietnamese case, the blockage of fund is not remained any more. It is a way that the government can attract external sources of capital especially through FDI channel.
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Piracy rate Crime in Vietnam, http://www.nationmaster.com/graph/cri_sof_pir_rat-crime-software-piracy-rate
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1.3 Currency inconvertibility Currency convertibility is a very important factor that we need to take in to account when consider the risk of a country. Simply, when we invest in a country, we want to earn profit. But the profit we earn is often in the domestic currency so when we want to transfer it to our home country, we need to convert this currency to our home country. That is the reason why, the convertibility of the host country currency is so important. When we consider this factor when we assess the risk of Vietnam, it can be seen that Vietnam has a quite weak currency that bring the investors a lot of difficulties in converting Vietnam Dong to other currency. According to Mr Phi Dang Minh, deputy director of foreign exchange management, the percentage of dollarization of Vietnam is 24% is at highest level group of Asia while other countries like China or Thailand this rate is only 1% to 9%3. It is proof for the inconvertibility of Vietnam Dong and bring disadvantage to Vietnam when foreign investors make investment decision. When investors invest in Vietnam, they can convert Vietnam Dong to some very strong currency like USD, Euro or Japanese Yen. Other currencies are very difficult to exchange to VND either in Vietnam or in their country. Hence, the foreign investors that the home country currency is not a very strong currency, they will get a lot of trouble in converting the profit to home currency. It can loss the attraction of Vietnam in the foreign investors eye. 1.4 War To assess country risk, war cannot be omitted. War can bring loss to almost all party, and it can bring a lot of risk to business not only in the country war happen but in other country related. The destruction of war is so terrible that almost countries that war is happening will get trouble with financing and also the ability of attract funds is limited. Luckily, Vietnam is considered as one of the most peaceful destinations in the world. As Vietnam does not have any civil war or war with outside parties and the political situation is quite stable compared to some countries in same region especially Thailand. According to vision of Humanity, Vietnam is ranked the 35th in 144 countries about the global peaceful index. It is quite a high rank in comparison with other countries in Asean area and other Asian countries. The below table show the rank and score of peace of some countries4:
Country Japan Singapore Malaysia Rank 7 23 26 Score 1.272 1.533 1.561
Currency Inconvertibility, http://tim.vietbao.vn/kh%E1%BA%A3_n%C4%83ng_chuy%E1%BB%83n_%C4%91%E1%BB%95i/2/ 4 Global peaceful index of some countries, http://www.visionofhumanity.org/gpi/results/rankings.php
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South Korea Vietnam Indonesia China Cambodia Philippines Thailand Myanmar
33 39 67 74 105 114 118 126
1.627 1.664 1.853 1.921 2.179 2.327 2.353 2.501
Table 1: Global peaceful index of some countries It can be seen from the table that Vietnam is evaluated as a peace country in comparison with others in area and all over the world. Therefore, war is not a risk that we need to consider when we judge the risk of Vietnam. 1.5 Bureaucracy Another country risk factor is government bureaucracy, which can complicate an MNCs business. Red tape, such as procedural and documentation requirements, are considered to be serious in Vietnam due to inefficient government governance and cumbersome administrative procedures especially those involving customs and tax. Much legislation takes the form of regulations and circulars that are passed down to local level for implementation. Interpretations often differ form area to area, and much paperwork is generated in attempts to standardize. Much administration involves more than one ministry. As communication is almost entirely vertical, there is little co-ordination between different ministries and departments leading to long delays and frustration. Doing Business in 20105 reports that it takes only one procedure, one day, and 0.4 percent of annual income per capital to register a private limited-liability company in New Zealand. In these top-ranked countries, an investor merely needs to register his or her business with the registration and tax agencies before starting operations. By contrast, in Vietnam, it takes 50 days, 11 procedures and 13.29% annual income per capital to start a business, which is much higher than the average of East Asia & Pacific region (Procedures (number): 8.1, time (days) 41.0, cost (% of income per capital: 25.8). The three main procedures in this process are: applying for a business registration certificate (15 days), obtaining a company seal (14 days), registering for a tax code and purchasing pre-printed invoices (15 days). It leads to low rank of Vietnam in term of the ease of business (only 116 out of 183 countries).
Doing Business Report 2010, http://www.doingbusiness.org/documents/fullreport/2010/DB10-full-report.pdf
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Figure 2: Ranking of Vietnam in Starting a Business- Compared to good practice and selected economies Therefore, foreign investors as well as MNCS will bear more risks due to the complicated administrative procedures. Risk arises from the matter of wasting the money and time not only before but also after the business in Vietnam, which is illustrated by table below.
Procedure After registering in Vietnam 1 2 3 Dealing with construction permits Registering property Paying Taxes 194 days 57 days 1050 hours per year 32 number of payments per year 248.1 (% income per capital) 1.1 (% of property value) Time to complete Cost
1.6 Corruption High levels of corruption, the abuse of public power, office, or resources by government officials or employees for personal gain, e.g. by extortion, soliciting or offering bribes, are widely believed to be one of major sources of political risk in developing countries. Vietnam has experienced exceptional economic growth in recent years-with a growth rate of around 8% it was Asias second fastest growing economy in 2007s. However, Vietnams economic rise is accompanied by rampant and rising corruptions. According to annual report Corruption Perceptions Index (CPI)6 of Transparency International Organization, the score of Vietnam is 2.7, ranked 120 out of 180 countries surveyed. It can be clearly seen from the graph below, corruption in Vietnam is much more than other countries in same region.
The Corruption Perceptions Index (CPI), 2009 (score range 1 10, clean score means 10) http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table
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Figure 3: Corruption Perception Index Table
Moreover, Vietnam receives an overall score of very weak on the Integrity Scorecard complied by Global Integrity (44 out of 100), with across-the-board poor performances in the Anti-Corruption and Rule of Law, Civil Society and Public Information and Media, Elections, Government Accountability, Administration and Civil Service and Oversight and Regulation sectors. Moreover, it seems that corruption creates a perception that they cannot run business effectively without patronage7. According to the Investment Climate Assessment (ICA) survey for Vietnam (ICA 2005)8, 67% of the companies surveyed reported having to make informal payments in order to get things done. Therefore, foreign firms are particularly vulnerable to administrative corruption due to their lack of knowledge of local customs a procedures. These firms are more likely to pay for a license, even though it might be illegitimate and unnecessary according to the law, to avoid antagonizing the local administration. In Vietnam, the agencies that most frequently interact with foreign businesses, such as the tax and custom department, land administration agencies and the construction permit and import/export license authorities were cited by the United Nation University survey, World Institute for Development Economics Research in 20099 as the most corrupt public institutions (as can been seen from this table below)
Types of Infomal Payment To get connected to public services To get licenses and permits To deal with tax and tax collections To gain government contracts To deal with customs Other reasons Total Obs. 298 43 213 155 23 266 998 Bribe Amount (Per cent of total revenues) 0.3 0.56 0.74 1.09 0.33 0.38 0.55 Per cent of bribes paid by medium/large firms 10 15 61 0 13 61 0
Table 2: Average size of informal payments in Vietnam

7 8
Vietnam Global Integrity, 2009, http://report.globalintegrity.org/Vietnam/2009 Working Paper on Firm-Level Corruption In Vietnam, www.wider.unu.edu/.../working-papers/2010/en.../wp201016/_.../2010-16.pdf 9 http://www.wider.unu.edu/publications/working-papers/2010/en_GB/wp2010-16/_files/83069119040782563/default/2010-16.pdf
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Although anti-corruption law in Vietnam had taken effect from Jun 1st 2006 with 3 No campaign (no monopoly, no discretion, no accountability), corruption remains serious and complex across many aspects of public life. In conclusion, corruption can adversely affect an MNCs international business or it can reduce revenue, which may discourage foreign investors to invest in Vietnam. 1.7 Attitude of consumers in the host country A mild form of political risk for MNCs is a tendency of residents to purchase only locally produced goods. However, Vietnamese consumers tend to be loyalty to foreign goods rather than the domestic goods due to low quality of Vietnamese goods. According to Dr Dinh Thi My Loan, Deputy Chairman of the Vietnam Retailers Association cited the latest statistics released by a market survey firm that 77 percent of Vietnamese consumers favor foreign products, while the average figure is just 40 percent in Asia10. Therefore, the foreign firms can take advantage of Vietnamese consumers perception of high quality. Furthermore, they do not have much more risky from national identity such as South Korea or Japanese customers. 2. FINANCIAL RISK ANALYSIS 2.1 Real GDP growth rate The GDP growth rate is the most important indicator of economic health. It refers to the percentage increase or decrease of GDP from the previous year adjusted for the inflation rate. If GDP is growing, so will business, jobs and personal income. If GDP is slowing down, then businesses will hold off investing in new purchases and hiring new employees, waiting to see if the economy will improve. This, in turn, can easily further depress GDP and consumers have less money to spend on purchases. If the GDP growth rate actually turns negative, then the economy is heading towards a recession11. Overview about Vietnams GDP growth rate In the period from 2000 to 2007, the GDP growth rate in Vietnam was up-ward sloping; howerver; the global recession has hurt Vietnam's export-oriented economy in 2008 and 2009 with GDP growing less than the 7% per annum average achieved during the last decade.(source: CIA World factbook)12. In addition, based on the article IMF forecasts 8 percent GDP for Vietnam from vovnews.com if Vietnam adopts more effective policies, it is likely to achieve an economic growth rate of 8 percent in 2010, says an executive from the International Monetary Fund. Comparison real GDP growth rate between Vietnam and China Like other countries world-wide in general and Vietnam in particular, China
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http://www.vnnewstime.com/business news 2/domestic goods still out of favour with vietnamese consume rs/ 11 Kimberly Amaded, (2009), What is the Difference Between GDP and Growth Rate? http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Growth_Rate.htm) 12 Vietnam GDP-real growth rate, http://www.indexmundi.com/vietnam/gdp_real_growth_rate.html
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economy also has been affected by 2008 global financial crisis and GDP growth rate fell to the lowest level of 6.2% in March, 2009 since last 10 years. However, after that it started to increase rapidly again and reached impressive level of 11.9% in March, 2010. It is also expected that this level will continue go up in the rest of this year13 With all the statistics collected, it is no doubt to state that Chinas GDP growth rate has been virtually much more higher than this Vietnam index. For example, in 2008 the ratio between Chinas GDP growth rate and Vietnam one was nearly 1.46, this ratio was up to 1.8 one year later. Moreover, as this information was already indicated in part 1.1 China ranked at number 3 in Asia and number 8 in over the world for GDP growth rate level while these number for Vietnam namely were 6 and 55. In conclusion, Vietnam real GDP growth rate has been at high level; however; it appears less favorable compared with China 2.2 Annual inflation rate Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. Inflation can affect consumers purchasing power and therefore their demand for an MNCs goods. It also indirectly affects a countrys financial condition by influencing the countrys interest rates and currency value. A high level of inflation may also lead to a decline in economic growth. Inflation in Vietnam Vietnam is one of the countries where have high and unstable inflation rate. After 12 year of curbing inflation (1995-2007) Vietnam has seen inflation come back with the two- digit CPI (Customer Price Index) since December 2007. Especially, in 2008 Vietnams average inflation stood at 23.115 % which has been considered the highest inflation rate since last 10 years, increased dramatically by 176.86% in compared with the year of 2007 (source: IMF). In addition, according to statistics of CIA World fact book, Vietnams inflation rate in 2008 ranked at number 11 over 219 countries in this survey; much more higher in comparison with other countries in Asia such as China (125), Singapore(112), etc Furthermore, the inflation rate in Vietnam is expected to continue to increase in the year of 2010 due to the main reason of increasing in the dong/dollar exchange rate, petrol price and tentative electric city price.(Experts say expect high inflation in 2010- Vietnamnet). In fact, the consumer price index (CPI) in February 2010 increased by nearly 8.5 percent in comparison with the same period of the previous year. These are the highest level since mid 2008 (source: Vietnamnet). Comparison inflation rate between Vietnam and China Similarly to the case of Vietnam, Chinas annual inflation rate is also forecasted
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China real GDP growth rate, http://tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=CNY)
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to be higher in the year of 2010. While this index level stayed at -0.055 in 2009, it went up significantly to 2.4 % in March, 2010 (source: tradingeconomics.com) To compare the differences between the inflation rate in Vietnam and China, two aspects are examined. The first one is the level of inflation rate. As can be seen from the chart above, Chinas inflation rate has been lower than Vietnams one for most periods of time; even it reached to the negative value in many years. For example, in the recent year of 2008 the inflation rate of this country was 5.92% just approximately to one-fourth in comparison with the level of Vietnam. The second measure used is the annual inflation rate volatility The chart above illustrates the annual percent change in inflation rate compared with the previous year's inflation rate. It is clear to realize the percentage change in inflation rate in Vietnam was extremely larger than Chinas in 2002; however; from 2003 to 2009 Chinas index seemed to be more volatile than Vietnam one. In short, Vietnams inflation rate has been at high level, unstable and expected to increase. This problem puts the Vietnamese government under a lot of pressures and threatens the foreign investors. 2.3 Exchange rate Exchange rate is an important factor, which impacts the demand of customers, profits of Multinational companies located in Vietnam. A strong home currency may reduce demand for the countrys exports, increase the volume of imported goods, and therefore reduce the countrys production and national income. A very weak currency can cause outflows motive and reduce the amount of funds available to finance growth by business. Exchange rates change every day, every hour; by analyzing them, we can find out clearly whether or not the risks accompany with the foreign investment projects in Vietnam. 2008 is the year that exchange rate happened unusually. According to APTVietnam, in the three-month period from January to March, USD price is in decreasing trend, with the reduction of 1.8%. Four months following (April- July), the USD continued to increase, with an increasing rate 9%. The rise of the USD during this period encouraged exports, limit imports and keeping trade deficit. Otherwise, the difference between free market and official market is very high, sometimes up to above 2,500 VND / USD. The next three months (Aug- Oct), the USD fell, with the reduction of 3.74%. The last two months of the year, the USD increased again, with growth rate 3.26%. It is a result of three factors. Firstly, the financial crisis and global recession impact on our country makes exports fall, imports rise, affecting the consumption of domestic production, causing economic failure. Secondly, the demand for foreign currency for import goods last year is usually higher than other months. Thirdly, price of USD increases in many countries, so our country has to adjust accordingly.
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Over the year, the USD growth rate is 6.31%, the highest from 1999 till this time. In this year, the change in exchange price is very fluctuant, and it created a lot of risk for enterprises in doing business with converting currencies if they did not use derivative instrument. In the securities magazine N0 11, November 2009 of State securities commission of Vietnam, changing in USD price was analyzed carefully; the end of October 2009, the average bid rate of commercial banks at 17,861 VND / USD, up 0.11% over the beginning of the month and increase 2.47% from early 2009. While the average ask rate of commercial banks at end of Oct- 2009 was 17,862 VND / USD, up 0.11% over the month and increase 2.16% from early 2009. Exchange rate in 2009 had increasing trend, the reason for that was commodity prices in the world affect changes in prices of crude oil, rice, steel, precious metals, fertilizers... often associated with changes in inflation. Because prices of goods that have direct impact on import and export value of Vietnam, this may affect the overall balance of payments and putting pressure on the exchange rates.
Figure 9: Movements of Exchange rate In addition, TuanVietnam.net mentioned November 2009, State Bank applied a new exchange rate, with narrow margin from + -5% to + - 3%, while increasing exchange rates from 17,034 VND/USD (25/11/2009) to 17,961 VND/USD (26/11/2009) made 5.44% rate increase, combined with the changing of base rate from 7% to 8% per year. The changed rate is evaluated as an important step to change the imbalance between official foreign currency market and black market. At the same time it also increases the competitiveness of Vietnam's goods compared to imported goods, increases demand for MNCs products produced in Vietnam. On the other hand, the policy changes immediately create trouble or risks for enterprises which have foreign currency loans in operating businesses without enough time to implement derivative operations for these loans; the case of Pha Lai Thermal Power Corporation- PPC with loans in Yen for investment activities to expand their factories is a typical example.
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In 2010 plan, the FDI disbursement is expected to reach 10 billion USD, ODA commitments in 2010 with U.S. $ 8 billion, plus $ 1 in issuance of government bonds and other sources of income: portfolio investment, tourism,... Thus, overall supply and demand of foreign currencies in 2010 is not too difficult when the deficit target this year is about $ 12 billion while the supply is approximately $ 20 billion. However, due to capital flows differ in time, this will make the exchange rate has some fluctuations. It is forecasted to make the risk in investing in Vietnam decrease.
Figure 10: Exchange rate USD/VND
Figure 11: Consumer Price Index The official rate announced by SBV each month:(0: very bad, 10: very good) Exchange Rate Stability Month 6/ 09 7/ 09 8/ 09 9/ 09 10/ 09 11/ 09 Exchange rate 16,938 16,948 16,960 16,967 16,985 17,002 % Change 0.05903885 0.07080481 0.04127358 0.10608829 0.10008831 Point 10 10 10 10 10
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12/ 09 1/ 2010 2/ 2010 3/ 2010 4/ 2010 5/ 2010
17,171 17,942 17,941 18,225 18,544 18,544
0.99400071 4.49012871 0.00557351 1.58296639 1.75034294 0
10 10 10 10 10 10
Source: State Bank of Vietnam In conclusion, the change in exchange rate is becoming more consistent, and in the trend of increase in price of USD; therefore with the preference of using products made in Vietnam, the demand for domestic goods will increase. Besides, the operating costs in investing in Vietnam will go down; foreign firms can invest in Vietnam with lower costs, and export their products to other countries for higher prices, earning higher profits. Thus, the risk in investing in Vietnam, with assessing exchange rate perspectives, will decrease. However, some foreign firms will find investing in Vietnam so risky, because all revenues are calculated in the domestic currency, with lower domestic currency means lower revenues in USD. 2.4 Interest rate 2009 and 2010 are two years that have some special changes in interest rates, both deposit rates and lending rates. Recently, Vietnam Banks Association has a written agreement calling for members to apply deposit interest rates were around 11.5% and terminate other forms of promotion as reward money. According to the Banking Association, this interest rate is appropriate in the current conditions to ensure that commercial banks face by pulling down lending interest rates, while ensuring harmonious interests of depositors and banks.
Figure 12: Interest Rates Lending interest rates in the early 2010 have some special change. With lending in VND, notified by the central bank, lending interest rate was increased by the commercial banks, especially joint stock banks. Accordingly, interest rates for mediumlong term business under the new rates fluctuate around 12-14% per year, joint stock
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ranges 15-17% and the highest is 18% per year. In the article Li sut cho vay:Xu th gim dn - 12/03/2010, Mr.Ly Xuan Hai, general director of ACB, said that VND amount of this bank is in excess of over 30,000 billion VND to support business loans, interest rates for mediumlong term at 15 to 16.5% and can extend the loan from 7 years to 10 years. However, 3-4 months ago when the market lacks liquidity, borrowing firms suffered higher cost of business than at present. Thus, the current interest rates relatively reasonable compared with rates in the general mobilization. With the advantages of raising cheap deposits, the state commercial banks are beginning to compete to reduce lending rates. Mr. Nguyen Truong Giang, deputy director of VietinBank- third branch, said the lending rate floor agreement here applies to all kind of enterprises is 14.5% per year, not too large of changes compared with the past. In addition, Trading Room VCB leaders said interest rate is at 14.09% years for large companies have long relationship, bringing more service revenue for banks. Particularly, small enterprises, with little collateral, will have to pay higher interest rates, approximately 15% per year. From 1st May, the State agreed to reduce commercial bank lending rate to 0.5% 1% per year for the borrowers under the direction of the Government in No. 18 / NQ-CP. The maximum lending rate is 13% per annual for agriculture-forestry- fishing businesses, exporting enterprises and producing costs of medium or small enterprises. For loans of real estate business, securities business and consumers, state commercial banks lending interest rate applicable under the agreement in accordance with supply and demand of funds and ability to pay debt of customers. (Decree 18/NQ-CP) In case of lending in foreign currency, the interest rates are decreasing. Several months ago, the USD deposit rates of major commercial banks ranges from 2.5% to 3.5% per year, small banks from 4% to 4.5% and lending rates from 6.5 to 7% per year. But recently, many banks have massively reduced lending USD interest rates down, only from 4% to 4.5% per year for large businesses, and from 5 to 5.5% per year for small businesses, interest rates were nearly equal medium or small joint stock commercial banks. Explaining this, a financial expert stated that: The foreign currency interest rate of the economic organizations only 1% per year has helped reduce the interest rate of banks lending dollars; especially state banks have business customers which have a large amount of foreign currency deposits. In addition, the state allows to reduce the compulsory reserve ratio of foreign currency from 7% to 4% for maturity of less than 12 months, from 3% to 2% for 12 month term loan, made the supply of USD lending amount increased, banks can decease the dollar deposit rate about 0.1%. Many experts expect interest rates to mobilize dollars is hard to rise, overall demand for business loans is up but still not great as foreign currency earned from export is major but demand for foreign currency loans for imported raw materials does not grow strongly. Interest rates for VND loans are higher than interest rates in U.S. loans 10-11% per year. However, the business can also create risk for both enterprises and banks as interest rate differences can not offset the exchange rate price fluctuations.
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To sum up, deposit interest rates are quite low, it will create more demand in consumption as deposit money in banks now can not attract people, they will spend money for consumption; furthermore, lending interest rates are decreasing, it will improve the investment in over the country, make the economy going up. Foreign investors who worry about host country takeovers can borrow capital in Vietnam banks with low costs and use these funds to invest. In overall, lower interest rate often stimulate the economy and increase demand for the MNCs products, lower country risk. In the case of Chinas monetary policies: The article The China Bubble's Coming -- But Not the One You Think published on the Foreign policy magazine by VITALIY KATSENELSON, the monetary policy of China and all of its effects were showed clearly. It is evident to see that the Chinese economy has shown incredible resilience recently although its biggest customers, the United States and Europe, are struggling. The most recent estimate put annual growth at nearly 8 percent. Some people wonder: Is the Chinese economy operating in a different economic reality? Will it continue to grow, no matter what the global economy is doing? Of course, the answer is no. In the monetary policy of it own, China bought a massive amount of US Treasury bonds in order to undervalue of RMB. In fact, The United State borrowed Chinese money to buy Chinese goods, which means that Chinese growth was dependent on that borrowing. Now the United States and the rest of the world are retrenching, corporations are slashing their spending, and consumers are closing their pocket books. This means that the consumption of Chinese goods is on the decline. But the Chinese central bank has a significant advantage over the U.S. Federal Reserve. Chairman Ben Bernanke and his cohort may print a lot of money (and they did), but there's almost nothing they can do to speed the velocity of money. They simply cannot force banks to lend without nationalizing them (and only the government-sponsored enterprises have been nationalized). They also cannot force corporations and consumers to spend. China's communist government owns a large part of the money-creation and money-spending apparatus. Money supply therefore shot up 28.5 percent in June 2009. Since it controls the banks, it can force them to lend, which it has also done. China can force government-owned corporate entities to borrow and spend, and spend quickly. But don't confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. This growth will result in a huge pile of bad debt. The list of negative consequences is very long. The only question is when and how much. Another casualty of what's taking place in China is the U.S. interest rate. China sold goods to the United States and received dollars in exchange. If China were to follow the natural order of things, it would have converted those dollars to renminbi (that is, sell dollars and buy renminbi). The dollar would have declined and renminbi would have risen. But this would have made Chinese goods more expensive in dollars --114-
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making Chinese products less price-competitive. China would have exported less, and its economy would have grown at a much slower rate. But China chose a different route. Instead of exchanging dollars back into renminbi and thus driving the dollar down and the renminbi up- the natural order of things - China parked its money in the dollar by buying Treasuries. It artificially propped up the dollar. Thus, China is sitting on 2.2 trillion of them. Now, China needs to stimulate its economy, it needs the domestic currency to finance its continued growth. However, if it were to sell dollar-denominated treasuries, several bad things would happen. Its currency would skyrocket -- meaning the loss of its competitive low-cost-producer edge. Or, U.S. interest rates would go up dramatically, not good for its biggest customer, and therefore not good for China. Therefore, it is evident to see that Chinas monetary policies are strictly controlled by the government to protect exporting industry. Although in these policies still have some problems, but a lot of things in these that Vietnamese government need to observe, so in comparing monetary policies, investing in China is considered more attractive than Vietnam. 3. VIETNAM OVERALL RATING IN THE VIEWS SPECIALIZED COUNTRY RISK RATING INSTITUTIONS OF SOME
One of the common approaches to evaluate overall level of country risk is based on the risk assessment of some reputable country risk rating agencies such as Euromoney, Cofaceratings, and A.M.Bests assessment. Therefore, this paper will summarize some recent survey of these agencies with the aim to position the risk level of Vietnam. First of all, in term of Euromoney assessment14, semi-annual country risk ratings of 185 countries scores between 100 (excellent) and 0 (considerable risk). As can been remarkably seen that, not only the overall risk but also political risk in Vietnam were evaluated higher compared to others countries below except Indonesia, Philippines and Cambodia.
Figure 5: Country Risk Overall Results Index, 2008
Secondly, according to the rating of Coface, 2009, Vietnam are classified as B, investment grade, which indicates the unsteady economic and political environment.
14
Country Risk Overall Results Index Table, 2008, http://www.euromoney.com/Article/1898962/Country risk 2008 overall results index table.html?Type=Article&ArticleID=1898962
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Countries Australia New Zealand Hong Kong Japan Malaysia Singapore South Korea Taiwan China Thailand Indonesia Philippines Vietnam Cambodia Lao Myanmar
Overall rating A1 A1 A2 A2 A2 A2 A2 A2 A3 A3 B B B D D D
Implications Steady economic and political situation Steady economic and political situation Weak default probability Weak default probability Weak default probability Weak default probability Weak default probability Weak default probability adverse circumstances may lead to worsening payment method adverse circumstances may lead to worsening payment method Unsteady economic and political environment Unsteady economic and political environment Unsteady economic and political environment High risk profile and very bad payment method High risk profile and very bad payment method High risk profile and very bad payment method
Table 1: Cofaces Ratings Table Other well-know approach is The Country Risk Tier (CRT), which reflects A.M.Bests assessment of three categories of risk: Economic, Political and Financial risk. Vietnam has high levels of risk across all three categories of risk assessed. A.M. Best considers the majority of countries in Southeast Asian to be categorized as CRT-3 or CRT-4. The exceptions are Vietnam, the sole CRT-5, and Singapore the sole CRT-1.
Country Risk Tiers CRT-1
Definition
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial system regulation with deep capital markets; mature insurance industry framework
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CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system regulation with deep capital markets; mature insurance industry framework Developing legal environment, legal system and business environment with developing capital markets; developing insurance regulatory structure Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital markets; partially to fully inadequate regulatory structure Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low human development and social instability
CRT-3
CRT-4
CRT-5
To sum up, the level of uncertainty in Vietnam is evaluated more significantly than others in same region such as Thailand, China, and Singapore. PART 4: CONCLUSIONS AND RECOMMENDATIONS 1. CONCLUSIONS To sum up, our research has been deliberately made up to gain a better understanding about Vietnams country risk situation. Based on findings from all previous parts, corruption, bureaucracy as well as high inflation rate would be considered as high country risk factors in Vietnam. Because the time and resources are limited, this paper has just accessed the Vietnams country risk in terms of macroassessment; therefore; we hope that our research will be developed in the near future and analyzed more in terms of micro-assessment. 2. RECOMMENDATIONS As mentioned above, in order to attract more FDI, Vietnamese government should try to minimize the political risk MNCs have to bear due to bureaucracy, corruption problems. Firstly, with the aim to the bureaucracy issues, Vietnamese authorities had better to continue reform administrative procedures and improve the governance efficiency. Moreover, coordination between different ministries and departments are required to avoid long delays and frustration. Secondly, enforcement of anti-corruption program should be enhanced. According to Global Integrity15, despite strong score anti-corruption law (100 points), the enforcement of this program received low score 52 out of 100 points. With the objective to improve the effectiveness of this program, the public information and media should be allowed to coordinate with the competent authorities to investigate corruption case (the score of public information and media only ranked as 22 out of 100 points). Furthermore, the salary or living conditions of civil servant should be improved more. According to recent survey, Vietnamese civil servants are extremely
15
http://report.globalintegrity.org/Vietnam/2009 -117-
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poorly paid, whether they work for the central government or local. A new hire (university graduate) typically gets 15 to 20 USD monthly, a 40 year old gets 60 USD. Therefore, if they cannot live on the official salary, the corruption would never disappear. Additionally, reducing the administrative procedures is one of key solutions. The reason is that the World Banks investment climate department (CIC) found that there exists positive correlation between corruption and restrictive regulations16. In addition, in terms of Vietnamese government, it is important to figure out flexible monetary and fiscal policies in order to curb the inflation rate as well as ensure high economic growth. Firstly, the Vietnamese currency is very weak now, that is a need that Vietnamese government has to strengthen the Vietnam Dong. To make the Vietnam Dong stronger and can be come a kind of currency using in international trade, Vietnam Dong should be freely traded with other kinds of currency. Hence, the government should not use direct intervention in controlling the foreign exchange rate. Secondly, Vietnamese government is intended to remove the base interest rate that makes the interest rate fluctuate so much. It will increase the risk to investors due to the increasing fluctuation of interest rate. Therefore, the new policy that removes the base interest rate will raise the country risk in term of financial risk of Vietnam. Moreover, interest rate of Vietnam is quite high in comparison with other countries in the world. The state bank should maintain a relative low interest rate so that we can attract more investors. Besides, any changing in monetary policy needs to be announced before implementation with enough time for enterprises to prepare actions (in case of PPC). In terms of foreign investors, they should collect all information about Vietnam market, analyze carefully the country risks and have suitable adjustment of discount rate and estimated cash flows. REFERENCES
Burton, F. N. and Hisashi Inoue, 1983, Country Risk Evaluation Methods: A Survey of Systems in Use. The Banker, January, 41-43. Cosset, J. and J. Roy (1991), The Determinants of Country Risk Ratings. Journal of International Business Studies, 22(1), 135-142. Harvey, C.R. (1996), Political Risk, Economic Risk and Financial Risk Country Risk Analysis. Madura (2003), Country Risk Analysis, International Financial Management, 8th, p247-306 Doing business 2010, http://www.doingbusiness.org/documents/fullreport/2010/DB10-fullreport.pdf. Retrieved on date May 8th 2010 Vietnam: Integrity Indicators Scorecard http://report.globalintegrity.org/Vietnam/2009/scorecard Retrieved on date May 6th 2010 Domestic
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goods
still
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of
favor
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consumers
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http://www.vnnewstime.com/business-news-2/domestic-goods-still-out-of-favour-withvietnamese-consumers. Retrieved on date May 8th 2010 Din bin gi USD nm 2008 v d bo cho nm 2009 http://www.atpvietnam.com/vn/thongtinnganh/24339/index.aspx Retrieved on date May 5th 2010 Thanh Binh (2010), Kch bn kinh t Vit Nam 2010 c th d bo? http://www.tuanvietnam.net/2010-02-09-kich-ban-kinh-te-viet-nam-2010-co-the-du-bao Retrieved on date May 8th 2010 Li sut cho vay: Xu th gim dn http://doanhnhantimes.com/S43N4063/Lai-suat-chovay-Xu-the-giam-dan.html Retrieved on date May 4th 2010 VITALIY KATSENELSON (2009), The China Bubble's Coming - But Not the One You Think http://www.foreignpolicy.com/articles/2009/07/23/the_china_bubbles_coming_ but_not_the_one_you_think Retrieved on date May 6th 2010 Euromoney, www.euromoney.com/Article/1898962/Country-risk-2008-overall-resultsindex-table.html?Type=Article&ArticleID=1898962 Retrieved on date May 8th 2010 ICRG Methodology, http://www.prsgroup.com/ICRG_Methodology.aspx#PolRiskRating. Retrieved on date May 6th 2010 Ministry of natural resources and environment, 2010, IMF forecasts 8 percent GDP for Vietnam, [online]. Available at: http://www.monre.gov.vn/monreNet/default.aspx? tabid=253&idmid=&ItemID=81717 (access ed 10, May 2010) About.com, 2009, The differences between GDP and GDP growth rate,[online]. http://useconomy.about.com/od/grossdomesticproduct/f/ Available at: GDP_Growth_Rate.htm (accessed 10, May 2010) Vietnamnet.vn, 2010,Many factors have been cited by experts as the main reasons why they believe we can expect high inflation in 2010, [online]. Available at: http://www.vnnnews.net/experts-say-expect-high-inflation-in-2010 (accessed 10, May 2010)
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THE IMPORTANCE OF PHYSICAL EVIDENCE IN SEVICES ORGANIZATION

Written by: Le Tuyet Lan, Thieu Thi Thuy Linh (BA08) Luu Dieu Linh, Nguyen Thanh Huyen (BA08) Supervisor: Tran Tuan Anh EXECUTIVE SUMMARY In such an increasingly aggressive and growing industry, human beings are witnessing the non-stopped prosperity of the service sector. Physical Evidence or Servicescape framework is known as one of the leading marketing strategies promising the success for service businesses. This study begins with the profound analysis toward the strategic influences of servicescape in scores of service dimensions. Physical facilities convey the intended images, at the same time, create core values and values added as a facilitator. Distance in terms of relationships, statuses, behaviors between two parties customers and employees can also be reduced with the presence of a good servicescape system as a socializer. In addition, physical evidence carries the powerful potentials which help the service company differentiate itself from any competitor. Then the research continues with the drawbacks of physical evidences inefficiency and deficiency. Accordingly, customer and employee dissatisfaction are the two most severe consequences due to bad physical environment. On the basis of theoretical fundamentals, a real case application was conducted with the study object - Hanoi University (HANU) which is located in Nguyen Trai Road, Thanh Xuan District, Hanoi. A sample size of 65 students was randomly select to be included in the survey. The questionnaire was designed with four evaluation questions and the last one was used to collect respondents recommendations about HANUs physical evidence. Finally, through some necessary calculations, statistical data were exploited to draw conclusions and suggestions. A majority of students are content with the quality and quantity of existing HANUs facilities. However, some essential facilities such as chairs, tables, whiteboards, computers and peripheral physical evidence like the library, dormitory and students cafeteria actually need to be upgraded the sooner the better. INTRODUCTION Many people tend to think that the product or service intrinsic quality is all that really matters to the success or failure of a business. That turns out to be untrue in the modern background. Business organizations nowadays are making more efforts than ever to improve its marketing strategies of attracting the customer to their products/services. The big question is How do firms persuade customers to purchase their product/services before they actually experience the product/service and trust its quality? The answer will be all about the impression the business made on the
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customers, the presentations and proof of the product/services quality or of the companys credibility that the customers themselves see and feel before they use the product/ service. Yes, we are talking about Physical Evidence or Servicescape in marketing. Physical Evidence is a newly-born concept established by Booms and Bitner in 1981. It proves to be a very important element in the extended marketing mix for its powerful influence on the buying decisions of the customer. The large majority of the most successful business organizations all over the world possess an excellent system of servicescape. Creating effective physical evidence is truly a new challenge in the modern business patterns today. There are a lot more to discover about this topic. Later parts of this report will discuss about theoretical view on this topic and the practical case of our university. GENERAL UNDERSTANDING OF PHYSICAL EVIDENCE IN MARKETING Marketing mix is the combination of controllable elements that organizations will be using to successfully influence the customers to purchase their products/services. Marketers should be quite familiar with the 4Ps concept for Product, Price, Promotion and Place (Lilien, GL, Kotler, P., Moorthy, 1992.) However, in the modern global multifaceted marketing environment today, the 4Ps seem to be too simple or limited in terms of effective reflection of the entire marketing mix of an services organization. There are a number of other key factors that also significantly influence the marketing strategies as well as the customers behaviors toward a service. The Extended Marketing Mix was born then, called the 7Ps including 7 elements of the marketing mix: Products, Pricing, Promotion, Place, People, Physical evidence and Processes (Bernard H. Booms and Mary J. Bitner, 1981) Physical Evidence is one of the 7Ps that could persuade the customers about the value/quality of the services through the physical facilities that they are actually experiencing. In the early days when Industry of manufacturing dominated the global economy the physical evidence of production units such as factories and production line equipment was not very important to the end consumer because they never went inside the factory. However, today consumers typically come into direct interaction with products/services in retail units or agents of the organization - and they expect a high level of presentation in those modern representatives of the organization - e.g. record stores, clothes shops, travel agencies, banks etc. Not only do they need to easily find their way around the store, but they also often expect a good standards or presentation. The importance of quality physical layout is important in a range of service providers, which can be illustrated by several typical examples: Students going to college or university have far higher expectations about the quality of their accommodation and learning environment than in the past. As a result colleges and universities pay far more attention to creating attractive learning environments, student accommodation, shops, bars and other facilities.
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Air passengers expect attractive and stimulating environments, such as interesting departure lounges, with activities for young children etc.
Hair dressing salons are expected to provide pleasant waiting areas, with attractive reading materials, access to coffee for customers, etc.
Physical evidence is not only relevant to stores, which the customers visit, but also to the layout and structure of virtual stores, and websites, and other interactive channels between the services organization and its customers. The intangible nature of a service means that Potential customers are unable to judge a service before it is consumed. That fact increases the riskiness inherent in their purchase decision. This 6th P- Physical Evidence of marketing planning, thus, is to reduce that perceived risk in the customers mind (Palmer, A. 2008). Through the physical facilities that customers can actually see or experience when they use a service, they will have cues to position the services in their own mind. Physical evidence can be generally classified into 2 types: peripheral and essential (Shostack, G.L. (1982)). Essential physical evidence is by tangibles, which is essential and vital to the basic operation of the service. Instant examples for essential physical evidence are a banks computer systems, clinics professional equipments, a schools buildings and yards, etc. Peripheral evidence is represented by tangibles provided by service providers as value-added facilities/commodities or gifts for customers greater convenience and satisfaction. There are plenty of important benefits that physical evidence can offer an organization. It enables the organization to increase employee productivity and provides effective management of service quality. Physical evidence creates good impression as well as repositioning in customers mind, increasing credibility of the service provider. Moreover, one of the very unique capabilities of physical evidence is that it acts as a very powerful tool for differentiation from competitors. IMPORTANCES OF PHYSICAL EVIDENCE IN SERVICES ORGANIZATIONS In services organizations such as hotels, restaurants, professional offices, banks, retail stores, hospitals physical evidence or servicescape has very powerful impacts on customers evaluation and perception of quality. Because of the abstract and intangible nature of services, a customer relies mostly on peripheral cues that represent and visualize the service to appreciate its invisible aspects. Hence, for organizations delivering high contact services or leisure services, the design of the service environment performs scores of crucial roles. Four of the most significant ones are: i. Packaging the services ii. Facilitating the flow of the service delivery process iii. Socializing customers and employees alike in terms of their respective roles, behaviors and relationships iv. Differentiating the company from its competitors
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Service packaging The first strategic role of servicescape is to convey the corporations image (quality, features and values) to its target customers. Physical surroundings is considered as quality cues that set up customer satisfactions, forms initial impressions as well as influence their perceptions (eg. reduce perceived risks). Any risk including financial, performance, physical & psychosocial risk is always inherent with the purchase of services due to their unique characteristics. Services tend to be intangible and nonstandardized offerings; therefore, perceived risks are more highly associated with sales in services organizations than in production firms. As a result, the physical elements of servicescape are the most valuable visible aspect of service offering that the marketers should take advantage to create the desired impression on their customers. Taking a patient who wants to visit a dentist as an example; obviously, the patient can not evaluate the service offering prior to the accomplishment stage. The situation implies that the patient is facing with some certain perceived risk. However, a professional dental clinic with professionalism would know how to improve the customer credence and trust by providing the most modern equipments in his office, as well as other supporting facilities that may improve customers satisfaction like comfortable seats in waiting room, newspapers, air conditioner, etc. Moreover, his patients will be likely to feel more reliable on the quality of the dental clinic on witnessing the professional certificates and high qualification degrees displayed on the wall. Definitely, the physical layout in the dentists workplace conveys positive messages to his customers- that is the image of a high-class and professional dental clinic. Facilitating the flow of the service delivery process As a facilitator, physical evidence often dictates the flow of the service delivery process by incorporating design elements like signs and cueing formats that communicate to customers how the service process work (Solomon, 1985). On one hand, a facilitator acts as a determinant of the service operation. In this case, servicescape comprises core equipment that is vital to any service provider. For instance, a professor can not teach his students with the absence of boards, boardmarkers, chairs & desks. A hairdresser will not be able to serve her customers without scissors, hairdryers, hair dyers, shampoos On the other hands, Servicescapes can be so designed that they facilitate service providers and consequentially also increase productivity. In teaching, the deficiency of projectors, computers, air-conditions can not completely disrupt the education process, however, the presence of these supporters can enhance remarkably the students understanding, satisfaction and excitement during the lecture. A large number of researches suggest that the physical facilities with the role of a facilitator may influence the customer's ultimate satisfaction and employees satisfaction, loyalty, productivity, and motivation (e.g., Becker 1981; Davis 1984;Steele 1986; Sundstrom and Altman1989; Sundstromv and Sundstrom 1986; Wineman 1986).
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Goood servicescape helps to reduce turnover rate of both employees and customers. The reason is services generally are purchased and consumed simultaneously, and typically require direct human contact, customers and employees interact with each other within the organization's physical facilities. Thus, the organization's environment should support the needs and preferences of both service employees and customers to meet their satisfaction and boost up the services sales. Socializing employees and customers Physical evidence socializes employees and customers toward their respective roles behaviors and relationships. It gives the employees and customers clues and implicit directions about their roles, how should they interact appropriately in the communication environment. Having some certain understanding in advance should help two sides (the organization and the customer) socialize much better with each other, reaching a win-win negotiation and build a good relationship between the two sides. A typical customer would react in a better way, trying to be polite, calm and cooperative in the way they communicate with the organizations staff if they realize that they are sitting in a background of a high-class office well equipped with excellent servicescape. Other internal physical evidence like uniforms and proper systematic design of a organizations office layout, etc. could make its employees to feel a sense of belonging and connected with others people who work for the organization. A practical example is the comparison between the servicescape of state-owned banks with that of private banks in Vietnam. In state-owned banks, a large part of the floor is marked as restricted, leaving little space in the form of a narrow aisle along the outer walls of the hall for customers. The message is clear customer must not enter the restricted area, which is where the most important job of the bank, internal operations, is conducted and by entering that area, customers will be interfering with their task. However, private banks approach customers with conviviality. The air conditioned lounge with comfortable seats and a cold water dispenser as you pass through a spotlessly clean glass door, makes customers feel more welcome. Customers are allowed with more space to move and occupy a seat across from executives desks. The physical layout design of the office suggests that customer is indeed central to all activities. They can see how the bank tellers proceeds customers order, how the cashiers work with their tasks, etc. Everything seems clear and open to the customer. Perceived risk that customers face when using private banks services is much lower than state-owned banks. Theres no wonder why private banks are getting more and more successful over state-owned banks in Vietnam Acting as a tool for differentiation Physical surroundings are regarded as a means for differentiation that distinguishes a service organization from its competitors. A restaurant with candles in tables and smooth classical music differentiates a restaurant from one with blasting music and stylist pictures on the walls. Also, the style of uniform and the facility designs are the two concrete tools used for building up the exceptional features of the corporation.
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There are a large number of firms operating in the same field of business, or providing \the same type of services. Any of them would wish to be positioned in customers mind as a outstanding, unique and different from the rest. Never before has differentiation become so crucial as nowadays, since competition between services organizations is getting harsher and harsher in this modern economy. Firms may find out many ways to achieve differentiation. However, the most effective and conspicuous one is using servicescape. The design of the office layout, the color tone for the whole system of branches and agents, the website, employees appearance, equipment, etc. will all matters to almost all of the customers. It defines the style of the organization, the professionalism it holds, importance of customers to it, even its credibility Obviously, the services organization can control the positioning of both its perceived service quality and its business culture in customers mind through physical evidence. In general, there is a high degree of uncertainty for consumers when purchasing services because of their experience, credence and search attributes. Thus, physical evidence is a package visualizing the intangible property, a facilitator aiding in the service delivery, a socializing tool striking to balance the roles, relationships between customers and employees, and lastly a differentiator making the differences among the businesses. EFFECTS OF POOR PHYSICAL EVIDENCE As mentioned in the prior parts, the role of Physical Evidence/ Servicescape in service marketing is very crucial and tactic in every service organizations. If a new established service firm wants to expand and create its value perceived by customers, there are few choices but to strongly attempt to grasp customers attention by improving its physical environment. However, as the marketing environment is changing to be more multifaceted and aggressive, there have been a large number of failures in the process of managing physical facilities. So what are the effects of a bad Physical Evidence? With the purpose of demonstrating more the importance of Physical Evidence in service marketing, this part will focus on the other side of the problem by giving out the consequences of having poor Physical Evidence. As stated in the empirical research of K. Douglas Hoffman et al named A CIT investigation of servicescape failures and associated recovery strategies, there is supposed to have 3 main types of servicescape failures including: Mechanical problems (e.g. airline engine problems), cleanliness issues (e.g. dirty hotel rooms) and design issues (e.g. poor dcor style). These failures in controlling the environmental settings really lead the managers to expose to the risk of demarketing which will certainly experience an unexpectedly tremendous decrease in the demand and involvement of the customers. In this research, the effects of a deteriorating servicescape will be highlighted in reference to the impacts on the two main participants in service transaction: customers and employees. As suggested from other researches: whether customers, employees, or both are present within the servicescape also determines the types of objectives a firm
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might expect to accomplish through its physical environment, this research goes on examining the bad effects on the individual behaviors of customer and employee along with the effects on the interaction between them. The influences of poor physical evidence on the customer can be viewed from the impacts on the customers perception and customers satisfaction to the service offerings. Targeting physical surroundings to get the customers positive quality perception and customers satisfaction is the first magnitude of the self-serviced firms such as goal land and movie theatre The very first and easily to be detected result from a poor servicescape is the deteriorating companys image conveyed to the customers, especially to the new build-up firm targeting to create a specific image. It can be easily to imagine the case of a small fashion shop as the shop owner offer the golden tempo background that almost drives away the youth market segment. Here the inappropriate selection of music stimuli acts as ambient condition of physical evidence that in fact damages the image of the shop. Beside the negative image affection, the failures in sevicescape also constrain customer in terms of leading them to the confusion about what really the firm provide. The vague initial impression aroused from the physical evidence of the service company may keep customer from approach behaviors which were suggested by M.J.Bitner (1992) to consist of attraction, stay/ explore, spend money, return and carry out plan. Moreover, it definitely cannot be denied that the customers satisfaction is significantly constrained by the bad performance of physical evidence. As a result, the repurchase and re-patronage intentions are also strongly affected by the level of physical setting. Therefore if the marketers cannot control the deteriorating in the physical evidence, the whole firm is exposed to mislead customers perception as well as the loyalty regardless of how better they perform in the building of tangible cues (even the price and the quality of the service itself). That means some firms commit a huge mistake if it only focus on developing its core service provided to the customers but neglecting the importance of building up its physical facilities that put the very important first impressions on the customers mind. The price paid to that kind of mistake is truly unpredicted: the company will have to face with a very high risk of temporary close or even bankruptcy as its revenue will be very low and cannot cover the cost to run the operation. According to Baker, Berry and Parasuraman (1988), the same physical setting that communicates with and influences customer may affect employees of the firm. The servicescape facilitating the performance of employee is in the concern of almost service organization but its indeed the dominant role for the remote service organizations like insurance firms, telephone offices and other similar professional agencies. The bad working environment can lead to frustration and actual discomfort among workers. Let consider a simple case of 2 law firms where one can facilitate employees with good air condition, ordered working place and the other firm without the good working assistance. The unavoidable outcome is the bad working environment firm can have high rate of turnover because their employees hardly find motivation, interest and loyalty in the company (especially while other competitors of the company
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are offering much more). It can be concluded that the improved physical surroundings can help the worker make more efforts and assist them in achieving success in their performance when the bad physical facilities turn out to severely affect the quality of service firms through deteriorating the employees who transfer service to the customers. Finally, the interaction of customer and employee in service occurrence can be deferred by the problems during managing a servicescape. Prior researches show that the service design can aid in socialization, in that both participants can understand their expected roles and relationships. For instance, an employee in a store is interested in helping customer in order to build a long maintain relationship when in return a customer in relaxed mood also wants to communicate with a salesperson to help them fulfill their purchasing intention. However, the bad physical surroundings really distract employees from focusing on their task and they can ignore the customer or serve them in a bad appearance or attitiude. Likewise, it can minimize the customers interest in buying. The result is the interaction between them is corrupted and lead to the failures of sales revenue. In conclusion, the failures in building an good servicescape can result in the misleading customers perception of the service offering and customers satisfaction at the same time as the lower performance of the firms employees. Moreover, they may defer the interaction between these two main participants in the service encounters. That fact also means the company has to bear the risk of lowering customers retention rate, the most influential dominant of any services organization. PRACTICAL CASE: PHYSICAL EVIDENCE IN HANU Methodology Putting theory into practice, we have done some research into the condition of Hanoi Universitys servicescape. There are many ways as well as many aspects to examine the physical evidence; however, in this research we only conducted a survey on evaluation of the quality of HANUs physical facilities from the students view. The questionnaire consists of five questions which are designed mostly as ranking ones since we want to know the different evaluation of students about various kinds of physical evidence in Hanoi University. There is also a question asking for their recommendations to improve Hanoi Universitys image in their eyes. The research includes 65 students from Hanoi University, the majority of them are from K07 and K08 students. Most of the survey samples are delivered during breaks between lectures and tutorials and collected at the end of each study sessions. It took us 4 days to completely gather 65 answered questionnaires from all the survey takers. Following are the findings and analysis we have drawn from them. Limitations In this research, a survey was carried out within a small sample of only 65 random HANU students. The limited size of the sample in comparison to a large population of HANUs student body may cause some bias in the result. Moreover, HANU is a special
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services organization since it is a state-owned one in the field of education. Its typical servicescape system is supposed to be much different from organizations of other fields. Thus, some of the findings from our analysis may not be widely applicable to other profit-oriented services firms. Another limitation is that the background of HANUs students varies. A large proportion of them comes from rural areas while many comes from modern cities. Their expectation of the universitys physical facilities therefore may vary as well. Hence, the satisfaction and evaluation on HANUs servicescape is immensely affected by that fact, resulting in limited applicability of the findings as well. Last but not least, this research is carried out by a group of only 4 students in a short time of several weeks. The shortness of time and human resources as well as the lack of experience and further professional knowledge can be huge barriers in the process of conduction of the research. For deeper understanding of the situation and analysis as well as to make any further step based on research results, more efforts and careful researches are highly recommended. Analysis
Figure 1: First impression on HANU

E ducational facilities S upporting facilities Teachers/ S taff's professional appearance Websites, forums,etc Others (2 or more options mixed)
As expected, educational core facilities and teachers/staffs professional appearance are the parts that take most of the first impression of HANU on its students, accounting for over 60% as a whole. First year students in HANU mostly study entrance subjects, whose teaching staff are teachers at young age that they can easily understand what students feel and even sympathize and encourage them in their studying. A small internal research in this department itself has revealed that the mean age of the teachers is 24, much younger than teachers in other faculties in HANU. Moreover, their appearances as well as dressing style are much matched with the students taste of fashion. Entering the university, students come in contact with not only new friends, teachers but also new teaching and studying style. Study rooms are quite similar with those of high schools but lecture halls with projectors, microphones certainly make freshmen
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impressed, worried and eager at the same time. Physical subject particularly surprises students with the intense of exercises and the hugeness of the stadium. Whenever describing HANU, students mention the large green campus and the great stadium as an outstanding feature of HANUs physical evidence that not many other school have. Back to the early time, the universitys management staff had decided to invest a great amount of money in building up the stadium, hoping that students would have the chance to practice curricular subjects as well as extra sports activities. Furthermore, the security staff works quite diligently to protect the stadium and take care of the trees, which enhances the HANUs servicescape image in students eyes. Every afternoon, HANUs playground is full with students enjoying different track-and-field events. As a result, HANU has successfully built a good impression in this term of physical evidence. Actually, the problems regarding the quality of higher education have for long been the concern of the society. After visiting many universities in Vietnam, there have been reports about the bad condition of the educational foundation facilities. Ms Tran Thi Ha, Chief of the Department of Education University (MOET) raised a question With the facilities and teaching staff like that, what could schools rely on to develop stable and sustainable background for students?(M.Giang 2010). After all, it cannot be denied that the two factors, physical condition and teaching capacity, are of utmost importance when building up any academic institutions image. In the latter question, the views of HANU students about these will be clarified more clearly. Besides, colleges nowadays are increasing the usage of information technology to effectively reach the students issues and opinions. This is definitely a good method to control the management process of the whole school. HANU is a multi-major university and each faculty has an internal website address, for example Faculty of Management and tourism http://web.hanu.vn/fmt/ or Foundation Studies Department http://web.hanu.vn/fsd/. Though most students did not pay too much attention to the websites at first, gradually, they have found out the necessity of having access to them because all the notices, declaration as well as legal documents and study results will be broadcasted through this channel. Peripheral physical evidence or supporting facilities, as its name mentioned, just serve as an aid to the performance. In HANU specifically, these include dormitories, parking areas, cafeteria, etc which help boosting up students and teachers efficiency. However, this element influence much on the students lifestyle and educational environment of the university After looking through the first impression of students on HANU as a whole, we spent more effort researching the opinions of undergraduates towards each and every dimensions of the schools physical evidence. The first and foremost finding is about current educational facilities condition.
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Figure 2: Satisfaction level with HANU's current educational facilities
Exceed expectation Good Neutral Under expectations Bad
The overall comment is that students quite satisfy with the current physical condition of HANU which is the core of HANUs service. Study rooms are of reasonable brightness quality and equipment. However, some lecture halls still in lack of desks, chairs and air conditioner, or they have ceased operating already, which made students feel uncomfortable while taking part in educational activities. The survey result of this question suggests a good sign that HANU is creating a good image in the customers eyes. However, if the university wihshes to maintain the appeal, then they still need to improve the current equipment. All broken facilities need to be reported to the corresponding staff and be repaired as soon as possible. Afterwards, other types of servicescape such as supporting amenity, teachers appearance and some interactive channel of HANU are being taken into consideration. The results are as follows
35 30 25 20 15 10 5 0 1 2 3 4
S upporting facilities Teachers' appearance Interactive channels
Figure 3: Evaluation of the tangibles quality
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The most common range of mark is from 2 to 4, which means that these are acceptable, albeit not very good. Students mention quite much about the quality of some supporting services like dormitories, cafeteria. The condition in most dorm rooms at present is good; however, when the dry season comes, electricity and water cut-off happen quite often. What is more, during the last rainy season, the whole dormitories were flooded, which made students escape from their shelters and go home, as a result, they could not concentrate on studying completely. Some infective diseases took the chance to spread throughout the dorm areas; eventually, the dorm staff had to use many methods to get the condition back to normal. Cafeterias foods receive the most complaints from students. Regarded as a top supporting servicescape of a school, foods and drinks services are considered quite important. Nevertheless, the quality of HANUs restaurants has not come up with the students expectations. In the school-run cafeteria, the foods and smells are not very pleasant, let alone the high price. S-club attracts pupils because of delicious foods and drinks, but the price doesnt seem to fit the students allowances enough. Library is also an important physical evidence of a school. HANUs library is in acceptable condition with many sources of referencing materials and good air conditioner operation, notwithstanding the old versions of some computers and the hostile attitude of the staff. Many students say that if the library staff were friendlier, they would come here more frequently because the study atmosphere is very encouraging. Therefore, the university should consider getting this problem solved. HANU is a university with a long history of development; therefore, it has had chances to improve both physical and teaching staffs quality. Nevertheless, the number of low-quality colleges is rising quickly, of more than 400 college and colleges across the country, more than 300 schools have been established, upgraded in 11 years. The expansion of this field has caused rumors among people about the quality of higher education (Tien Dung 2010). The next part of this research will discuss which parts in the physical evidence should be considered for improvements.
Figure 4: Factors need improving the most

E ducational core facilities S upporting facilities S professionalism taff Interactive channels Others
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It is no wonder that teaching staff has been voted as the factor worth improving the most. Any students will look up to their teachers and certainly teaching staff also have a considerable effect on them. Most of HANUs teachers are qualified with at least Bachelor and even Master and Doctor Degrees. The advancement of lecturers definitely brings about customers satisfaction (students eagerness) to study more effectively, as the purposes in theory part have suggested. However, the teaching method is still a problem as some teachers do not know how to communicate with students effectively, thus leading to miscommunication and unmotivated lecturers. Supporting facilities come second in this list with 20% of the students favor the change in them. Specifically, they want to have better quality dormitories and cafeteria as well as free parking spaces. Moreover, all of the problems mentioned above regarding the dorm areas and the quality of foods in the cafeteria also should be considered improving. Though these are understandable desires, it will take such a long time to fulfill all. Interactive channels and educational facilities represent 32% as a whole; in other words, about 21 out of 65 students interviewed agree that developments in these fields are priority. As a matter of fact, HANU staff often makes frequent check-up at the rooms to fix any problems regarding the chairs, desks or other utilities. Moreover, the websites have also been taken care of and update everyday. As a result, HANU may have been in the process of augment these issues already. There are some other factors that students have mentioned like clubs or events, teachers knowledge and several students services at students price should be expanded to meet their needs and wants. Recommendations As noted in the discussion part about the role of servicescape in service firms, the customers perception about the service offerings is mostly determined by the service surroundings. Therefore, HANU should have effective plans to enhance its image perceived by students and other stakeholders of the university. These plans are suggested to concentrate on dealing with the disadvantages of the core facilities and supporting facilities that have clarified in the previous part which includes the information getting from the survey. Recommendations on the essential physical evidence With no dout that the core facilities are in the very heart of the quality of any education organisation in the world, Hanu is on its way to step-by-step improve its educational facilities to best assist the students performance. However, it seems that there are some necessary changes that Hanu should follow to reach its goals: The studying stationaries such as chairs, tables, whiteboards need to be improved to get a better studying condition for the students. Hanu can consider ordering some new chairs and tables and making effort on fixing some bad stationaries. In addition, they should reinforce the students attitude to protect the universitys facilities as the useful life-time of any public facilities mainly depends on the usage of people. The small
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notice piece of paper on the wall of any classroom could have an unexpected effect that the university shuold take care about Besides, the problem arouses that the head projectors, computer system and labrooms are reported to have poor perfomance that really constrain the quality of many lectures should be highly considered by the management board. Hanu should call for the sponsership of other organization especially the technical firms to give it a hand to upgrade such core facilities of the university Recommendations on the peripheral physical evidence In terms of supporting facilities, Hanu is supportes to quickly address some problems in relation to the library, dormitory and students cafeteria As mentioned above, the library is evaluated to be less attractive as the consequence of the poor attitude of the library staff. The questioned arisen here is whether Hanus managers have a regular check on the performance of such staff to quickly identify the inappropriate working attitude? Therefore, to confront with that Hanu should seriously make a plan to build an investigation team to catch up with the emergence of negative issues. The dormitory and cafeteria for students are in urgent need of improving as most of students consider them as below standard conditions. The dormitory should be furnished with moderner facilities when the cafeteria is supposed to get better in the nutrition of the meals and the cleanliness inside the cooking area. In order to fulfil these tasks, Hanu should seriously take care of the problems and constantly evaluate the service quality offerings and students level of satisfaction. In general, in order to enhance the image and attraction conveyed to students, potential students and other sponsors, the most important solutionss basis is the regular input seeking from both student and its staff as to what improvement can be made in the service process to get the best satisfaction from its students. CONCLUSION Being one of the seven Ps in marketing mix, Physical Evidence is increasingly attributed to be on top priority in building an effective service system. This research, with the purpose of demonstrating the tactic role of Physical evidence in service marketing, has provided the broad view of the purpose, importance of a physical environment as well as the discouraging influence of a bad servicescape. It can be stated that the servicescape acts as a strategic bone of a service organisation when it can make the service with the originally intangible characteristic turn to be more tangible. In other words, it can definitely blur the difference between good and service to the customers perception and create the positive customer behaviours toward it supplied service. However, the unexpected bad performance of servicescape dimensions really can ruin the whole thing that remind marketers of carefully selecting the right strategy to establish the most appropriate servicescape process. Moreover, this study also has taken into account one specific reference to Hanoi University with the aim to analyse the presence of physical evidence that the university supply to facilitate the study of its students and other stakeholders. It is clearly justified in the research that Hanoi
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University has quite good physical surroundings but still be far away from performing the expected servicescapes like the other universities in the developed economy countries. Some recommedations are also brought up to provide cues to assist the Hanus board of management on their way to reach their goals of best improving Hanus quality and image. This research contributes an imperative material to the future in-depth researches and analysis to link the role of Physical Evidence to the impacts on customers perception and satisfaction of the service offerings. Thus this research opens up a gamut avenue to the future accomplishments which will generate more multifaceted and thorough understanding about the servicescape in relation to build up better physical environment settings to achieve the service goals of the organization. REFERENCES
Bitner, M.J. (1992), "Servicescapes: the impact of physical surroundings on customers and employees", Journal of Marketing, Vol. 56 No.April, pp.57-71. Bitner, M.J. (1986), "Consumer responses to the physical environment in service settings", in Venkatesna, M., Schmalensee, D.M., Marshall, C. (Eds),Creativity in Services Marketing, American Marketing Association, Chicago, IL, pp.89-93. Solomon, M.R. (1985), "Packaging the service provider", Service Industries Journal, Vol. 5 No.July, pp.64-71. icmrindia.org, Service Marketing- Chapter 16: Physical Evidence viewed on May 12th 2010. http://www.icmrindia.org/courseware/Services%20Marketing/SM-DS16.htm The Times 100, The Extended Marketing Mix (7Ps) p.2, viewed on May 12th 2010. http://www.thetimes100.co.uk/theory/theory--the-extended-marketing-mix-%287ps%29-319.phpMarketing mixWikipedia viewed on May 12th 2010. http://en.wikipedia.org/wiki/Marketing_mix M.Giang 2010, Nhieu truong dai hoc thieu co so phat trien, 28th January 2010, viewed 18th May 2010, http://tuoitre.vn/Giao-duc/361167/Nhieu-truong-dai-hoc-thieu-co-so-phat-trien.html Tien Dung 2010, Phai dong cua cac truong dai hoc kem chat luong, 17th April 2010, viewed 19th May 2010, http://vnexpress.net/GL/Xa-hoi/Giao-duc/2010/04/3BA1AE99/ Palmer, A. (2008) Principles of Services Marketing, 5th Edition,, Maidenhead, McGraw Hill, 10-13 John, J.D. 2003 The effects of the employee service quality provision and customer personality traits on the customer participation, satisfaction and repurchase intentions, Agricultural and Mechanical College, 11-23 Bitner, M.J.1992 Servicescapes: The impact of physical surroundings in customers and employees, Journal of Marketing, 56: 57-71 Baker, Leonard L. Berry, and A. Parasuraman (1988), "The Marketing Impact of Branch Facility Design," Journal of Retail Banking. 10 (2), 33-42. Tripathi, S.N, Siddiqui, M.H (2007) The impact of servicescape on quality perception and repatronage intentions of customers-with specific reference to shopping malls, vol 4, 12-16 Lilien, GL, Kotler, P., Moorthy, KS. "Marketing Models", 1992. Prentice-Hall International. Englewood Cliffs NJ. Shostack, G.L., 1982, How to design a service, European Journal of Marketing, 16(1), pp49-63. Bernard H. Booms and Mary J. Bitner, 1981, Marketing Strategies and Organization Structures for Service Firms, in J.H. Donnelly and W.R. George, Marketing of Services, Chicago: American Marketing Association, pp47-51.
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MARKETING AFTER CRISIS

Supervisor: Ngo Phuong Dung Written by: Nguyen Thi Thu, Nguyen Thi Hoa (TR-06) Vu Thi Thin, Hoang Thi Thanh Huyen, Do Thi Phuong (TR-06) I. Introduction There is no doubt that tourism nowadays becomes one of the most key industries in the economic development strategy of each country. However, tourism also is an easily vulnerable industry due to a wide range of crisis, ranging from the socio-economic crisis to political crisis, from disease impacts to natural disaster...etc. In particular, destinations image is firstly suffered from negative impacts of this crisis. The level of influence of such adverse attack on the tourism industry depends on many factors in which how the destination get ready to encounter and how the tourism authorities response actively response to the crisis. With the aim of having a comprehensive outlook about the impact and destination marketing campaign after crisis, our research concentrates on 4 types of crisis: economic, political, disease and natural crisis in the case of Cambodia, Bali, Hong Kong and China. The findings of the research will be the valuable reference for Vietnam tourism in the term of better preparing toward any kinds of crisis. II. Findings 1. Economic crisis Cambodia case 1.1 The impact of crisis a) Pre-financial crisis The second generated economic sector, tourism, has obviously demonstrated its position from flying higher and higher with the huge amount of tourist income especially after suffered from insecure politic. Indeed, in spite of decades of civil war, and particularly the genocidal regime of the Khmer Rouge in 1960s that destroyed the tourism industry, Cambodia seemed to recover its position after conflict ended in the early 1990s. Since then, thank to the high-speed development, tourism has become not only the countrys engine for economic growth, but also for the political legitimacy and the national and cultural identity of Cambodia (Chheang, 2008). In the 1960s, Cambodia was one of the most popular tourist destinations in Southeast Asia, with between 50,000 to 70,000 annual visitors (Lam, 1996). After that it changed themselves gradually due to insurgencies, civil war, and the killing fields, it was recovered by increasing nearly ten times from the 1990s with more than 200000 visitors arrivals (218,843 in 1997) to 2,015,128 in 2007 that concretized by revenues increasing from 103 million USD in 1997 to 1400 million USD. In addition, it made a enormous contribution easing a huge number of jobless by creating 1,102,000 jobs (2008) 15.4% of total employment, or one in every 6.5 jobs (Chheang, 2008)
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b) After-financial crisis The collected-data has illustrated dissatisfactory result due to enormous decline in tourist arrivals from 2004 to 2009 with the statistic of roughly plunge from 22.3 million visitors to only 8.6 million ones (Figure 1) within 5 years that lead to a certainly considerable shrink in the number of international tourist. (Source: Ministry of Cambodia tourism) Cambodia Association of Travel Agent president, Mr. Vandy Ho, told TTR Weeklya global economic crisis forced a slump in demand, especially from markets in Asia. Arrivals from China dropped 10% in the first seven months, Korea dropped 30%, Japan dropped 14%, while Thailand dropped 20 to 21% this year (Sawapat Pimchaichon, 2009). Generally, expanding tourist coming quantity is defined progressively before crisis but plummet after that 32% from 50.53% in 2004 to 18.53% in 2007 and 5.48% and 1.7% in 2008 and 2009 respectively (Source: Ministry of Cambodia tourism). More detailed, the extraordinarily changeable statistic belongs to Siem Reap in which site of the world famous tourism attraction Angkor Wat Temples, with tourist arrivals falling and some luxury hotels temporarily shut down, local media reported. Last year, we could get about 30 US dollars per table, but now it is completely different. Now some people spend only one dollar for a Coke and then leave the restaurant." said Ms. Chanthorn witnessed 16 percent decrease tourist arrivals in the first quarter of 2009 (Cambodia Daily, http://balita.ph/2009).
Figure 1: Growth of tourism sector ( %) 2004-2009

25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 year
Source: NIS and EIC data as cited in Cambodia Economic Watch (2009).
% growth
East
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Figure 2: International visitor arrivals to Cambodia 2004-2009
The ebbing of measured-number also lies in faded- flight movement statistic which illustrated in term of percentage change in two main airports in Cambodia. The chart recorded the significant drop in growth of passenger traffic at Phnom Penh International Airport, from 21% in May to a mere 3% in September 2 0 0 8 . B e s i d e s , the situation at Siem Reap International Airport has been even worse, with the same statistic reaching-10% in September 2008. Consistent with this, flight movements at both airports were considerably lower in 2008, and expectedly also in 2009 compared with previous years. Incidence of domestic flights actually shrank by 22% in Siem Reap for the period January-May 2008 over the same period in 2007, and by 10% in Phnom Penh for the period January-September 2008 over the same period in the preceding year. Most airlines have already made plans to cut capacity on existing routes, especially in 2009. Figure 3: Flight movement (% change)
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I am worried about that if the hotel business is good, we are good. If it's down, we are down." Said Thy Sok Mony, front office manager at the Prince D'Angkor Hotel. Definitely, the 4% contributed GDP accommodation industry actually stagnated due to tourist arrival decreasing and their short average length of stay. (www.ilo.org) Only 56 rooms out of 222 are currently occupied, down from last year's low-season average of 100 said Thy Sok Mony again. (www.balita.ph/2009/) especially the real number shows the over-shock decline of 30-80% in 2009 compared with 2008 (www.ilo.org). As the result, the impact still has not stopped till making slightly down in tourist receipt from $ 1595 USD to $1561 USD in 2008 and 2009 respectively (Source: Ministry of Cambodia tourism) The multiple-services characteristic has created a numerous labour force such as hotels, guesthouses, restaurants, massage parlors, travel agencies, tour operators, airlines, Tuk-Tuk, souvenir shops, food vendors, etc. Certainly, the vast change at least in labors structure can be noticeable. And, employment opportunities were created for more than 100,000 people and increase 20% annually. However this expected percent was plummeted under 0%, account for -3% in 2009 that means a huge lose of 63000 tourists $ 50USD in revenue and 10000 direct job and if a tourism job can help 3 locals, then about 30,000 locals face living difficulties. An observable example about Tuk-Tuk a kind of motor Dup street vendors, considered the special character in Siem Reap, Phnom Penh and Sihanouk Ville, key tourist attractions, are seeing a major slowdown in tourists. In Siem Reap, Tuk-Tuk drivers earned around $15 per day during this season in the past, but now, they earn only $5 per day. Similarly, those in Phnom Penh use to get $15-20 per day, but have seen their earnings drop to just $2.50 per day in recent months. There is approximately 14,000 Tuk-Tuk drivers; 6,000 in Siem Reap (50% are migrants from nearby provinces such as Kampong Thom, Oddar Meanchey, Kampong Cham) and 8,000 drivers in Phnom Penh (almost all are migrants from provinces such as Prey Veng, Takeo and Kampong Cham). Even though their income is declining, Tuk-Tuk drivers said they have no plans to change their jobs or return home because the chances of earning money in the city is higher than in their villages. 1.2 Marketing strategy Segmentation strategy After the financial crisis, Cambodia has been working on the recovery plan of its tourism sector. The policy mix administered to rekindle tourism in this country has constituted a relatively bigger, more diversified and more visible set of responses. the immediate strategy seems to have been to focus on reviving the number of tourists coming in through regionalization and vamped-up marketing, Consequently, the target segmentation of the main sources of Cambodia tourism listed the emergency source needed recovering. A great deal of contributed revenue principally comes from the international tourist particularly main sources like Vietnam 14.63%, Korea 9.15%, USA 6.87, Japan 6.77 % etc (Source: Ministry of Cambodia tourism 2009). In a nutshell, the longer-term strategy refocuses on pushing the quantity of tourist specially
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international one and enhancing the quality of the tourists (e.g. targeting better spenders) and products and gearing up to tap other tourist sites and markets, As the result, some of the promotional strategy was started activating Pricing strategy To stave off the further ebbing of the tourism sector, the Cambodian governments proposed chief strategy is to boost the total number of tourists from last year by 5-7% by enhancing the number of national tourists and tourists from the ASEAN region, the Middle East and Russia. If we could add two more flights daily from Bangkok to Siem Reap, we could potentially bring in an extra 39,000 tourists per year and 59 million U.S. dollars," said Pascal Deyrolle, vice president of the Cambodian Hotel Association and general manager of a hotel in Siem Reap (Xinhua, 2009). Indeed, reducing package-tour prices would foster growth in international travel, while some persons operating hotels believed that more flights from more carriers would help growth. Meanwhile, a 10% to 20% reduction in the price of tourism services, including accommodation, food and transportation, has reportedly been undertaken by the private sector, with 30% to 40% of travel agencies operating in the country having slashed prices of package tours (MoT, 2009). The reduction price strategy also has been proven through lowering of fees at tourist sites: three million VND touching the wonder (Huu Vinh, 2009) has shown the surprised entrance fee in Angkor Wat with only $15USD included $ 165 USD package tour to the famous tangible cultural heritage in Siem Reap, Cambodia. Going with this flow requesting hoteliers to cut their rates, since 50-70% of tourism spending is on accommodation also draw the lower package tour. Product strategy Tighten the cooperation between the stakeholders and the tourism private sector, the Tourism Working Group of the GovernmentPrivate Sector Forum (GPSF), the Cambodia Association of Travel Agents, hotel and restaurants associations, the Socit Concessionaire des Aroports (SCA), opposition groups and independent analysts, have implemented a series of strategy related to recover tourism product. In the effort of bringing Cambodia image and also raising international tourists awareness, new slogan Visit Cambodia, Kingdom of wonder tends to ease the horrible image of a spoiled country by civil war, political infighting and massive corruption resounds loudly in the international community so that it can actually hit the degree of tourism affect. Additionally, for further serving and facilitate tourists touring process, facilitation of transportation services was implemented in term of freely allowing 150 vehicles, both passenger and cargo carriers, from countries that have land borders, for one week etc. Besides, boosting of budget and direct flights, especially from European countries (the countrys airports are said to be capable of accommodating eight times the current traffic); in connection with this, is enlarging and adding the necessary infrastructure to airports made smooth the process of air-traveling especially among Asian country. Concurrently, the RGC (Royal Government of Cambodia) has initiated maintenance
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and repair works that have a direct bearing on travel facilitation. For instance, national roads leading to key border checkpoints have reportedly been restored. Tapping other tourist sites and non-traditional tourist markets has also been high on the agenda, although such diversification seems to have been the hardest to concretize. Angkor Wat specifically, but the Siem ReapSihanoukvillePhnom Penh triangle generally, remains the key pillar of tourism. Given the underdevelopment of other areas and the traditional fixation on Angkor Wat, both of which discourage investors from undertaking risks and venturing into other areas, it will take time and a great deal of persuasion by tourism reformers realize this objective. Simultaneously, Tourism law was launched in 2009 tighten the tourism controlling of all private and public sector, insuring that establishments working in the industry have formal licenses that are renewed on a yearly basis and helping them meet the required standard as well. the purpose of the law is namely about developing the tourism industry, which in return will help reduce poverty Thong Khon, minister of tourism, said (Xinhua, 2009). For approaching the law Ho Vandy, co-chairman of the government private working group on tourism, attributed this year's tourism decline to the global economic downturn, which, he said, had already forced several hotels to close and several others to reduce their employees' hours and also crack down on unlicensed agents and hotel and restaurant operators that do not meet relevant standards (Xinhua, 2009). Promotion strategy As stated the slogan Visit Cambodia, kingdom of wonder takes the main role forming the first impression opening new page of tourism development by broadening Cambodia reputation becoming a cradle of ancient temples and pagodas Accordingly, a marketing campaign conducted to be adverted on international channels such as CNN with the huge amount invested of US$340,000 (http://www.cambodia-tourism.org), international television, and print media, featuring Angkor Wat alongside images of eco-tourism sites, Apsara dancers, beaches and shadow puppets. The ministry's campaign was welcomed by Luu Meng, the president of the Cambodian Hotel Association. He said television advertising and this week's launch of national carrier Cambodia Angkor Air would both represent a welcome help. "And we hope the number of tourists visiting Cambodia will pick up from the end of September, because that is the start of the tourism season," Luu Meng said. He added that moves by hotel operators to cut staff numbers and working hours would work as a short-term solution to combat the problem of lower visitor numbers. "There will be nothing to worry about provided they don't actually close down their hotels," he said. (http://www.cambodia-tourism.org) In parallel with reducing the package-tour price facilitating the touring process will be the added factor creates the highest level of tourists convenience and satisfaction. Indeed, a tourism stimulus package has been spoken of but the government has sought to downplay expectations about its breadth in advance, as it ultimately depends on up to how much the government coffers can accommodate. Caution has
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also been expressed with regard to the easing of visa requirements especially the visa exemptions for fellow GMS (The Greater Mekong Subregion) countries Vietnam and Lao PDR and ASEAN countries Singapore, Malaysia and the Philippines. Consequently The government seems to be more optimistic and emphatic about the fact that, while less compared with previous years, sector growth remains and will remain positive. It has set recovery by 2011 or earlier (Chun, 2009). Additionally, an attractive promotional campaign was designed and launched from the first appearance throughout 2007 up to now. The Stay another Day initiative supports from the idea of sustainable and socially responsible tourism aligned to other promotional tourism initiatives such as Kingdom of Wonder, which looks at the branding of Cambodia as an international tourist destination with distinct features compared to neighboring countries. Driven by responsible Cambodian company owners, the campaign initially (2007 and 2008) was jointly published and financially supported by the International Finance Corporation (IFC) and GTZ-PSP but after that get going on by itself. With the aim at raising tourists awareness about so far unknown, alternative tourist-destinations, activities and as a result, probably increase the average number of days, stay another day has proven its distinctive power in attracting more and more tourist to Cambodia. 1.3 The result As the result of all the implemented strategy Cambodia is still an attractive destination due to be cradle of ancient value and beauty. It has been demonstrated perceptibly the recover in the actual data. Figure of 4.75 % rise in flight arrival year on year in January released by the Ministry of Tourism Thursday suggested Cambodian tourism is starting to recover after a difficult 2009, as total visitors rose an annualised 6.36 percent in January, which included a nearly 5 percent increase in all-important air arrivals. The statistic of tourist arrival at airport also recorded speedy recover: Phnom Penh International Airport saw arrivals rise 7.56 percent in January year on year, the figures showed, while Siem Reap arrivals climbed just 2.73 percent Data also showed a dramatic rise in tourists from Cambodias two main sources South Korea and Vietnam. We have already received the impact from the crisis. And now it is over, so the sector is on the way to recovery, said Kong Sophearak, director of the Statistics and Tourism Information Department. South Korean Airlines Asian, which declared 39% rise in traveller suspended flights to Siem Reap from Incheon for nearly three months ahead of the tourism high season at the end of last year, saw full loads on its flights four times per week in January to Cambodias main tourism hub, Nhim Kimny, the airlines sales and marketing supervisor, said. In addition, however, analysts said the figures were positive, and that a firm recovery would likely take hold throughout the remainder of 2010. This year, we are confident of increasing tourism arrivals to Cambodia because the country has an advantageous relationship between quality and price, good customer service and a diversity of offers, said Mohan Gunti, an adviser to the Cambodian Association of
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Travel Agents. Indeed, the new page of Cambodia tourism has changed themselves to become kingdom of wonder instead of the destroyed country in civil war and steer forward to be the target destination in 2011 in Asia. 2. Political crisis Bali case At approximately 11:20 pm, Saturday October 12, 2002, the idyllic island paradise of Bali was rocked by a series of devastating explosions. Paddies Bar and the Sari Club on the main street of Kuta bore the brunt of the impact. Both entertainment venues were packed with unsuspecting tourists, staff and revelers; many others were in the vicinity. Despite medical and emergency response efforts, 202 people died as a result of these blasts and hundreds more were injured - with varying degrees of severity (ABC Online 2003). Figure 4: Deaths by country of origin
2.1 Impact of the crisis Tourism demand slumped dramatically following the Bali bombing. In September 2002 direct international visitor arrivals to Bali stood at 150,747. In November it dropped to 31,498 arrivals (Terrorism and Poverty: Causes and Impacts) (figure 5)
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Figure 5: Tourist arrival 2001- 2002 Hotels and restaurants alone employed 58,000 people (3.3% of the labor force), but contributed 21% to Balis provincial economy. If retail trade, manufacturing, and construction are included, tourism can be argued to generate over half of Balis income. The week before the bombing occupancy rates at starred hotels ranged from 65 to 100%. With the slumping in number of tourists after the bombing, by the end of October 2002 they had plummeted to 10% as the exodus ensued (After the Bali). As a result, when the main source of income suffered from a big tragedy, a number of coping strategies at the village level were run including reducing expenditures, selling assets (16%), scaling down remittances to villages, and return migration to the home villages as a social safety net (32%). And 100,000 had already lost their jobs most from the informal sector. Many businesses encouraged staff to take unpaid leave, scaled back working hours and reduced salaries in attempt to remain operational. That revealed the relative instability of the tourism industry and the vulnerability of those dependants on the revenue it generates. Moreover, the image of Bali has been stuck with the memory of October 2002. That creates the suspicion of tourists about the safety and prevents them to travel to Bali. Furthermore, since October 2002, a number of countries, including Australia, Japan, the United States, Britain and other European countries have imposed travel warnings against their citizens who plan to travel to Bali and other places in Indonesia. 2.2 Marketing after crisis Segmentation The fact that the tourists from Australia and other Western countries hesitated to come to Bali and Australian government encouraged their citizens not to travel to Bali. Thus, tourism enterprise in Bali found own way to survive. The main target market was removed from Australia, New Zealand, the USA and Europe to Asian market like Japanese, Taiwanese and Korean. Especially, Bali tourism focused more on young and retired Japanese ones (Bali plans to lure Japanese tourists). And the result is the traditional long-haul North American and European market segment has been well surpassed by domestic, Asian and budget Australian travelers with shorter visits and reduced daily expenditures. The number of Japanese tourists visiting Bali ranked the second after the Australians. Product strategy To recreate the image of a safe and peace destination, move beyond the images and memories of Bali bombing, Bali authority improved the national and regional security. Implementing active strategies like identifying and prosecuting the Bali Bombing suspects; strengthening international intelligence sharing arrangements; introducing new anti-terrorism laws; and increasing the highly visible police and security presence across Bali, particularly at seaports and airports, they aimed to regain the customer confidence.
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For example, to ensure the safety of the first visitors - the first large Japanese group to visit the island after the bombing tragedy, the local police guarded the harbor. The cruise liner arrived on 9 a.m. on Feb. 10 (Senior Japanese tourists enjoy the beauty of Bali). Then, after the Bali blasts, we contacted all embassies and travel institutions around the world to convince them that Bali still safe. We also asked related governments to revoke their travel advisories. In addition, some types of products changed to catch up with the situation, these changes were reflected in a decline in the numbers of FITs (Free Independent Travelers) and a relative increase in package tourists (Terrorism and Poverty: Causes and Impacts). Promotion strategy Right after the crisis, there were several ceremonies inviting all religious denominations and nationalities to purify and cleanse it of all residual chaotic influences; and attract media attention from around the world to display the level of grief and anxiety of Bali bombing. It was important to respect and remain the sensitive to the victims of Bali tragedy. Moreover, warm smile and willing conversation of local residents reduce the sadness and confusion of tourists (After the Bali). They continued advertising and resilience like using media and public attention drawn to other issues in various parts of the world. International marketing and public relations firms were also employed by various organizations to assist in the promotion and restoration of a positive destination image for the area. Initial campaigns and slogans such as: Bali for the world and Unified in Diversity: Unified we stand were designed to demonstrate the strength of both industry and community, while broadening the Bali brand to encompass Bali culture and heritage (Bali overcoming crisis). Other campaigns and slogans like Bali for the World and Kuta Karnival of Life active strategies to emphasize and assure safety and security. Moreover, Congress Tourism from the frequent international conferences held on the island, especially after the terrorist bombings of 2002 and 2005; ostensibly to resurrect Bali's damaged tourism industry as well as its tarnished image (The Bali Updated). They created familiarization trips for foreign journalists to promote balanced media reporting. Other significant investment has been committed to the development of dedicated websites, brochures and promotional materials. Additionally, sales promotion like large concession from airlines, hotels and tour operators is an effective action to lure the tourists back to Bali. People To get over the tragedy, there is a special need of cooperation between all relevant stakeholders of Bali. In fact, cooperation between businesses, the humanitarian organizations, all levels of government and the local community contributed a greater socio-economic resilience through the development of a comprehensive crisis management plan and associated recovery marketing strategies. Every issue like security, regional stability, contingency planning, available resources, emergency
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procedures, communication, rehabilitation and mitigation, need to be clearly addressed. In an effort to support Bali tourism, PATA quickly deployed representatives to assist with the management issues and conduct an objective of initial response strategies. And to remain effective each element was regularly reviewed and updated ensure that relevant destination image, marketing, and promotional initiatives. Improve a communitys capacity to efficiently respond to a hazardwhether threat or reality. Constructive crisis management should be integrated, holistic and sustainable, rather than simply reactive. Through the open, multilateral sharing of information, experience and knowledge it is possible to anticipate a diversity of problems, formulate appropriate response techniques, and determine organizational responsibilities (After the Bali). The restoration of destination should be full awareness and support of the local community. However, the Bali community has yet completely empowered. Many residents still remain ignorant the political decisions official actions. 2.3 The results Bali becomes more affordable place. Many airlines have rerouted or scheduled new flights to the island while hotels and businesses are experiencing renewed patronage. Direct foreign arrivals have reached unprecedented highs while occupancy rates are generally above 80% (BPS Statistics Indonesia 2004). Revitalization and continuing growth in visitor numbers appears promising. (New record tourists to Bali in 2009: 2.2 million). Promotional efforts, security improvements and heavy discounting have helped to attract tourism back to Bali yet such tactics have created their own social and economic issues. However, spending and behavior patterns have yet to return to precrisis levels. Many of the social and victim support groups formed directly after the terrorist attacks in 2002 have now disbanded or moved on to sponsor other causes. Employment remains limited and wages low. It is a sad reflection of todays world that the island of Bali can never truly recover its pre-crisis innocence, however in the aftermath of this tragedy lies the chance to realize a safer, more alert and more resilient communitythe ultimate emergency management priority (Gurtner Y., 2004) 3. Disease Hong Kong case The Asian Development Bank (ADB) has indicated that the Asian economics severely affected by the SARS (Severe acute respiratory syndrome) crisis include Peoples Republic of China (PRC) Singapore, Vietnam and Hong Kong. Appeared at the end of February 2003) SARS widely spread to Hong Kong and causes serious affects on tourism activities in this country. The tourism operations in hotel, restaurant, tourist attractions and airline transportation are suddenly froze. There is a rapid downturn in tourist arrivals followed the first outbreak of SARS in this country from mid-March onwards. Comparison with the same period of 2002, arrival dropped from 19.1% positive growth in the first half of the month to 9.9 % negative growth in the last half of 16 days. The lodging industry also suffers heavily from the SARS storm. Also according to the ADB, hotel occupancy declined severely in the second quarter of the
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year. However, the tourism industry sustain the most serious influence is airline industry. The Association of Asia Pacific Airlines (AAPA) indicated that the average passenger in April 2003 just over 11,300 per day, downturn 65.6 % from the same period last year. In the next month this airline just carried approximately 7,000 passengers a day. In the addition, the flight schedules have been cut about 45%. Along with the decrease of airline transportation is the drop in tourist expenditure in exchange. The retail sales dropped 50% in March 2003 (Hong Kong Retail Management Association, 2003). From this above statistics, we can jump to the conclusion that Hong Kong tourism is the greatest industry suffer from the SARS). It were 7 years after the disease crisis, it is the right time to look back how successfully the tourism authorities done to overcome the crisis. This research aims to evaluating the tourism marketing recovery campaigns of this country and the effectiveness of its actions. Segmentation strategy Due to the large impacts of SARS, it is necessary for the Hong Kong tourism authorities conducting the various destination marketing campaigns in order to recover the tourism industry after the crisis. One of the priority tasks is redefine the target segmentation market. A number of possible areas for further explorations also turned up. During the outbreak, for instance, when both inbound and outbound travel was dropped a half, local tours organized by tour companies was a hit as few people had been aware of the local attractions and countryside. Hong Kong is believed that development in this area could stimulate more local spending, as well as provide more appeal to tourists than just shopping so they would extend their stay in Hong Kong. Therefore, the government should provide the infrastructure and create more tourist destinations to satisfy the unfulfilled demand. There is a fact that the international visitors quantity come to Hong Kong, especially the America and European market drop dramatically. Even many large corporations in American forbid their employee travel to Hong Kong as an incentive travel. Therefore, the crisis has speed up Hong Kong tourism diversify and develop new potential target market such as India, Russia and the UK (Hong Kong Association and travel Agents). In the addition, with the aim of concentrating in one of the target segmentation market, the Individual Visit Scheme that allowed travelers from Mainland China to visit Hong Kong on the individual basis has been applied on July, 2003. In the short time of applying, the number of visitors under the scheme increase constantly. As the results, it created a 'positive by-product' to attract overseas travelers to visit Hong Kong when scheme is attracting a large number of Mainlanders to Hong Kong," (Miss Kinnie Wong, 2003). Based on that the overseas markets such as the United States and Australia may feel safe visiting Hong Kong again in the big event of this country. Pricing strategy According to WTO, at the special Recovery Committees meeting in Berlin (2002), lowing prices is the one of the five best methods that determines the demand change in the market after crises. The reality shows that Hong Kong tourism has applied
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price reducing activities in the wide scope of tourism activities. Airline supplier Cathay Pacific and Dragonair spent 3000 airlines ticket with low price. The travel agents offer the reduced- price holiday package tour and value-added services to the all visitors. Food and beverage industry also reattracts the tourist expenditure by reducing the receipt price or dishes price such as Yung Kee or Maxims Caterers restaurant. This strategy really brings the positive results in response. Promotion marketing strategy "What we need now is a stunning and effective publicity strategy that draws the attention of global consumers and the media and rebuilds their confidence, said Selina Chow, Chair person of the Hong Kong tourism Board. There is a fact that, SARS crisis deeply changed the destinations image on the customers perception. Hong Kong now no longer is the safety and non- disease destination, a dangerous and deadly country instead. There fore, promotion and communication plays an important role as changing and raising awareness of products to prospective customers, consequently stimulating demand and generating the incentives to travel. It is totally necessary to create a strong relationship and cooperation between the destination and its prospective market, make it more reliable and more sustainable in development as well. That requires Hong Kong tourism authority conduct a comprehensive marketing campaign in all aspects, included the communication message, marketing content and materials, promotional techniques and distribution channels. The government of Hong Kong spent $129 million on a global recovery campaign aimed at revitalizing the city's battered tourism, commerce and exhibition businesses in the wake of the SARS epidemic. It partly reveals the effort of Hong Kong in recover the tourism industry after SARS. With the aims of changing visitor s perception towards Hong Kong, Hong Kong tourism Board spread out widely the message Seeing is believing by inviting nearly 500 international trade representatives and media, including groups from Europe, Germany, Japan, Malaysia, Southeast Asia, Korea and India. They also made sure that all these events are widely publicized in the participants home market so that the reassurance message is well spread to consumer in those countries. It can be said that Hong Kong not only target on the domestic market but also the international market. Public media is also an important promotion channel in the marketing after crisis strategy of Hong Kong tourism. HKTB constantly produces three videos newsreels which have been distributed to major TV stations and networks in more than 60 countries worldwide. These feature interview with visitors and expatriate business people, stating their confidence in Hong Kong as well as showing the community out enjoying themselves again at events like Dragon Boat Festival celebrations. During SARS outbreak, the campaign "We Love Hong Kong" showed Cathay Pacific hand in hand with the Hong Kong community can overcome adversities. The airline has recently been accorded as the Airline of the Year 2009. Its tandem with Hong Kong International Airport, international awardees in its own right, is indeed formidable. The
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Hong Kong and overseas offices have also been using press releases, media interviews and articles to spread the message that life in Hong Kong is back to normal, working closely with the Hong Kong Economic &Trade Offices and the Hong Kong Trade Development council in relevant markets to deliver a strong and consistent message. Under the banner Hong Kong welcome you the Hong Kong tourism board conducting a serial of recovering program that include: - Welcome month launched on 13 July of 2003 to coincide with the Boan / WTO tourism forum and running until mid September/During period, early customer will be lured back with some irresistible air and hotel offers, a list of special dining and shopping privileges when they arrive and a Lucky Draw offering more than HK $10 million worth of prizes, which will also be opened to local residents to help stimulate domestic spending. The promotional program will be carefully timed and tailored to each different market, based on the assessments of consumer sentiment gathered from HKTB research. - A major welcome day in Mid August at the mid point of the two welcome months, the leading trade and representatives from all over the world will be invited to Hong Kong to enjoy a spectacular series of special, news-making event. - A series of mega events and promotion running from mid August until the end of March 2004. These events will ride on Hong Kongs unique harbor and lighting, showcasing the citys energy and vibrancy, and creating new excite and experiences for visitors worldwide. They also make full of use of popular and well-established, colorful festival such as Mid Autumn Festival, Christmas and Chinese New Year. With a new event being added each month, travel agent will have a sustained supply of must see attractions that they can use to arouse customers desire to visit Hong Kong. It is clearly to recognize, Hong Kong after SARS storm made the best effort in recovery tourism with the aim of bringing visitors back as quickly as possible. However, these recovery programs are looking at the long term (Mrs. Chow, 2004). That is the reason why Hong Kong tourism focus on making the sustained and memorable program not long right after crisis. Their plan is combining short tern initiatives that will attract visitors back with specials offers and spectacular event that can reinforce Hong Kongs long term destination image and reputation. The priority of Hong Kong tourism board is reviving the tourism business in key source market and build on Hong Kong core strengths and values to reinforce its positioning as a significant market in the international area. Product Strategy It is suggest that the tourism product in the recovery period of a destination suffering crisis fall on the eliminate the negative influence on the tourism products and offers (Glaesser 2003); various short-term product (WTO 1991 in Glaesser 2003) and niche products (Mintel 2002, WTO 2001).
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The effort of Hong Kong and the city administration of Hong Kong in applying product developing strategies reflected the above approach. In order to recover the customers belief after SARS crisis, trends in sanitary services are also encouraging. The increased demand for cleaning services alongside the heightened awareness of hygiene should be another bright spot. The 2% rise in business since the SARS outbreak means there is still long way to go, as both the public and private sectors now understand the importance of hygiene. By spending more resources on cleaning up the city, not only quality of life in the city is can be improved, but also the tourism industry can be changed in term of destinations image and brand name (Hong Kong tourism development committee). Except the affect of SARS outbreak, Hong Kong is an ideal Mice destination for the various business travels with the advanced technology and facilities, warm hospitality personalized services coupled with immense natural beauty and rich cultural heritage. It brings to the Hong Kong tourism an opportunity to focus on enriching and boosting the Mice product in the post-SARS period. According to the Hong Kong tourism Board (2004), although a number of conventions and exhibitions in the second quarter of 2003 were postponed due to the SARS outbreak, many were simply rescheduled to later in 2003 or 2004. So far, more than 120 international conferences and exhibitions have been scheduled between 2004 and 2010. In the addition, the priority tourism product focuses on the product extension and diversification, such as Disneyland in order to refresh and extent its product base (World Travel and Tourism Council, 2004). Distribution strategy Basically, there are two kind of distribution channel: direct and indirect. In the field of domestic tourism distribution, direct sale take place directly between the service providers and consumers (Glawsser, 2003) One of the most importance findings of a research that after the crisis period, the consumer had highly demand of finding the information and statistic about this destination as well as the expectation for the recovery and insurance in term of safety and security for their traveling. Therefore, direct sale is an effective channel to answer the enquiries from the customer and open the opportunities for the services suppliers make customer satisfy throughout the professional and differentiated product and services. Cost consideration is one of the most important contributors of direct distribution channel that used as an indicator in choosing the tourism product of the consumer. Hong Kong, due to this principle, has applied many lowest possible prices with the best guarantee and reliability to customer. Indirect sale, in contrast, is the indirect communication between customer and service providers or secondary distribution. Internet and television is the popular indirect channel. Although Hong Kong authorities has updated a lot of related information and guideline for the best trip in the crisis period in the tourism websites (www.gohongkong.about.com; www.info.gov.hk; www.news.gov.hk etc) or the marketing strategy of famous star Jackie Chan with slogan live it, love it widely
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spread in the public media (2004), the internet still a long way from becoming a major distribution channel in term of volume (WTO, 2002b). It is recommended that the Hong Kong tourism authorities should conduct both two distribution channels in order to change the customers perception as well as boosting their traveling to Hong Kong. Conclusion After gradual recovery from the SARS crisis, the Hong Kong tourism destination marketing campaign has proved the effectiveness in the way of recovery the tourism industry by each step of each particular strategy: retargeting the market segmentation, lowering the tourism service package price, applying the various the destination marketing campaign, diversifying the product catalogue and broadening the distribution channel. The inbound and outbound tourist market continues developing in the amount of visitors. Based on the above analysis and findings, we con draw a conclusion that Hong Kong tourism board was successful in way of recovery the countrys image and tourism industry. To conclude, The marketing instrument employed in crisis management requires no change or innovation in themselves. The instruments and fundamental decisions still remain the same. Only the different framework caused by the negative event has to be taken into account. (Glaesser 2003, p.146). 4. Natural crisis Sichuan Earthquake, China (12 May 2008) The word Natural Disaster has now become too familiar with the history of the Earth during the past years. Any destination which has ever had to suffer from natural disasters once was also left with extensive damage and heavy losses, especially reputation in terms of tourism. Phuket, Thailand in tsunami (30 December 2004) is a typical example. Tsunami drowns Thailand's tourism industry is the title of an article on website http://www.cdnn.info/industry/i041230/i041230.html of CDNN (CYBER DIVER News Network)1 that showed viewers clear information and evidence about the huge negative impacts of that disaster on a country having been well known in tourism for such a long time. Even the Prime Minister of Thailand, Thaksin Shinawatra while touring the disaster area said "Even though we can quickly rebuild hotels, it will take some time to draw back tourists to the affected areas". This indicates a fact that tourism will have to suffer huge damage if a natural disaster happens in some region. In this paper, our group would like to emphasize on the case of Wenchuan (Sichuan) Earthquake in China (12 May 2008) in addition to the case of tsunami in Thailand as it has recently occurred and received most attention from many parts of the world. 4.1 General impacts This was not the first time that a natural disaster occurred in China. In the past, China often had to experience some types of natural disaster like famine, flood, typhoon. The earthquake on Monday, May 12, at 2.28 pm (Beijing time) that struck Chinas Southwestern, Sichuan province is said to be Chinas most severe natural disaster since 1976, when an earthquake destroyed the eastern city of Tangshan, killing
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upwards of 240,000 people. According to a comprehensive study (LingLing, Jiexiu and Lianyou 2008)2, this 8.0 magnitude earthquake caused extensive damages and heavy losses, mainly in Sichuan, Gansu and Shaanxi Provinces, and caused some damage in another seven provinces. As of 25th September, the official death toll stood at 69,227 lives with 17,923 people missing, and 374,643 people injured (see Table 7). Totally 46.25 million people were affected by the earthquake. Besides, a great number of rural and urban houses collapsed, infrastructure facilities were damaged on a large scale, agriculture and industry suffered from heavy losses, and the ecology and environment encountered severe destruction. Geological hazards induced by the earthquake, such as landslides, rock falls, debris flow and barrier lakes, were experienced at an uncommonly high level. The total amount of direct economic losses caused by the Wenchuan earthquake is estimated at RMB 852,309 million, and losses in Sichuan, Shaanxi and Gansu Provinces are estimated at RMB 845,136 million, making up 99.16% of the total, among of which losses in Sichuan, Gansu, and Shaanxi Provinces were RMB771,770 million, RMB50,535 million, and RMB22,830 million, respectively, making up 91.32%, 5.98%, and 2.70% of the total losses in the three severely affected provinces.
5.98% 2.70% S ichuan S aanxi Gansu 91.32%
5.61% 17.08% S ocial Infrastructure 55.05% 22.26% Productive Cross
Figure 6: A. Percentages of Direct Economic Losses in Three Severely Affected Provinces B. Percentages of Direct Economic Losses in Different Sectors In general, the Wenchuan earthquake affected 10 provinces/cities (Sichuan, Gansu, Shaanxi, Chongqing, Yunnan, Hubei, Guizhou, Henan, Shanxi and Hunan), 417 counties (cities, districts), 4,667 towns and 48,810 villages. The total disaster area covered 500, 000 square kilometers, in which the worst affected 51 counties (cities, districts) in Sichuan, Gansu, and Shanxi Provinces covered 130, 000 square kilometers. Particularly, huge tremors from the first wave were felt throughout the country, rattling
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buildings in both Beijing and Shanghai, and smaller shocks were felt as far as Thailand and Vietnam. The situation became more serious when three strong aftershocks measuring 4.8, 5.5 and 5.8 respectively continued to occur in the quake areas and hit the Sichuan-Gansu border region. As a request, many researches about the impacts of the earthquake on the affected regions have been carried out to find for the overall planning of the rehabilitation process. Impacts on Sichuan tourism: The earthquake has tremendously affected all industries in the quake-hit areas, with no exception of the local tourism. a) Pre-disaster situation Tourism in Sichuan belongs to the service sector which contributed 34.9% of the economic growth in Sichuan. The development of the service sector is particularly important, as it provides jobs not only for new additions to the labor force, but also for transferred farm laborers. Therefore, services play an irreplaceable role in developing the economy and promoting social stability in the affected areas. Located in the country's southwest mountainous areas, Sichuan is well-known by its diversified scenic spots, including Jiuzhaigou, Emei Mountain and Wolong Giant Panda Protection and Research Center. Tourism and travel accounted for more than 8 percent of the province's gross domestic product. Figures from the National Bureau of Statistics show tourism revenue of Sichuan Province hit 121.7 billion yuan in 2007, up 24.3 percent year on year. Sichuan received 185.7 million domestic travelers and 1.71 million foreign travelers in 2007 (Xinhua News Agency 15 May 2008).3 b) After-disaster situation Due to the earthquake, transportation was hardly moving, and service establishments were closed for several weeks in the aftermath of the disaster. Most of the tourist destinations, including cultural heritage sites in Sichuan Province, were wrecked by the earthquake. Overall losses to the service sector are estimated to be RMB 41.13 billion. Also according to a comprehensive study (LingLing, Jiexiu and Lianyou 2008), many travel agencies have also had to suspend their activities because of the non-availability of tourist destinations. The combined effects of the earthquake means the situation regarding tourism-related employment is grave. Over 300,000 people have lost their jobs and the average occupancy rate in hotels has been less than 25%. Additionally, some of the unaffected tourist destinations have had no tourists because the transportation infrastructure for bringing tourists to those areas was not able to function and the government introduced a tourism prohibition to those regions. Consequently, the gross income from tourism in May in Sichuan decreased by 64.7%. It is hard to quantify the long term effect of the disaster on the development of tourism in Sichuan, but it is clear that the effects will be severe and long-lasting. So far the percentage of losses in tourism has been highest (53%) compared with commerce, real estate and finance in service sector which were 13%, 30% and 4% respectively.
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13% 4% Tourism Real Estate 53%Finance 30% Commerce
Figure 7: The percentages of losses in Tourism, Real Estate, Finance and Commerce The earthquake affected all resources necessary for developing tourism like natural reserves, cultural heritage, natural ecosystem or biology diversity. On a website of China, experts said that the earthquake will have little long-term impact on the province's tourism industry but the short-term impact is severe because after the quake hit on Monday the China National Tourism Administration (CNTA) ordered all local travel agencies to halt its planned journeys destined to or passing through quake-hit areas and the public is asked not to visit the areas in the near future. There were also some other comments about the impact of the quake: - Wu Jiaoli, an expert with Ctrip. com, a renowned national online traveling service company, said that the quake had given a severe and abrupt shock to the tourism and traveling industry in the areas. The company had canceled several planned tours out of concern for safety. - The earthquake might cut the inflow of foreign tourists even more, said a staff member surnamed Huang in a travel agency that deals in arranging domestic travel for overseas tourists. However, responding to Xinhua News Agency, Dai Bin, the vice president of China tourism institution with the CNTA, in the article Tourism in quake-hit Sichuan encounters severe but short-term problems3, told that the prospects for the tourism industry this year may not be as bright as in the previous years, but it will not persist long. 4.2 Plan of Recovery Marketing After the earthquake, Sichuan has been working on the reconstruction plan of its tourism sector. According to the plan, the province raised nearly 200 billion (nearly US$29 billion) from both the governments and investors for the reconstruction of the sector (Sichuan reopens to tourists, full recovery by 2010, 2008)4. Besides, Sichuan reopened 12 cities and one prefecture to tourists in a move to revive its once-booming tourism industry, which include Zigong, Panzhihua, Luzhou, Suining, Neijiang, Leshan, Nanchong, Yibin, Guang'an, Dazhou, Meishan and Ziyang and the Liangshan Yi autonomous prefecture and some visitors' attractions were reopened to visitors before June 15, 2008.
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Segmentation strategy According to Zhang Gu, chief of the Sichuan provincial tourism administration on chinadaily.com.cn, Sichuan would promote visits to its attractions by locals in the province and ask provinces and cities which were helping Sichuan in its after-quake reconstruction to organize tourists to Sichuan and the fact really proved the effectiveness of this. It also means that the international market was just considered as a second priority while the domestic market was focused as the main one. Pricing strategy To promote tourism hard hit by the May 12 earthquake, many attractions in Sichuan were open free of charge, which was in response to the Sichuan Provincial Tourism Administration's decision to partially reopen the provincial tourism market on June 15 (Cui Wei, 2008). The typical example for this is the Lidui Park (48 km northwest of Chengdu) which was open free of charge for three months. Moreover, Sichuan province also launched preferential policies on tourism named as "price lowland". For example, some scenic spots have provided tickets at half price or for free, and 20 million "panda cards" have been issued. All of these measures have obtained favorable social effect and economic benefits. Product strategy: Earthquake Tourism In August 2008, local officials in the south-western Chinese province of Sichuan announced plans to help restore tourism by turning the area devastated into a tourist attraction6. It means that the province could incorporate a number of new sights along the fault line that runs through Wenchuan, the epicentre of the 8.0-magnitude earthquake. As a result there is a new sector, the Earthquake Tourism where travelers come to Sichuan to visit the ruins from the quake7. These would include a memorial in Yingxiu, a museum of quake ruins in Beichuan and a quake lake at Tangjiashan. The tourist route for the Wenchuan quake ruins will demonstrate the protection of such ruins and the quake survivors spirit of perseverance, Zhang Gu, chief of the Sichuan Provincial Bureau of Tourism quoted as telling the local news agency, Xinhua. In May 2009, China officially endorsed disaster tourism as a form of economic subsidy to devastated areas as Wu Min, deputy director of the Sichuan provincial tourism department said to the Xinhua News Agency that There is a huge tourism market in the ruins. We can not block the tourists out and we also hope the tourists watch their behavior and not hurt the quake survivors feelings.8 In addition to earthquake-related sights, the planned tourist zone extended to cover southern Gansu province and the Hanzhong region of Shaanxi province and incorporated some of Sichuans more conventional attractions, such as a giant panda habitat and villages of the ethnic Qiang people.6 Besides, as reported on the article Earthquake Memorial or Tourist Attraction?, soon after the quake, the central government spoke about building earthquake museums to remind people of the disaster. Under the initiative, which had a price tag of 2 billion yuan, museums were built in Wenchuan, Beichuan, Hanwang and
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Hongkou counties. Dujiangyan, Pengzhou, Mianzu, Maoxian, showed interest in building their own memorial museums or markers, no matter whether funding would come from the central government or from local residents. They had their eyes on the same goal which is to attract tourists as well as to boost the local economy.9 Taking the post-disaster recovery and reconstruction as an opportunity, Sichuan province has integrated the tourism resource and, on the basis of reinforcing the strength of invitation of investment and driving the construction of important projects, made up an overall plan on travel routes, so as to develop the advantage of Sichuan tourism products as a whole. In order to meet demands of self-help and self-drive tourists for the trip, Sichuan Tourism Bureau has designedly launched about 1,000 self-help and selfdrive travel routes with measured strokes and integrated scenic spots, towns and roads into route portfolios, which are featured with such tourism factors as "meal, dwelling, trip, tourism, shopping and entertainment"5. Before June 1, 2009, total 1,000 routes have been published on the internet successively with the coverage of 21 cities, autonomous prefectures and main scenic spots. The total hit rate has been more than 4.5 million times on the internet. 4.3 Promotion strategy As stated on www.chinadaily.com.cn, the province will stress the promotion of the Chengdu-Mount Emei-Leshan Giant Buddha route in the second half the year 2008 to show Sichuan is safe first. In addition, to encourage domestic travels to the ruin sites, in a ceremony marking the Lidui Parks reopening, the Dujiangyan municipal government presented 100 "gold cards" to soldiers, policemen, medics, volunteers, donors, journalists and representatives from international organizations to appreciate their contribution to relief work in the city. With the cards, holders who have contributed to relief work can visit the Dujiangyan Irrigation Project and Mount Qingcheng, which is birthplace of Taoism, the only religious indigenous to China, free of charge during their lifetime. Particularly, the issuance of the cards was not limited to all those who have helped its relief work.4 The boom in disaster tourism has received official endorsement not only from local officials but from party leaders too. A report prepared by the communist party school in Dujiangyan - one of the most ravaged cities in the earthquake zone - has called on officials to "actively promote the earthquake tourism brand" in order to transform destruction into a "valuable tourism resource." Some localities have even issued vouchers, encouraging residents to travel to the earthquake area as tourists and help its recovery by sightseeing and spending. The government of Macao Special Administrative Region for instance, has subsidised Macau tourists to Sichuan with vouchers of 1,500 RMB (220 US dollars) each.8 In order to explore overseas market, since June 2008 to now, Sichuan province has invited travel agents and media delegations with total 510 persons in 15 batches from various countries and areas, such as South Korea, Japan, the U.S. and France, to investigate in Sichuan, and has dispatched delegations totaling 11 batches to
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propagandize in some other countries and areas. In March 2009, leading Sichuan tourism promoting delegation, Huang Yanrong, Vice-governor of Sichuan province, attended a tourism exhibition held in Berlin, Germany. It was the first time for Sichuan province to exhibit its tourism in the world after the earthquake, the practice which evoked strong echo.5 4.4 The results Currently, except for very few severest disaster areas, the tourism market in Sichuan province has welcomed tourists comprehensively. Xue Yaping, Deputy Director of Sichuan Tourism Bureau, told the reporter that from January to October of 2009, Sichuan province had achieved the tourism revenue of RMB125.01 billion yuan, up 43.4 percent than the same period of 2008. Among the revenue, the foreign exchange achieved US$180.85 million by welcoming 586,200 foreign tourists. "It can be said that the tourism market of Sichuan province has recovered to and surpassed the level before the earthquake." - Zhang Gu, Director of Sichuan Tourism Bureau, expressed.5 On the website ipsnews.net, the state agency reported that ruins from the quake had become a draw for visitors - attracting hundreds of thousands of tourists. Donghekou village where only 300 of more than 1,400 villagers survived a landslide triggered by the earthquake is now amongst the hottest tourist destinations in the Sichuan province for the Earthquake tourists as more than 260,000 tourists had visited the Donghekou Relics Park in 2009 since it opened in November 2008.7 The numbers of tourists that have swarmed to the earthquake zone are astonishing. According to the Sichuan Tourism Office, during the Chinese New Year holiday more than 7 million people flocked to the mountainous region where the earthquake wiped out whole towns, squashing schools, factories and homes. May Day weekend saw another spike of tourists - with 2.9 million people arriving in Chengdu and heading out on specially designed one-day package tours of the earthquake zone. Such tours include visits to quake relics parks, public cemeteries where the ashes of many dead are buried, and sightseeing platforms to observe panoramic views of the destruction.8 The plans of building earthquake museums, markers or parks also have had some success. In Qingchuan, 2,000 visitors have been to the park to pay respect to the earthquake victims, which has stimulated the sale of owners, food and souvenirs, and brought about the opening of 50 hotels in the area, Shen Xingna, the countys tourism director, told reporters.9 The local government already recovered its initial investment of 3 million yuan. 5. Vietnam under the global economic crisis 2007-2010 5.1. The global economic crisis effect on Vietnams economy in general and tourism sector in particular Financial crisis of the period 2007-2010 has resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in
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stock markets around the world. It is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. (http://en.wikipedia.org). Vietnam, one of fastest growing economy (Bn tin Ti chnh Chng khon ngy 6/5, 2008), was not out of this global impasse. According to the Washington-based World Bank (WB), the global financial crisis and economic recession slowed economic growth in Vietnam. The impact was apparent in the first quarter of 2009, when GDP increased only by 3.1 percent from a year earlier, or 4 percentage points below the average firstquarter growth for the last few years. However, positive signs of recovery have been emerging as a result of the government efforts to support economic activity. (Vietnam navigated global financial crisis relatively well, 2009). The impact of the global economic crisis (GEC) on Vietnam economy was obvious. However, since everything is connected, the industries interrelated directly and indirectly; it brought about the impact on tourism industry (Borislav Hadzhiev, 2009). According to Alieu Secka (Global Economic Crisis Affects Tourism, 2009), following the global economic crisis, many people in the West were laid off by their employers and as a result they did not have money to travel as tourists. He said many people in the west did not have access to loan facilities following the global economic crisis and as a result they did not have money to travel abroad. Whereas, international tourists have been accounting for a significant sector to Vietnam tourism industry. In September 2009, the seminar Capacity building for Vietnams tourism businesses against the backdrop of the global financial crisis was held in Ho Chi Minh city to discuss lessons and recommendations for local tourism businesses to improve their capacity (Financial crisis, swine flu blamed for tourist fall, 2009). Discussing Vietnam in particular, the presentation reviewed a negative fluctuation in tourists arrival since its second quarter in 2008. From 1.3 percent increase in the total arrivals in the second quarter, tourism industry quickly saw a slump at negative 9.6 percent in the third quarter. The fluctuation continued during the first seven months of 2009, with the bottom recorded a drop of 28.6 percent. In an effort to get its head above water, the industry managed to stem the fall to 10.1 percent in June. But, in the next month, the collapse continued, with a 17.8 percent at loss. "The number of international arrivals has been down for months, but the situation has seriously worsened since October," said Vu The Binh, a senior official at VNAT (Vietnam tourist numbers plummet as crisis bites, December 2008). Under those circumstances, all the sectors under the tourism industry were affected, excluding hospitality, travel operators and airlines. Representatives of many travel agencies showed the worries when the number of tourists canceling tours were increasing. There were also a lot of hotels which held the reservation rate of only 30% for the first quarter of 2009 (Du lch lm vo khng hong: Cp bch gim gi, December 2008). Mr Vu The Binh, the head of travel department, attached the importance of this problem. Whereas, the general director of Vietnam Airlines, Pham Ngoc Minh told that from September 2008, the number of passengers on international flights was negative compare to the same period of 2007 and the situation could be the same for domestic flights after the lunar New Year holiday. According to Mr Minh,
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2009 would be the year of tense competition in terms of destinations, service quality among countries. (Du lch lm vo khng hong: Cp bch gim gi, December 2008). 5.2. Vietnam tourism industrys practices in overcoming the crisis In front of this issue, the National Administration for Tourism (VNAT) drawn out solutions and criteria for all the tourism sectors to follow. According to the VNAT General Director Nguyen Van Tuan, the agency would focus in five areas to get ready for the recovery of tourism: 1/ continue the Impressive Vietnam discounted services campaign; 2/ advertise Vietnam at home and abroad as a tourist destination; 3/ organize professional training; 4/ continue upgrading facilities and 5/ improving the quality of the tourism experience (Travel agencies and hotels preparing for post-crisis period, 2008). Though the global economic crisis has cratered Vietnams tourist market, some tourism sector heavyweights have concluded that it was the right time to restructure themselves, improve service quality, and launch marketing campaigns. The practices of Vietnam tourism sectors are put in more detail in the following respective sections. Price strategy The VNAT called for the enterprises to participate in the discount program to attract tourists. At the very beginning, the program attracted 61 hotels and 34 travel agencies, whereas, the hotels reduced the price up to 30-50% (nh hng ca khng hong kinh t th gii n ngnh du lich Vit Nam, 2009). At the same time, VNAT also launch a website which provided information about the discounted services of all enterprises in sectors of hospitality, restaurants, transportation, travel agencies, shopping centers, etc. at http://www.promotours.gov.vn. In this program, the most mentioned solutions were the discounts in tour packages, hotel rooms, visa fees, etc. According to the survey of PATA, one third of tourists thought that the economic crisis did not affect much on their traveling plans in which the choice for cheap and short packages were dominated (Gii php du lch thi khng hong: Ngn ngy, gi r, 2009). Hence, the discount program was at that time considered to be the foremost solution. Besides, Vietnam tourism industry decided to target at local markets such as Singapore, Japan, Hong Kong, China, Taiwan, etc. in order to maintain and develop tourism market during the crisis period. These are also groups of tourists who are more price-sensitive than Australian, English, French, American, Indian tourists whose travel plans are less affected by economic crisis (Gii php du lch thi khng hong: Ngn ngy, gi r, 2009). Promotion strategy Nevertheless, in such situation, only discounting was not enough. Some specialists in tourism industry attached the importance of launching new programs about advertising and promotional activities. Mr. Pham Ngoc Minh, general director of Vietnam Airlines said that instability in some Asian countries (such as Thailand and India) resulted in less safety and less competition in some traditional destinations. He added that Vietnam could grasp the opportunity, takes the full advantage of stable
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politics, safe security and diversified tourism products by promoting marketing activities (Du lch lm vo khng hong: Cp bch gim gi, December 2008). Accordingly, travel agencies and tour operators were putting more effort in launching marketing campaigns. Vo Anh Tai, Saigontourist Director, said that his firm had been expanding Saigontourists system in Hanoi and was opening a branch in Can Tho to access the Mekong Delta market (Travel agencies and hotels preparing for postcrisis period, 2008). Tai added that while waiting for the opportunities to come, the firm is emphasizing training and pushing up marketing, particularly internet marketing, so that Saigontourist could be primed to greet tourists as soon as the crisis ends. He concluded that companies in the travel business need to detect changing tourist preferences so as to draw up reasonable marketing and advertisement policies. This was generally considered to be the way that the sector prepared and overcome the crisis. One of the efforts of VNAT in promoting the image of Vietnam to tourists was opening the campaign Impressive Vietnam since the beginning of 2009. Comprehensively, the goal of the campaign was to promote Vietnams image abroad, while focusing on some main international markets which were put on top by VNAT. One of the traditional markets of Vietnam is China with the population of over 1 billion people. A lot of promotional activities were held in order to introduce the image of our country, people, culture, tourisms potential to Chinese people. The campaign Impressive Vietnam was intended to be promoted till early 2010 with the organization of events, exhibitions, roadshows in Bei Jing and Shang Hai. Beside the main markets such as China, Japan, France, Western Europe, Australia and New Zealand, Vietnam also extended to new markets like Russian, Eastern Europe, North America, Korea and Middle East. The head department of Vietnam tourism cooperated with agencies of the Foreign Affair to hold Vietnam week in USA at the end of 2009. Besides, VNAT also promoted Vietnams image and tourism via public media overseas. Together with releasing images of Vietnams heritage on Heritage, the magazine of UNESCO, Vietnam tourism was advertised on JETSTAR magazine which was followed by more than 1 million readers worldwide. What is more, those images and detailed information about Vietnam tourism can be found in Tourism handbook 2010 published by PATA (Pacific Asia Tourism Association) and the World Tourism market daily magazine with over 60,000 publications to biggest international tourism trade fairs and exhibitions. (Qung b hnh nh Vit Nam ra nc ngoi, 2009). Specially, one clip about Vietnam tourism was shown on BBC World starting in early April, 2009. Specifically, the clip was broadcasted 320 times, each time 30 seconds. This campaign was divided into 3 programs, including 8 weeks in Asia-Pacific, 6 weeks in Europe and 6 weeks in America. BBC is the channel broadcasted worldwide in 200 countries in different regions. According to the statistic, the channel is watched daily by 276 million households and it appears in 1.5 million hotel rooms all over the world. (Qung b hnh nh Vit Nam cn thiu v yu, 2009)
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Product Strategy Regarding on tourism product development, the new strategy would be to focus on potentials like natural landscapes, cultural heritage especially the World Heritage sites,and unique cultural communities. One quite new product put more on development was sea tourism which was considered as an important product for both local and international tourists. (Consultants sought for long-term tourism development plan, 2010). In the hospitality industry, Vietnams luxury hotels have been particularly hard hit by sharply lower tourist arrivals. However, a Vietnamnet reporter found managers in the elite hotel sector are looking to the future rather than moaning about the present. (Travel agencies and hotels preparing for post-crisis period, 2008). Meaningfully, hoteliers were putting more effort in renewing their products and services. As an example, the five stars Movenpick Saigon was spending $25 million on an 18 month upgrade to its rooms and services. There was the fact that guests were scarce at most of Hanois five star hotels (Phan Huy Tien, Travel agencies and hotels preparing for post-crisis period, 2008). On the other hand, hoteliers believe that todays reduced travel budgets, canceled meetings and staycations (stay-at-home vacations) are tomorrows pent-up demand, said Patricia Neo of Starwood Hotels & Resorts. Accordingly, Starwood planed to open the Sheraton Nha Trang in November that year. The group had put into operation a telephone number (free of charge) which clients could use to book hotel rooms at 950 hotels run by Starwood worldwide. Place Strategy The effort in recovery is not only the job of the head department of tourism but also the concern to every tourism enterprise and local authority. VNAT has done its best in trying to involve all sectors from provinces to individual business into the effort of tourism recovery, fulfilling the strategies and goals of tourism development before, during and after the crisis. 5.3 The result of the policies in recovery effort of Vietnam tourism The work of promoting the image of Vietnam tourism to the big and key market has been more and more effective. Specially, Vietnam was chosen to be the venue for international events such as the East Asia-Pacific committee meeting, Miss Universe, Asian Indoor Games, etc. This is the driving force for Vietnam tourism to increase drastically in 2010. In January 2010, UNWTO signed the tourism corporation between the Ministry of Sport, Culture and Tourism (MOSCT) and UNWTO. Accordingly, UNWTO would continue to help Vietnam check and adjust tourism planning policies; give technical assistance in promotional activities; improve the human resource quality for Vietnam tourism via short training cources. (ng lc cho Du lch Vit Nam tng trng trong nm 2010, 2010). In the first quarter of 2010, Vietnam tourism industry received over 1.3 million international tourists, increased more than 30.6% compare with the same period of 2009. Nguyen Van Tuan, the general director of MOSCT, said Vietnam tourism
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developed spectacularly despite of objective factors including the economic crisis. (ng lc cho Du lch Vit Nam tng trng trong nm 2010, 2010). The above statistic showed that Vietnam tourism went on the right direction in the recent period of crisis recovery, which is a positive sign of Vietnam in the year 2010. This result can be gained thanks to the effort of the whole industry, the provinces in the whole country to achieve the target and the plans of the year with big events such as Hanoi 1000 year anniversary, 50 year anniversary of tourism industry, Hue Festival 2010, etc. This is the opportunity for the development of Vietnam tourism. Even though the figure of 2010 looks good compare with 2009, it is still far from what was expected. The tourism administration once expected that Vietnam would receive around six million foreign visitors in 2010. However, this may not be realized because the country just received nearly 2.2 million international travelers in the first seven months of this year (Consultants sought for long-term tourism development plan, 2010). Considering some shortcomings in the implementation of the proposed plans, Saigontourist Director Vo Anh Tai commented that other countries seemed to have had a more rapid economic recovery and have better dealt with the crisis than Vietnam (Travel agencies and hotels preparing for post-crisis period, 2008). Tourism administrations in many countries had very quick response to their crisis. Thailand launched the campaign Thailand apologizes to attract tourists, decreased the room price up to 70% in Phuket, 50% in Bangkok. Other countries such as Indonesia, Malaysia, etc. besides reducing the price, they invested hundred of million USD in promotion for the last months of 2008. However, in Vietnam, until December 10, 2008, there was one meeting to discuss about the urgent solutions to attract tourists to be held. (Du lch lm vo khng hong: Cp bch gim gi, December 2008). Under 10 days that Thailand ended its political crisis, tourists were surprised of their campaign to encourage tourists to come back. Whereas, the tourism administration, the tourism enterprises continued discussing and it was untill January 2009 that cheap tourism packages were launched. (nh hng ca khng hong kinh t th gii n ngnh du lich Vit Nam, 2009). Expressing the same viewpoint, a Mexico Tourism Board official noted at a workshop that Vietnam tended to be very slow to draw up new tourism policies when conditions changed (Travel agencies and hotels preparing for post-crisis period, 2008). Baron Ah Moo of the Vietnam Business Forums tourism consultative group, says he was been told that the initial budget for promoting Vietnams tourism in 2009 was $2 million. Meanwhile, Thailand announced it would provide $140 million to revive tourism after the Bangkok airport was shut down for several weeks by political upheavals, additional to its regular budget of $80 million designed for 2009. Malaysia reportedly has reserved $180 million for Truly Asia campaign (Travel agencies and hotels preparing for post-crisis period, 2008). Additionally, according to The HCM City Tourism Association, the discounts of 10 to 30 per cent did not make a "strong impression" on tourists when many countries in the region were offering up to 80 per cent rate cuts. (Hotels spoil plan on low-cost tourism, 2009). Hence, this is not only the
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problem of being slow in drawing out the strategies but also in putting sufficient amount of investment in recovery tourism. For the second issue, the strategies for tourism recovery seemed not to be widespread to and accepted by all the private enterprises and local region of Vietnam. In fact, many hotels did not participate in the program of reducing room rates. Some said they did not honor their commitment because they were still waiting for the Governments incentives for those involved in the campaign which mainly related to taxes, electricity and water prices. Some hotels did not want to reduce their prices because it could affect their prestige, while others were afraid that if they cut tariffs now, they would be unable to raise them in the future. Nguyen Duc Quynh, deputy executive director of the Furama Resort Da Nang, said Furama had not participated in the campaign because its room prices were already reasonable. (Hotels spoil plan on low-cost tourism, 2009). III. Assessment of findings 1. Good practices Considering all recovery plans for marketing the destination in some countries after crisis or disaster, it is easy to see some common good practices between them, one of which is the promptitude and sensibility of local officials in renewing their products and services to fit each of their situations. Sichuan in China proved that it was really successful in this point when the local authority turned the area devastated into a tourist attraction called disaster tourism or Earthquake tourism. In general, this can help to create a valuable tourism resource from the disaster as well as catch the interest of a numerous people/tourists who are attracted to sites of catastrophes. In addition, these new tourism products also raised a strong campaign like Stay another Day in Cambodia, in correcting the image of the destination that had to suffer from heavy losses and damage. As a result, they become a form of economic subsidy to devastated areas in terms of contribution to the country economy in general and to the tourism industry in particular. In order to response to unexpected crisis, all of the destinations focused on the domestic market as the main priority. The reason for this is simply because domestic tourists have a more convenient access to the sites in terms of distance than international ones. In addition, more important, they are more willing to spend their trips and attention in subsidizing their national tourism industry itself. As a result, that practice increased the number of shorter visits with lower expenditure, which took part in improving the economy situation as well. Besides, most of destinations experiencing crisis used strategy of reducing price, even reopening attractions for free of charge. This is not a new point but seems to be effective in most situations as for tourists with not very high income, money is still the first concern. For example, in Bali, the large concession from airlines, hotels and tour operators lured the tourists back to Bali, making it become a more affordable place. By this way, the destination can encourage a wider market to visit the ruins or the regions
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and have an opportunity to show them that it is still safe for people, which leads to a positive image about the destination in their mind. The success of renewing products, resegmentation and low price strategy cannot exclude the good collaboration between the stakeholders to recreate the image of the destinations. The promotion campaign was conducted widely in both national and international scope to ensure the safety and security as well as the remaining attractiveness of devastated sites. Thanks to the prompt response from the local authorities, right after the crisis, every effort was made to advertise the local tourism in tourism conferences, tourism exhibitions, especially media. This not only achieved the opportunity to explore overseas market but also recovered the belief and preference of customers. 2. Bad practices 2.1 Low and reactive response The first thing to rise is low and reactive responses when the crisis happened. Despite admirable response efforts and altruistic intentions it is apparent that prior to the tragic events of October 12, 2002 Bali had no operational crisis management plan or integrated recovery strategies. While subsequent programs and activities have attempted to address issues of social and economic development, crisis management and promotion, experience has revealed some of the disparities between theoretical ideals and practical realities (After the Bali). Furthermore, after planning the strategy, there is a slow in drawing out strategies long after crisis. In Vietnam, the strategies are implemented less promptly compared with other countries like Thailand. The reactive action also reflects in tourism product: In Hong Kong, the tourism product is short term with the aim of attracting customer come back. Thus, Hong Kong need to create the sustainable long term product that not be affected by crisis or develop the unique product. 2.2 The cooperation of relevant stakeholders There is a need of the unity between the relevant bodies (Du lch thi khng hong: Phi tm c ting ni chung). In a conference of VNAT (Discussion about the way to increase the number of international tourists to Vietnam) in Dec 2008, all members agreed about the problem of Vietnam Tourism is the collaboration, the links between tourism suppliers in promotional campaign. Moreover, the promotional campaign did not involve all relevant bodies. Tourists can be confused and suspicious about the destination with the instability in price and quality of service. The case of Bali shows that within the cooperation there still exists problem. When the lack of communication and regularly updated information among the participations, this lead to the corruption and misuse of public funds. A seemingly valid proposal to establish a jointly funded co-ordination centre to operate as a centralized data collection and dissemination point was dismissed by the majority without further discussion or clarification. While unanimous decisions are rarely a political reality, the Bali Recovery
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Group seemed to lack the consensus for effective, efficient collaboration. In a country renowned for its corruption and misuse of public funds many organizations remained reluctant to offer full accountability and transparency (Karyadi 2003). 2.3 Others The business ethic is big issue tourism enterprise must take careful consideration. Actually, human resource is not exploited thoroughly in the crisis period. Many of them were unemployed or had to take unpaid job. In the following period, the lack of human resource will be a big problem. Following that, the sensitivity is concentrated to the memorization place of crisis. In the earthquake crisis, this also created a question whether it is moral to capitalize on other peoples suffering and received oppose from some people who worried that China lacked the courage to reflect on and preserve the painful memories of calamities (Antoaneta Bezlova, Cashing In on Earthquake tourism). They saw the craze of earthquake tourism as a perturbing sign. IV. Recommendations for Vietnam in tourism recovery after crisis In order to effectively recover tourism, regarding any type of crisis, Vietnam has to do more and learn more from practices of other countries. Firstly, Vietnam still lacks experiences in tourism recovery after crisis. That is the reason why there was a slow in finalizing the strategies from the head government, resulting in slow implementation of policies. To deal with this shortcoming, Vietnam should have proactive plans and policies for any crisis to occur. Waiting until the crisis to come that policies are discussed is not a wised strategy. Lessons from Thailand showed the success and advantages of quick actions that the country of crisis has applied. Low pricing of tourism products and packages was one of effective strategies that the head department of tourism has directed all tourism sectors to follow. Yet, the result did not show a full satisfaction from managing people. This is due to the lack of assertive discount decision-making from the head department in general and individual tourism enterprises in particular. While the discount packages ranged from 30-50%, they did not affect strongly to buyers mind that had to suffer from decreased salary and increased inflation rate. Especially, it is hard to touch international tourists since they face up with numerous choices of cheaper packages from other countries. Thailand for instance offered packages of flights, accommodation, attractions, etc. with the discount of up to 80%, which strongly affected tourists choice of destination. Regarding product strategy, Vietnam seemed not to make the most of its tourism resources in creating tourism products. Even though mentioning about creating more new and diversified tourism products, there was almost no outstanding or different packages in the period of recovery compare with the previous period. Apart from promoting campaigns of general image Impressive Vietnam or Vietnam, the hidden charm, it is the job of all individual enterprises to create their own special and creative packages to show a different image of Vietnam tourism other than using the old ones.
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Recently, Vietnam has identified its new product of MICE tourism. However, sufficient care and added values for this product are out of notice from tourism people in order to make Vietnam an outstanding destination for MICE to international tourists. Hence, this tourism market needs being paid more attention and even made to be the typical product of Vietnam. Besides, the high quality of tourism products needs special attention to show the effort of Vietnam in tourism recovery and its care for its customers. In term of promotional strategy, it was good practice of Vietnam to target at specific international markets such as China, Japan, etc. However, it is a should to firstly pay attention to the domestic market as this accounts for a big market of Vietnam tourism. Domestic tourists are quite picky in buying decision, yet they are easier to persuade if the benefits are shown. What is more, Vietnam has been successful in a lot of international event biddings. Nevertheless, the promotional activities during these events have shown to be ineffective. What to recommend for Vietnam is to establish more activities to promote Vietnam tourism in events which are held in Vietnam and events which are held in other countries. Specifically, tourism fairs can be held a long with other activities such as invitation of celebrities, journalists of prestigious magazines or gifts to the delegates which shows the image of Vietnam tourism. Apart from those above suggestions, it is a must for the head department to attach the importance of coordination among stakeholders in implementing the proposed trategies. There was a fact that the lack of coordination among stakeholders affected partly to the success of recovery plans. So, the head department should put more effort in encouraging all tourism enterprises, all national, provincial and local authorities in implementing the policies. One way to encourage tourism sectors in gaining the general objectives is to offer them incentives. That may be some benefits such as having the right to advertise in some specific media. Ensuring the appropriate implementation of these strategies, Vietnam can take the advantage of the country of safety and peace in the eyes of tourists and effectively recover its tourism industry. To any kind of crisis, these practices and recommendations are critical in order to gain the most successful result. REFERENCES
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15. Bali overcoming crisis [online] Available at: http://books.google.com.vn/books?id=5LOG4Of9meYC&pg=PA85&lpg=PA85&dq=Bali+ overcoming+crisis&source=bl&ots=EvLs-N8ky&sig=Nmd4aXiMrODHEub8czw9CtcUYpg&hl=vi&ei=VUH3S_rtNIOPccOx6eYL&sa =X&oi=book_result&ct=result&resnum=4&ved=0CCsQ6AEwAw#v=onepage&q=Bali%2 0overcoming%20crisis&f=false. (Accessed on 29 April 2010) 16. Chheang, Vannarith State and tourism planning: A case study of Cambodia. (Spring 2009). 17. Lam, T. (1996). Tourism in Cambodia: An overview of Cambodian international tourism and development potential. Pacific Tourism Review 1(3), pp.235-241. 18. Ministry of Tourism (2009) Report on the Situation of the Tourism Sector 2008/2009. In Khmer. Phnom Penh: Cambodia. 19. Cambodia adopts new law to promote tourism amid economic downturn [online]. Available at URL: http://balita.ph/2009/06/23/cambodia-adopts-new-law-to-promotetourism-amid-economic-downturn/ ([Accessed at 23rd June, 2009] 20. Growing Cambodia tourism to be boosted by Khmer rouge attractions [online]. Available at URL: http://www.tourism-review.com/cambodia-tourism-industry-to-develop-khmerrouge-attractions-news2092 [Accessed at 15th March, 2010] 21. Tourism [online]. Available at URL: http://www.ngoforum.org.kh/Development/ Docs/CG%202004/tourism.htm#top (Assessed May 21, 2010) 22. Vannarith chheang (2008) Tourism development in Cambodia: Oppurtunity for Japanese companies [online]. Available at URL: www.ide.go.jp/English/Publish/ Download/Brc/pdf/02_ch1.pdf (Assessed May 22, 2010) 23. Cambodia's tourism drops due to global financial crisis [online]. Available at URL: http://balita.ph/2009/05/22/cambodias-tourism-drops-due-to-global-financial-crisis/. [Accessed 22nd May, 2009] 24. Sawapat Pimchaichon, 2009 Slender travel margin for Cambodia ttrweekly [online]. Available at URL: http://www.ttrweekly.com/site/2009/09/slender-travel-margin-forcambodia/ [Accessed 11st September, 2009]
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25. Private Sector Promotion in Rural Areas (PSP) [online]. Available at URL: http://www.pspcambodia.org/ [Accessed May, 2010] 26. Cambodia experiences first half decline in tourism [online]. Available at URL: http://www.cambodia-tourism.org/news/209-cambodia-experiences-first-half-decline-intourism [Accessed 1st December, 2010] 27. Cambodia continues to extend visa exemptions to aid economy: official [online]. Available at URL: http://balita.ph/2009/08/10/cambodia-continues-to-extend-visaexemptions-to-aid-economy-official/ [Accessed 10th August, 2010] 28. Vutha (2009) Cambodia made new tourism marketing vuthasurf [online]. Available at URL: http://www.vuthasurf.com/2009/01/16/cambodia-made-new-tourism-marketing/. [Accessed 16th January, 2010] 29. Nom lng ging Campuchia lm du lch [online]. Available at URL: http://www.tienphong.vn/Phong-Su/166941/Nom-lang-gieng-Campuchia-lam-du-lich.html [Accessed 23rd July, 2010] 30. Sawapat Pimchaichon (2009) Slender travel margin for Cambodia, ttrweekly [online]. Available at URL: http://www.ttrweekly.com/site/2009/09/slender-travel-margin-forcambodia/ [Accessed 11 September, 2010] 31. May Kunmakara (2010) Tourism recovery beginsThephnompenhpost [online]. Available at URL: http://www.phnompenhpost.com/index.php/2010031233563/Business/tourismrecovery-begins.html [Accessed 12th March, 2010] 32. http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010 33. Bn tin Ti chnh Chng khon ngy 6/5, 2008 [Online]. Available at URL: http://tintuc.xalo.vn/001006332869/ban_tin_tai_chinh_chung_khoan_ngay_6_5_ban_tieng_ anh.html (Accessed May 10, 2010) 34. Vietnam navigated global financial crisis relatively well, 2009 [Online]. Available at URL: http://www.vcbf.com/vi/tin-tuc/8-finance-and-banking/490-wb-vietnam-navigated-globalfinancial-crisis-relatively-well-.html (Accessed May 10, 2010) 35. Borislav Hadzhiev, Impacts of global economic crisis on tourism destinations A true story, 2009 [Online]. Available at URL: http://www.tourism-master.nl/2009/06/19/impactsof-global-economic-crisis-on-tourism-destinations-%E2%80%93-a-true-story-entry-essaycompetition/ (Accessed May 5, 2010) 36. Alieu Secka, Global Economic Crisis Affects Tourism, 2009 [Online]. Available at URL: http://allafrica.com/stories/200903200896.html (accessed May 5, 2010). 37. Financial crisis, swine flu blamed for tourist fall, 2009 [Online]. Available at URL: http://www.vietnamcustomizedtours.com/vietnam-travel-news-1268.html (Accessed May 2, 2010) 38. Vu The Binh, Vietnam tourist numbers plummet as crisis bites, December 2008 [Online]. Available at URL: http://www.smh.com.au/travel/vietnam-tourist-numbers-plummet-ascrisis-bites-20081215-6yl9.html (Accessed May 9, 2010) 39. Travel agencies and hotels preparing for post-crisis period, 2008 [Online]. Available at URL: http://www.vietnamopentour.com.vn/vietnam-information/news/travel-agencies-andhotels-preparing-for-post-crisis-period.html (Accessed May 3, 2010) 40. Du lch lm vo khng hong: Cp bch gim gi, December 2008 [Online]. Available at URL: http://www.vn-seo.com/du-lich-lam-vao-khung-hoang-cap-bach-giam-gia/ (Accessed May 12, 2010) 41. Gii php du lch thi khng hong: Ngn ngy, gi r, 2009 [Online]. Available at URL: http://www.tienphong.vn/Kinh-Te/153202/Giai-phap-du-lich-thoi-khung-hoang--Nganngay-gia-re.html (Accessed May 12, 2010)
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42. nh hng ca khng hong kinh t th gii n ngnh du lich Vit Nam, 2009 [Online]. Available at URL: http://kdulich.duytan.edu.vn/Info/Detail.aspx?id=48&lang=VN (Accessed May 1, 2010) 43. ng lc cho Du lch Vit Nam tng trng trong nm 2010, 2010 [Online]. Available at URL: http://www.baodulich.net.vn/Story/vn/50namthanhlapnganhdulich/50namthanhlapnganhdulich/ 2010/4/5458.html (Accessed May 14, 2010) 44. Qung b hnh nh Vit Nam ra nc ngoi, 2009 [Online]. Available at URL: http://www.fiditour.com/ban-tin-fiditour/160/quang-ba-hinh-anh-viet-nam-ra-nuocngoai.html (Accessed May 3, 2010) 45. Qung b hnh nh Vit Nam cn thiu v yu, 2009 [Online]. Available at URL: http://vovnews.vn/Home/Quang-ba-hinh-anh-Viet-Nam-con-thieu-vayeu/20094/108776.vov (Accessed May 6, 2010) 46. Consultants sought for long-term tourism development plan,2010 [Online]. Available at URL: http://www.vietnamawesometravel.com/detail_product.aspx?product_id=1473 (Accessed May 11, 2010) 47. Hong Kong American Baptist mission [Online] Available http://www.abmhk.org.hk/hongkongnews-sar.html (Accessed May 18th, 2010) at URL
48. Crisis management for the tourism business [Online] Available at URL http://jersey.com/business/Documents/Guidance/cirisis_management_for_tourism_business. pdf (Accessed May 15th, 2010) 49. Hong Kong forges ahead five years after Sars [Online] Available at URL http://business.timesonline.co.uk/tol/business/economics/article3677490.ece (Accessed May 18th, 2010) 50. Hong Kong tourism Board [Online] Avaliable at URL http://www.yearbook.gov.hk/2003/ english/chapter15/15_03.html (Accessed May, 18h, 2010) 51. Tourism industry report [Online] Available at URL http://www.acrc.org.hk/sars/ industry.asp?doc=tourism (Accessed May, 18h, 2010) 52. Cathay Pacific Branding problems [Online] Available at http://us.asiancorrespondent.com/hong-kong-blog/2009/05/cathay-pacific-brandingproblems.html (Accessed May, 19th, 2010) URL
53. China & Hong Kong [Online] Available at URL www.tourismforum.scb.se/papers/.../TSA/.../ China_Hong_Kong.pdf (Accessed May, 19th, 2010) 54. Alan Fung, 2003, Sars threatening to cripple Hong Kong [Online] Available at URL http://www.atimes.com/atimes/China/ED05Ad04.html (Accessed May, 19th, 2010) 55. Economic impacts of Sars on Hong Kong Available at URL www.hiebs.hku.hk/ working_paper_updates/pdf/wp1084.pdf (Accessed on May, 19th, 2010) 56. Film legend Jackie Chan helps fight to revive Hong Kong tourism after SARS Available at URL http://www.encyclopedia.com/doc/1P1-76653965.html (Accessed on May, 19th,2010) 57. Sars after Sars [Online] Available at URL bea/bea030701.htm (Accessed May, 22nd, 2010) http://info.hktdc.com/econforum/
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COUNTRY RISK ANALYSIS IN VIETNAM

Written by: Dang Thu Trang, Nguyen Thi My Hanh (3K-07) Tran Thi Quynh Trang (3K-07), Phung Thi Anh (2K-07) Supervisor: Nguyen Thu Huong ABSTRACT We conducted this research in order to help the foreign investors have an overall view about the level of risk they may face when investing in Vietnam. There are two main risks which would be taken into consideration, the current political and financial issues. In terms of political risk, the attitude of Vietnamese consumers toward foreign goods and services, the tax condition and other actions of host government to local firm or the copyright law, the bureaucracy and corruption recently were those aspects we wanted to analyze. About the financial risk, we considered the fluctuation of some main economic indicators like the GDP growth rate, GDP per capital, inflation rate, the exchange rate and real interest rate. After evaluating each criteria of risk, we give some recommendations for the investors with the hope that they can overcome all the difficulties to successfully get into Vietnam. PART 1: INTRODUCTION 1. INTRODUCTION As a result of war, Vietnam's economic development suffered compared with other neighboring countries. However it is catching up fast. Despite the 1997 Asian economic crisis, Vietnam's economy has expanded rapidly since the Communist Party of Vietnam turned away from the communist economic policies in the 1980s. A sustained growth rate of around 8% for over 19 years shows great progression and is one of many reasons for the increasing number of foreign investors. Vietnam received over US$20 billion of foreign direct investment in 2007, a record amount with an increase of 70% on 2006 figures, and saw almost 1,500 new projects licensed in the same year. Although the economy is developing at a rapid rate, entry costs for investors are still low. Furthermore, with 50% of population of 84 million under 30, Vietnam has a strong human resource and consuming force. The very cheap labor costs coupled with a young, literate workforce make business investment a very attractive and lucrative prospect. The Vietnamese government has shown their commitment to economic liberalization and international integration. Structural reforms needed to modernize the economy have been implemented, helping to produce more competitive, export-driven industries. Vietnam joined the WTO in January 2007. This should give a major boost to Vietnam's export led economy and should spur on the country's economic liberalizing reforms. However, problems remain. Reform of state enterprises is proceeding slowly, while another big issue is the under-development and poverty level in remote ethnic-minority areas. Although recent statistics show Vietnam in a favorable investment light, it is crucial to also take note of the country's current economic and political situation. In this
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research, on the perspective of foreign investors, we will focus on analyzing factors of political and economic risks that they may encounter when investing in Vietnam. And then we also give out recommendations for foreign investors to overcome and reduce the risks so that they still can make investments and earn huge profits in Vietnam. 2. METHODOLOGY Our research methodology requires gathering relevant data from the specified documents and compiling databases in order to analyze the materials and arrive at more complete understandings about the level of overall risks in Vietnam in recent years. Our research specialize in the type of secondary research which involves examining all the various types of research that are available to the public, collecting data, and forming some type of opinions about it. When analyzing aspects of both political and financial risk in Vietnam, we start with raising the real situation of each with the facts and figures to prove our judgments, then explain why this issue happens in Vietnam, how the matter creates risks to foreign investors, compared with another regional countries in Asia. After all, we can assess the overall level of risk in Vietnam PART 2: LITERATURE REVIEW There is a long tradition of research on country risk in the international business area. In the world, there have had a lot of projects which have been carried out to analyze the overall situations worldwide in general and in Vietnam in particular. The challenges posed by the intersection of politics and markets continue to be a topic of interest to both academic scholars and practicing managers. In forums, official websites and newspapers, the authors have tried to determine the causes, the facts and figures, results of economic and political opportunities and threats so that the readers could have deeper understading of his own country as well as of surroundingsSeveral scholars (Fatehi - Sedeh and Safizadeh, 1989; Formica, 1996; Kobrin, 1979; Robock, 1971; Sethi and Luther, 1986) did describe the difficulties involved in developing a precise definition of political risk and suggest ways to improve the clarity of the domain of the construct. In general, it is most commonly conceived in terms of (usually host) government interference with business operation (Carbon, 1979). Schmidt (1986) defines political risk as "the application of host government policies that constrain the business operations of a given foreign investment". Jeff Madura(2006) believed country risk represents the the potentially adverse impact of a countrys environment on the MNCs cash flows. Country risk can be used to monitor the countries where the multinational company is presently doing business. It can be considered to improve the analysis used in making long-term investment or financing decisions. The Euromoney indices of country risk note that country risk on the other hand includes not just political risk but also other factors such as economic performance (current and future), credit ratings, and a host of other indicators. Cosset and Roy (1991) suggested that country risk ratings provided by publicly available economic statistics represent reasonably valid and reliable measurements of country
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risk. Jeff Madura(2006) in his International Financial Management book rated political risk based on attitudes of consumers in the host country, actions of host Government, Blockage of Fund transfers, Currency inconvertibility, War, Bureaucracy and corruption. According to him, economic Risk factors include Interest Rates, Exchange Rate and Inflation(Madura,2006). Actually, there are 4 types of country risk assessment: Macro-political risk, Macrofinancial risk, Micro- political risk, Micro-financial risk. And the opinions of different risk assessors often due to subjectivities. There are some techniques of assessing country risk like checklist approach, delphi technique, quantittative analysis and inspection visits. In this research, because of limitations, we focus on analyzing the risk of macro environment, not the micro ones by using the descriptive method. Many projects have proved that the economy and the stability of a country are the extremely crucial factors that investors take into consideration before choosing to invest into any country. Chakrabarti (2001) finds that higher levels of political risk are generally associated with lower levels of FDI inflow. Click (2005) finds that when firms invest in higher risk countries, the country risk is compensated by higher returns, suggesting that foreign investors seek higher returns to compensate for the higher risk of their investments. In this research, instead of covering all the issues of overall risk of every country, we focus on analyzing specific points of political and financial risks of Vietnam only in comparison with those of regional countries. Our completion of this research is the result of colleting information from various sources, especially the bookInternational Financial Management of Jeff Madura(Florida Atlantic University), the research of PERC and a report of Yoshiharu Tsuboi (Waseda University). This topic creates an endless inspiration for economists to exploit, therefore, we do this research with the hope that it can be helpful not only for foreign investors but aslo for further surveys or researches in the future. PART 3: COUNTRY RISK ANALYSIS IN VIETNAM As stated above, we are going to identify gradually all the risks that foreign investors may have to face when investing in Vietnam. There are two sources of risks forcing earnings generated in Vietnam to reduce out of foreign investors expectation. I. POLITICAL RISK Regarding political risk first, all the factors determined political risk of Vietnam to be low or high in comparison with other countries will be pointed out one by one. 1. ATTITUDE OF VIETNAMESE CONSUMERS Attitude of consumers are considered as one factor in political risk because the preference of Vietnamese customers toward foreign goods will affect the demand and then sales volume of foreign made goods. Luckily, according to study result of Eye on Asia program conducted by Grey Group, statistics shows that 77% of Vietnamese prefer foreign brands. However, average number of foreign brand preference across
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Asian countries is just about 40% (http://www.thesaigontimes.vn). The question raised is that why Vietnamese people prefer foreign brand. The answer is Vietnamese consumers have not trusted domestic producers for a long time. In centrally planned economy, Vietnam lacked of materials, high technological machines, outdated industrial knowledge; thus; finished products which were low and unstable quality were used to meet minimum requirements of Vietnamese people. Until Vietnamese government had DOI MOI campaign, Vietnam has changed to market economy. Vietnamese producers have had more opportunities to develop but they also have to face the fierce competitions from foreign producers. Foreign firm have sold globally branded products at a price that Vietnamese people can afford. Apart from high quality, good post purchase service, products made abroad have been advertised popularly and professionally. Therefore, foreign goods are trusted and preferred by Vietnamese people for years and the trend is still maintaining. In the face of this issue, Vietnamese government has some actions to reduce this percentage by raising a campaign lets buy domestic products. This campaign has been carried out in many ways. One of them is having government restrictions on foreign made products by increasing import tax rate. From 20/6/2008, new import tax applied for some unfavorable foreign products has been implemented. Import tax rate on cosmetics product increased by 6% from 30%, tax levied on importing mobile phone or wireless used items went up from 5% to 8%. Those who imported high engines item had to bear the tax up to 29%. This policy would support lets buy domestic campaign. Moreover, in December 2009, Prime Minister Mr. Nguyen Tan Dung did sign the documents which required export to be promoted and import of unnecessary products to be limited for the purpose of balancing Vietnam trade deficit. (See appendix 1). From the action of preventing foreign products from flowing into Vietnam, the campaign lets buy domestic product was promised to be successful in the near future. Moreover, there are some separate websites only used for the purpose of running this campaign, for example, http://www.dunghangviet.vn, www.daisuhangviet.vn and http://hangviet.vtv.vn/. In addition, many newspapers and other means of media had a lot of activities in order to raising awareness of Vietnamese people toward domestic products. For example, at 9 a.m 19th of June, 2009, there was an online round discussion amongst various economists and experts considering the issue of Vietnamese peoples preference toward foreign brands (http://www.tienphong.vn). Apart from indoctrinating this campaign to Vietnamese people, along with government supporting actions for domestic firms, Vietnamese firms themselves need to improve their good quality, to have more frequent advertisement over multi-media so that Vietnamese people can have more information about products and put their trust in domestic producers. From then, Vietnamese will gradually have the habit of and get acquainted to using home made products. It is believed that in the near future, Vietnamese products will be replaced with foreign made ones which were once preferred by Vietnamese consumers. Therefore, concerning the political risk factor of Vietnamese consumer attitude toward
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foreign products, the risk is predicted to increase for foreign investors to sell foreign made products in Vietnam when Vietnamese government does try best to promote Vietnamese products as well as protect domestic producers under the threat of fierce competitions with foreign firms. In comparison with China, Chinese people are famous for their strong culture and strong national identity preservation. They want to consume more domestic goods rather than foreign goods. Now all the evidences supporting this idea will be listed out one by one. Regarding the proof of the fact that Chinese people prefer domestic brands, in 2009, CLSA (Credit Lyonnais Securities Asia) (see appendix 2) conducted a comprehensive survey of more than 1500 urban, trend-setting consumers from 15 leading Chinese cities, who named 1230 brands in nine core sectors ranging from food to financial services to produce the Index, plus a list of the Top-100 most preferred consumer brands and a comprehensive assessment of brand value. On 17th September 2009, this group reveals domestic Chinese brands make up more than 50% of the Top-100 brands preferred by its respondents, with seven of the top ten being Chinese.(https://www.clsa.com) According to CLSA research, Chinese people are also very loyal to currently used brand. More than 70% of respondents say they would stick to their current brands. (See appendix 3) As a result, in comparison with Vietnam, foreign investors will face more risks when they intend to invest in China. Investing in Vietnam is also challenging only if the campaign of lets buy domestic come into effect and it will let Vietnamese people prefer Vietnamese brands to foreign brands. But it takes time to achieve this vision. Therefore, with 77% of Vietnamese population likes foreign products, foreign investors will be less risky when investing in Vietnam rather than investing in China. However, it is forecasted that Vietnamese people are gradually aware of good domestic brands and buy more domestic products. Thus, accordingly, the risk that foreign investor may face in Vietnam is increasing over time. 2. ATTITUDE OF VIETNAMESE GOVERNMENT 2.1 Discouraging policies toward foreign investment During the time of globalization and free market economies, Vietnamese government has had many supporting policies and conditions to encourage foreign investment in Vietnam. For example, Vietnamese government has the policy to guarantees foreign investment. Foreign properties will never be nationalized in any conditions and situations. And if Vietnam changes policies which may damage foreign investors properties, they will be compensated in appropriate ways. It will also be illustrated further and more clearly in foreign investment Law of Vietnam (Appendix 4). Following the foreign investment law of Vietnam, foreign investor will enjoy a quite comfortable business environment. However, apart from many encouraging fields for foreign investment, Vietnamese government also had some important fields in which foreign firms are restricted or banned to make investment in because of some sensitive
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reasons like sovereignty protection (see Appendix 5). Foreign investors do not have the right to invest in all investment fields that they like, therefore, it will be one of some difficulties for foreigners investing in Vietnam. In addition, administrative procedures in Vietnam are so complicated and may hinder business activities. From then, corruption will destroy foreign investors return. Foreign firms have to bear this kind of risk when making investment in Vietnam. 2.2 Tax (Corporate Income Tax and Withholding tax) Foreign investors who want to make investment in Vietnam put tax rate as the first consideration and concern because tax will affect very seriously earnings generated in Vietnam. Foreign investors all have to pay corporate income tax of 15% to 25% (See appendix 4, Clause No.38) out of total earnings in comparison with China with tax rate of 33%. Despite the fact that Vietnamese government does not have policy to limit maximum amount of fund transferring, foreign investors have to pay 5 to 10% as cost of transferring fund (See appendix 4, Clause No.43). Besides, Vietnam has not restricted currency convertibility. It means that all money earned in Vietnam can be converted into any other foreign currency. But Vietnam government has attracted foreign investors to reinvest in Vietnam by offering many favorable conditions. With the project of reinvesting for more than 3 years, foreign investors will receive all tax payment paid earlier to the government.(See appendix 4, Clause No.42).Comparing with China, projects length is required to be at least 2 years longer and they just receive back 40% of tax paid if reinvested in China (http://socongthuong.tayninh.gov.vn). Moreover, for different areas in Vietnam, foreign investors also receive different favorable condition for their investment. For example, in Can Tho city, foreign production firms have to pay 10% as corporate income tax and tax will also be favorably reduced in at least 8 following profitable years. Service firms are charged only 15% income tax and tax will be exempted in 2 following profitable years and be discounted in 4 following years. And many other favorable tax conditions are applied for foreign investors investing in Can Tho (see Appendix 6). If foreigner invests in Dong Nai province, high tech foreign firms will be exempted from income tax payment for 8 years. Production firms will be charged no income tax in 4 years and tax will be paid 50% less in 4 following years. Especially in Dong Nai, firms in industrial zones have to pay only 3% for fund transferring to home country. Firms out of industrial zones have to pay 3% applied to firms which have initial investment of more than 10 million USD, less than 10 million USD and greater than 5 million USD. If initial cash outlay is less than 5 million USD, foreign firm has to pay 7% as tax on fund transfer (see Appendix 7). Along with this, China also has different favorable policies in tax on using land, which is applied in different areas. For example, at Tham Quyen province, foreign high tech firms have the right to use land without paying any tax for the first 5 years. At Hai Nam province, tax will be reduced if foreign investors rent upland or fallow, invest in project of building up transport traffic infrastructures. At Chu Hai, low profit foreign firms are exempted from land using tax payment and at Ha Mon foreign investors have to pay this tax 50% less. Vietnam and China both have favorable tax policies to encourage foreign investment, thats why two countries have attracted a lot of FDI over years. It can be
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said that foreign investors face less risk in terms of obligations to pay income tax or land using tax. 2.3 Pollution control standards: In 2009 the government did introduce a decree No.117/2009/ND-CP on having an increasing fine in environment-damaged issues with the highest punishment up to 500 million Dong. It will be much higher than current punishment on the same issue. This decree has officially been implemented from March 1st 2010. Thus, in this case any foreign investors have to consider this new policy if they have intention to damage the environment in Vietnam in order to gain unethical profit. To avoid polluting the environment more, Vietnamese government now concerns more about environmental issues because Vietnam is so polluted with industrial waste and smoke especially in big cities. Therefore, in near future, government is going to impose pollution control standards in order for foreign investors doing business in Vietnam to protect the environment and then reduce global warming effects, which may threat foreign investors future earnings generated in Vietnam. (http://www.baodongnai.com.vn) 2.4 Subsidy to local firm Vietnamese government did have many policies for subsidizing local firm. In terms of loan subsidy, following resolution 131/Q-TTg, all firms which borrowed money for investment in some industries namely agro-forestry industry, maritime products industry, Mining industry, Processing industry, Producing and distributing electricity, water industry, Construction industry, Information Technology industry would receive 4% interest subsidy with medium and long term loan. The timeline used for loan subsidy was from the beginning of February to December 2009 with the purpose to provide incentives for Vietnamese firms to invest in new fields. In 2010, this policy is still remained for new investment encouragement, interest rate subsidy is reduced to 2% for medium and long term loan denominated in Vietnam Dong. Interest rate loan subsidy will help firms to reduce large amount of capital financing cost and then push down product prices. (http://www.chinhphu.vn) Concerning small and medium sized enterprises (SMEs), Vietnamese government also has supporting policies which create favorable conditions for them to grow. Investment encouraging policy said that government will help through financial support. Government encourages many different areas and provinces to set up credit grantees institutions. SMEs also have been given land for appropriate operating activities (Decree 90/2001/ND-CP) and government aims to build up enough industrial zones for all SMEs to do business. SMEs also have favored tax in land renting and land using. Government creates opportunities for SMEs to approach information about market, prices, supports them to expand consumer market as well as product displaying, product launching, product advertising activities. Moreover, government will support SMEs by ordering their products for government purchase. SMEs will have chances to cooperate with stated own companies for exchanging high technology and learning expertise as well as experiences so that SMEs will improve their competitive competencies. Vietnamese government encourages SMEs to stimulate exporting activities by creating
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opportunities for them to cooperate with foreign companies, to expand products and services exporting market. (http://www.hotrodoanhnghiep.gov.vn) With governments support, domestic firms are now growing steadily and gradually can compete with foreign companies in the future; therefore, foreign investors now face more risk when they consider investing in Vietnam. Despite the fact that SMEs have a lot of supporting policies enacted by government, they are still weak and feel hard to compete with foreign companies. The risk now is proved to be little but in the future it will be very likely to increase. 2.4 Failure to enforce copyright law As seen in the following picture, Vietnam in 2009 was categorized in group of countries which had highest piracy rates over the world. In 2003 and 2004, statistics showed that privacy rate in software industry was 92% (followed SBA- software business alliances). Until November 2005 Vietnamese government enacted copyright law, the data about privacy rates collected in 2006 was 88%. The percentage equaled to 96 million USD lost to Vietnam software industry due to copyright privacy. This statistics explained that copyright law in Vietnam did not come to effect. As soon as Vietnam integrated into World Trade Organization, this copyright law has just been seriously implemented. Now the latest news about Vietnam privacy rate in software industry was 85% (2009) (http://vietbao.vn). Comparing with China copyright law was set up in 1990 but it is believed that this Chinese law is very loosely implemented. As a result, despite the fact that China enacted copyright law long before Vietnam, the privacy rate was still 80% (2009). Concerning this issue, when investing either China or Vietnam, foreign investors may face equal risk in failure of enacting copyright law of both countries.
Source: BSA (Business software alliances) Figure 1: Top 30 highest and lowest piracy rates in 2009
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3. BUREAUCRACY Rank Ease of Doing Business 93 Starting a Business Dealing with Construction Permits Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business Doing Business 2010 93 116 69 103 40 30 172 147 74 32 127
Figure 2: Some measuring factors of doing business in Vietnam in 2010 3.1 Facts and figures Although Vietnam has some improvement in reducing administrative procedures, administrative regulations are still rated unnecessarily prolix as the assessment of Rand and Tarp organization. In 2007, the average time which firms had to spend to solve administrative papers was 29.1 %, especially, 38.7 % in Hanoi and Ho Chi Minh City. According to a research of World Bank, in 2008, Vietnam was included in the group which spent most time to meet tax requirements due to complicated papers and procedures. Also in this research, it was found that a firm had to hand in 32 times, to spend 1,050 working hours per year, on average, to complete all formalities about tax. The number of document for export/import was 6/9, the number of signatures for export/import was 12/15, and the average day for export/import was 35/36. A new survey about young business association in Vietnam in 2009 found out that 39% of firms rated the tax procedure complicated, 16% rated easy and 40% assessed it not transparent and stable enough. In 2009, Vietnam stood 140/182 of the most complicated tax administrative procedures. http://www.thuvienphapluat.vn)
Figure 3: Ease of starting a business

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Vietnam is ranked 116 overall for Starting a Business, even ranks after Lao PDR. As it can be seen, it is not easy at all for foreign investors to quickly open a business in Vietnam. Due to the complexity in solving problems related to procedures and papers, foreign investors will learn that it takes too much effort to expand their business in Vietnam. To start a Business in Vietnam, a firm has to consider a lot of procedures and they have to wait for a really long time for their papers to be solved. The table which demonstrates the procedure time to complete and the Cost to complete when a business is opened in Vietnam (see appendix 9) Also, this country ranked poorly in the length of time it takes to close a business. Vietnam is ranked 127 overall. Vietnam takes 5 years to close a business, compared to an average of 3.4 years in East Asia and Pacific, and 1.5 year in OECD States.
Figure 4: Ease of closing a business Countries Ireland Indonesia Lao PDR Malaysia Philippines Thailand Number of years 0.4 5.5 no practice 2.3 5.7 2.7
Figure 5: Length of time it takes to close a business When entrepreneurs draw up a business plan, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so
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burdensome that entrepreneurs may have to bribe officials to speed up the process or may decide to run their business informally. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices and fuel corruption. Vietnam is famous for complicated procedures with high corruption level. Although this country has many significant policies to encourage foreign investment, in a rate of Ease of Doing Business 2010, Vietnam ranked 93 out of 183 countries. In this survey, Singapore is the top ranked economy.
Figure 6: Ease of doing business It can be inferred that Vietnam is at the middle rank among South East Asia countries. The Government of Singapore, Thailand and Malaysia as well have positive policies to motivate the foreign investors. Their policies are not just in words on papers but also seriously practiced in daily life. Therefore, in South East Asia area, these three countries are the most attractive places for investors. The table illustrates the number of days and procedures a firm has to deal with when starting business in Vietnam and other countries can be found in Appendix 10. From this table, we can have some useful comparison to know which country should be invested in the most. 3.2 Causes of bureaucracy The bureaucracy appeared and then arises from many different causes, some of which appearing and existing attached to the appearance and existence of the State while the rest come up due to objective situations and conditions. Firstly, the appearance of bureaucracy and the existence of State are often associated. As the society has evolved, many economic, political and social activities have been more diverse and complicated; the State tends to extend its organizational structure and personnel. New organizations under control of the State are
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established to manage the activities of the whole society. A cumbersome system with a lot of personel, plus the limitations of management ability leads to the failure in managing and controlling the whole organization. This creates an advantage for bureaucracy to develop. Secondly, the political institutions are still limited and our institution also contains many problems. Legal system is not synchronized, forecasting ability is not updated, so a great many of areas, activities, social relations have not been adjusted on time. The principles, mechanisms and policies in management are not close and clear enough, therefore, when the negative activities are found out, individuals can avoid their responsibility and there is no one to be blamed for. Thus, taking advantage of laws and loop hole occur which can be considered the source of bureaucracy disease. Furthermore, the society in which we live is a society of information. And this convenience in information transmission also shapes the psychology to be afraid of travelling incognito to investigate the real life of residents, so officers cannot grasp the essence of the issues, cannot understand the hopes and the wishes of residents. There are high level of people just catch the information through reports without caring about the accuracy of given information. A great many of officers use fake figures or make up stories to please his supervisors so that they can be promoted or can lower their colleagues. 4. CORRUPTION Despite the fact that progress on corruption will remain a key determinant of investment attractiveness and the authorities had announced aggressive plans to fight corruption by encouraging the media to act as a watchdog, but these efforts have not made a significant progress because corruption has become endemic in Vietnam at all levels of Government. 4.1 The difference about corruption concept understanding Actually, the foreign governments including international institutions and the Vietnamese government have different understanding of the definition of corruption. For the international institutions and foreign governments, corruption is any acts of demanding money outside of fixed charge or taking commissions for favors on the part of the civil servants. However, from Vietnamese governments point of view, because no civil servants can make a living solely depending on their salaries, it is conventionally understood that they take a certain margin, or commission, on the fixed charge for whatever they do in their job. It will be just taken into serious consideration when the commission is an outrageously huge quantity, or an individual keeps all the commission to himself instead of distributing it fairly among the members of his team or department, in proportion to their respective positions. In Vietnamese understanding, what matters is not whether there was an exchange of money outside of the rules with regards to administrative work, but how much commission that they received was and whether they fairly delivered it among themselves.
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4.2 Level of corruption Corruption covers all aspects of social life, at all levels of every sector. It is not so difficult to see corruption in almost everywhere nowadays. Failure in giving a certain quantity of money beforehand means that you have to wait in a long queue and for a long time to make your problem to be solved even when you have enough necessary legal conditions and procedures. Therefore, giving the authorities an agreed sum to make your procedures done more quickly has become a habit, and even a custom in our society. The corruption happens at 3 levels: individual, business and political. In Vietnam, it is a fortune that political corruption has not taken place. Therefore, in this report, we just mention the first two levels. Individual corruption is corruption that takes place primarily in relations between individual citizens and public officials and authorities. This type of corruption is the most popular in our society. It happens from slightest activities to highest level ones. It is not difficult for the corruption to be seen in almost anywhere which has the appearances of civil authorities. For example, in order to append committees seal to a birth certificate or other kinds of paper certification, a resident must either have a extremely close relationship with high-level people or give an appropriate rewards to the person who will take in charge, or he will have to wait for many days without having any idea of when his problem will be solved. In another situation, if you go straight when the traffic light is red, you will be fined a large amount of money and your car will be taken away for a short period of time according to the traffic regulations. However, if you give the traffic policeman an agreed sum of money, you could continue going and your car will not be taken away. And certainly, this money will flow into that policemans pocket, instead of into the treasury organization. The next level is business corruption which takes place primarily in relations between enterprises/companies and public officials and authorities. The public feel it is not easy at all to forget PMU 18 crime, or other typical crimes related to land conflicts.... However, not only domestic companies but also international companies bribe the officials to make a quick procedure and to ensure that their company could take over the projects. This can be evidenced by the corruption of Nexus Technologies Inc, an export company whose headquarter is in Philadelphia. In this case, Mr. Nam Nguyen, Kim Nguyen and An Nguyen pled guilty of corrupting Vietnamese officials to exchange for huge contracts which broke the Foreign Corrupt Practices Act of America. These brothers admitted having given a total number of $250,000 USD to Government Officials in the period of 1999 to 2008. (http://www.bbc.co.uk). It was Pacific Consultants International (PCI), a Japanese company which used this technique when doing business in Vietnam. According to a Japanese public prosecutor, the former President of this company, Masayoshi Taga and other 3 officials Kunio Takasu, Haruo Sakashita and Tsuneo Sakano, were accused of corrupting behavior. According to Kyodo Media, these people bribed a high level official of Vietnam to be taken part in a development project originated from Japanese Government. They did
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give a sum of $ 820,000 USD (90 million yen) to an official in Hochiminh City, which violated the laws of anti illegal competition. (http://www.bbc.co.uk) Political Corruption is the corruption that takes place in the higher echelons of public administration and on a political level. In Vietnam, this has not happened as Iraq or Thailand. A political corruption in both Iraq and Thailand has made these two countries in to a political crisis, which increases the worry of foreign investors. 4.3 Fact and Figures
Figure 7: Corruption perception index From this table, it can be inferred that the corruption in Vietnam is really higher, and this problem is much more serious than other countries like Singapore, Denmark and New Zealand. Although the index of Vietnam is higher than Indochina countries, in comparison with China, Vietnam ranked 41 steps less, according to the table. It is critically a significant point to have interest in when the investors are confused whether to choose China or Vietnam. The corruption perception Index last year said that the U.S. leader in particular and of the world in general is not doing enough to combat corruption worldwide. Made after one year was much the economy crisis, the report asserts that "corruption is the environmental risk to economic recovery and a major challenge for countries which are in conflict." Vietnamese government always claim anti-corruption as one of priority, but also recognizes this war is difficult. According to the Political and Economic Risk Consultancy (PERC), based in Hong Kong, Viet Nam ranked 3rd in the list of the highest corrupt countries in Asia-Pacific in a new economic report. In the highest position for corrupt countries is Indonesia, one of
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the economies which are highly developing in the continent. The second, ahead of Vietnam, is Cambodia and after Vietnam is the Philippines. PERC have reviewed the 16 nations of Asia Pacific areas from the foreign investors points of view. This organization has consulted 2,174 high end and middle class investors operating in Asia Pacific area. In this survey, Indonesia was scored 9.07 points over 10, while the score of last year was 7.69. Countries such as Thailand, India, China and Malaysia also marked with high levels of corruption. Meanwhile, Japan, U.S, Hong Kong, Australia and Singapore were considered the least corrupt nations.(http://www.bbc.co.uk) Nevertheless, the estimated cost of corruption worldwide is more than 5% of global GDP (US$ 2.6 trillion) each year. In Vietnam, corruption cost 3-4% of total GDP per year, according to Mr. Tran Dinh Thien. However, with the calculation from economists, in the period of 2001 and 2005, approximately 4 trillion USD flowed into greedy mandarins; therefore, this percent of corruption can be higher with 6-7% GDP. One estimate puts the cost of corruption in China at more than $100 billion a year or around 5 per cent of gross domestic product. Corruption is stealing from the State. The amounts of money now being stolen in China are astronomical. In the 1990s it was rare for a corruption scandal to involve a million Yuan. Chinas National Audit chamber tried to calculate the cost of corruption between 1996 and 2005. It came up with a figure of 1.29 trillion Yuan ($170 billion). This was about 8 per cent of budget spending for these years. In Vietnam, according to C37, in the period of 6 months in 2009, the policemen in the South discovered 1,415 cases related to economy, which were 114 cases more than 2008. http://www.tin247.com). In China, the authorities deal with huge numbers of cases every year. On average, since the 1980s, over 150,000 cases come before the courts. About a third of those sentenced are found guilty of harming the social order and one of six is engaging in economically corrupt behavior. According to the anticorruption organization in China, there were 106,000 mandarins arrested for embezzlement in 2009, which is 19% as high as previous years. Corruption in China and Vietnam has some similarities. For example, the corruption is concentrated on those sectors in which the government is most involved. These include infrastructural projects, government procurement, financial services, and sale of land licenses and closely regulated state industries. These can be demonstrated by the figures. In 2007, inspectors found the derogation with 2,870 trillion VND, 1.24 million USD and 880 ha of land. Inspectors suggested taking back 1,200 trillion VND and 880 ha of land, 1,464 officials were addressed. In 2009, after 3,000 investigations, the inspectors worked out 202 derogations with the total loss of 16.5 trillion VND and 187 public servants were addressed. In provinces, through a thorough investigation of 7,000, 379 derogations were detected with the damage of 50 trillion VND and in this inspection, 442 officials were judged. (http://thanhtra.mt.gov.vn)
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The lack of a competitive political system and a free press renders these sectors especially vulnerable to corruption. In China, a 2006 survey of over 3,000 corruption cases revealed that over half were involved in infrastructural projects and land deals. Transport and urban planning are other areas where officials succumb to bribery and other crimes. Astonishingly, over half of provincial officials responsible for transport have been found guilty of corruption over the years. Some have even been executed. In Indonesia, corruption has cost this country billions of dollars for the last 5 years. The latest report of Human Rights Watch estimated that corruption in forestry has taken two billion dollars each year away of Government budget. Although Indonesia ranks the third about high tropical forest areas, millions of trees are cut down illegally each year. Land is very valuable and, consequently, is the source of much crime. Local officials use violent means to acquire land at low prices and then sell it on to developers at high prices. In one survey in sixteen cities in 2005 found that half the development land had been acquired by extra-legal means. The authorities uncovered over a million cases of illegal land acquisition in the six years up to 2005. 4.4 The reasons of corruption in Vietnam 4.4.1 The leadership of one party system The absolute and comprehensive leadership of the Vietnam Communist Party is the root of all the tragic situation of the country today, including corruption problem. Viet Nam Communist Party would want to gain peoples trust through efficient administration and civil servants clean of corruption, however, administrative reform in Vietnam involves a vast structural problem. Unless there are certain forms of benefits during the reform to the party members working for existing administrative institutions, it would be difficult to push the process forward. Therefore, they have to tolerate a certain degree of embezzlement or misappropriation as a necessary evil. 4.4.2 Poorly-paid salary in State-owned organization Vietnamese civil servants are extremely poorly paid, whether they work for the central government or local. Although there is a fact that the salary level has been improved over the certain periods, these levels of increase have not ensured the employees to be able to live on their hard salary. Therefore, sharing commissions from work becomes the easiest way to earn cash. Thus, as long as it is reasonably acceptable sum and shared equally among everybody involved, they do not think they are doing something wrong, not to mention corruption, and do not understand why such deeds should be condemned. 4.4.3 The inconvenience and unclearness in administrative procedures. The legal system is not synchronized and still overlapping. Therefore, many public servants take use of this inconvenience, plus with their high position to receive illegal amount of money. Not only domestic companies but also the international companies has made use of this to guarantee that their companies could have a quicker procedures and could have the projects they want from the help of public servants(as said above).
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To sum up, high level of corruption in Vietnam is actually an obstacle for foreign investors. Maybe in the future, with the serious interest in addressing corruption of Government, corruption will be reduced over time and thereby, investors could have a fair competition in which they can position themselves without doing unethical actions. II. FINANCIAL RISK 1. Exchange Rate From 2008 until now, exchange risk has tended to grow. Dong was subject to downward pressures. Government authorities thus increased the dong fluctuation band several times (plus or minus 5% as of March 2009) and lower the official value of the dong, which is pegged to the US dollar, four times: in June 2008 (by 2.4%), in December 2008 (by 3%), in November 2009 (by 5%) and in February 2010 (by 3.4%). Moreover, the authorities decided in November 2009 to reduce the dong fluctuation band to 3% in order to anchor exchange-rate anticipations. On the black-market, however, the dong is still traded far below official parity. Government authorities could thus devalue the dong again in 2010. (http://www.coface.jp) Bui Kien Thanh, a former government adviser, said: The State Bank foreign exchange reserves will shrink further and the State Bank will be forced to take further action to defend dong parity". (http://uk.reuters.com) If the SBV allow the dong to depreciate further against the US currency, it would increase the dong value of firms US dollar-denominated debt, which raises the risk of default for the many firms that rely on trade financing in US dollars.
Figure 8: Exchange rate of USD/VND from 2008 to 2010 In the process of finding out the reasons for that issue, we can enumerate some factors below. Firstly, inflation is on the rise once again. After trending lower during most of 2009 to a low of 2 percent in August, it rebounded to 7.6 percent by January to stand above a 2010 government target of 7 percent. HSBC currency strategist Daniel Hui says inflation will reach double digits in the second quarter of the year
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(http://uk.reuters.com). Obviously, the rise in inflation rate makes a decrease in the export and an increase in the import of Vietnam, which affects the balance of trade in this country. Actually, after increasing sharply in 2009 as a result of the economic slowdown and the stimulus plan, the trade deficit will likely remain substantial in 2010. In fact, the trade deficit has ballooned in recent years from $5 billion (3 billion pounds) in 2006 to $18 billion in 2008. The global downturn saw it narrow to $12 billion in 2009 but the deficit in January 2010 was already well over $1 billion. (http://uk.reuters.com) In order to improve the trade deficit, SBV make a decision to devaluate the VND. The public debt will likely grow and half of it is denominated in foreign currency, which makes it vulnerable to exchange rate risk. The current account deficit is moreover expected to remain high in 2010 with only 50% covered by FDI. Vietnam will thus remain very dependent on financial markets. (http://www.coface.jp) 2007 Current account balance (%GDP) Foreign debt (%GDP) Foreign exchange reserves (in months of imports) (f): forecast Figure 9: Some macro-economic indicators Secondly, despite the SBVs effort to stabilize the foreign exchange market, its status remains uncertain because of the high dollarization rate of Vietnam. Concerned about fluctuations in the exchange rate, many businesses were unwilling to sell US dollars earned from their export activities. In order to preserve their accumulations of US dollars, companies access loans in US dollars to fund their immediate needs, leading to a US dollar deficit in bank transactions. The gold fever appeared during the end of 2009, with prices escalating as people rushed to buy gold. In addition, the ongoing foreign currency tension combined with the increase in exchange rates caused people to worry over the decline in their savings. Additional inflation pressures created by the recent stimulus package have led many people to move their assets into gold and dollars. With the high demand for US dollar in Vietnam, it is obvious that US dollar appreciate against the VND. The issue that recently VND has weakened against the US dollars makes more risk for the foreign investors in case they invest in Vietnam. Exchange rate volatility can work against an international company if a payment in a foreign currency has to be made at a future date. There is no way to guarantee that the price in the currency market will be the same in the future-it is possible that the price will move against the company, making the payment cost more. On the other hand, the market can also move in a business' favor, making the payment cost less in terms of their home currency. In the near future, Vietnam may weaken its currency to rein in the nations trade deficit, said Nguyen Duy Hung, chairman of Saigon Securities Joint-Stock Co., referring to a
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2008 -11.9 29.7 3.2
2009 -9.7 31.9 3.5
2010(f) -9.4 32.0 3.1
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March research note. The companys Sector Watch report predicted 3 percent to 4 percent depreciation for the rest of 2010. (http://www.businessweek.com) Therefore, the trend of exchange rate in Vietnam in next few months seems predictable and the risk level seems less serious. Consider the exchange rate in Singapore from 2008 to 2010, as seen in the figure below, this rate has fluctuated more than the one in Vietnam. Moreover, according to the forecast of Financial forecast centre, the Singapore dollar are going to depreciate against US dollar in next few months, so it is more risky. Consequently, in the aspect of currency risk, from the perspective of international investor, Vietnam is regarded as more attractive for investing than Singapore.
Figure 10: Exchange rate of USD/SGD 2. Interest Rate Real interest rate of Vietnam during the period from 2008 up to now has fluctuated continuously as it can be seen in the table below
Time Nominal interest rate (per year) Inflation Real interest rate (per year)
01/01/2008 01/02/2008 19/05/2008 11/06/2008 21/10/2008 05/11/2008 21/11/2008 05/12/2008 22/12/2008 01/02/2009 11/2009 04/2010
8.25% 8.75% 12% 14% 13% 12% 11% 10% 8.5% 7% 8% 8%
14% 16% 25% 25% 27% 22% 22% 24% 24% 17% 4% 9%
-5.5% -7.25% -13% -11% -14% -10% -11% -14% -15.5% -10% 4% -1%
Figure 11: Real Interest rate in Vietnam
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Why have we had the incessant fluctuations of real interest rate? Its because of the change in base interest rate and also the variability of inflation rate from 2008 up to now. Apparently, it has related to the monetary policy of Vietnamese government. In the first half of 2008, Vietnam was combating a potential macroeconomic instability such as high inflation, a fragile financial system and surging twin deficits. Therefore, on April 17, 2008, the Government released Resolution No.10/2008/NQ-CP detailing measures to restrain inflation, stabilize macro economy and ensure social security and sustainable growth. In one side of the Resolution, the government took decisive and consistent measures on monetary tightening. The State Bank of Vietnam (SBV) increased benchmark interest rate on VND three times in the first half of 2008, boosting benchmark rate from 8.25% to 14% per annum on June 11, 2008. (http://www.eai.nus.edu.sg/BB447.pdf). The governments policies to stabilize the macro economy have generated visible results. In particular, the monetary policy has reduced inflation and trade deficit. However, the level of overall macroeconomic instability is still quite severe. In the second half of 2008, before the country could fully address its first set of problems, the economy was dealt another blow by the global financial crisis, including surging trade deficit since September 2008, rising unemployment, weakening domestic demand and slow economic growth. Consequently, in December 11, 2008, the Vietnamese government released Resolution 30/2008/NQ-CP on urgent measures to deal with the economic recession. In detail, on monetary policy, since July 2008, Vietnam has gradually eased its monetary policy. From October 21, 2008 to January 23, 2009, SBV cut its benchmark interest rate six times from 14% to 7% per annum. (http://www.eai.nus.edu.sg/BB447.pdf). In 2009, the government has continued to apply the loosened monetary policy. SBV try to adjust and maintain the interest rate at rational level since February 2009 in order to reduce the lending interest rate level and to strengthen the mobilization sources to meet the credit expansion of the economy, thereby, the prime interest rate in VND was still remain at 7% per annum. Since November 2009, all the aforementioned interest rates have readjusted 1% additional to response the new conditions of the economy. Moreover, on January 23, 2009, the Vietnamese Government decided to use US$1 billion (VND 17 trillion) to subsidize loans interest rates to boost the economy. Decision No. 131/QD-TTg, (dated January 23, 2009) was issued by the Prime Minister to provide interest-rate subsidies. Under the Decision, short-term loan contracts with maximum duration of 8 months and signed and disbursed from February 1, 2009 to December 31, 2009 will get interest rate assistance of 4% per annum. Since April 2009, this package has been expanded to medium and long-term contracts and simultaneously supported for loans to purchase machineries, equipments, materials for agricultural productions and for constructing houses in rural areas. To sum up, 2008 is the year that the degree of interest rate varied constantly while in 2009 and the first quarter of 2010, that rate seem to stabilize. Refer to the degree of
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country risk, the more fluctuant the interest rate is, the more threatening the foreign investors have to confront under the control of government. So, recently, the risk of interest rate is not very high. 3. Real GDP Growth Rate Real GDP Growth rate (%) Vietnam China Cambodia 2009 4.3 8.7 -2.9 2008 6.23 9 6.5 2007 8,5 13 10.2
Figure 12: Real GDP growth rate In 2008 the financial crisis affected many developed economies and some other developing economies. From the above table, all the growth rates of three countries had downward trend. This is a risk for investors when they invested in because low growth rate means low return rate. However, downward is the same trend for the world economy due to the world financial crisis. Furthermore, in comparison with China and Cambodia, Vietnam has moderate risk, Cambodia is the most risky country and China is the least one. China is one of the biggest and fastest-growing economies, so it has lower risk than Vietnam and Cambodia; developing countries. But comparing with developing countries like Cambodia, Vietnamese economy is less risky, it still grow in spite of the world financial crisis. GDP Per Capital GDP per capital($) Vietnam China Cambodia 2009 1074 3677 740 2008 1024 3160 818 2007 825 2459 723
Figure 13: GDP per capital It can be seen that Vietnam has low GDP per capital, only about $1000 in two recent years. However, it has increased continuously; this is a good signal for economic development. In comparison with other countries in region, Vietnams GDP per capital is at average level, it is higher than Cambodia, but lower than China. GDP per capital of China has high growth rate and is more than 3 times as much as Vietnams one. In general, Vietnams GDP per capital is still very low; it stands at 137 in the world, China is at 114(according to the GDP per capital country rank by the CIA World 2009). The low GDP per capital show the poor and less developed economy. It is known that low income country has low consumption power, they are usually sensitive to the price, if the foreign companies offer product with unreasonable price or there is uncertainty they will face the potential of losing sale and so reduction in their revenue. Therefore, it is risky for investors to invest in low income countries.
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Analyzing both GDP per capital and GDP real growth rate, it can be seen that despite the financial crisis, Vietnamese economy still grows with slow and rather stable rate. At the present, Vietnam is in the recovery stage, with stable growth, so the risk of investment in Vietnam is not very high as the others like Cambodia. 4. Inflation Rate Inflation (%) Vietnam China Cambodia 2009 6.518 0.7 5.325 2008 23 4.8 19.87 2007 12.6 1.5 5.9
Figure 14: Inflation rate in Vietnam, China, and Cambodia from 2007 to 2009 Vietnam still has very high inflation rate, in three countries; Vietnam has the highest level, which increased rapidly from 2007 to 2008, nearly double. This put high pressure on government to control inflation and high risk for investors who invest in Vietnam. Commonly, it is very risk to invest in high inflation country due to the increase in cost of production and reduction of sale. It is simple that high inflation leads to the increase in price, when the price increases, the cost of production will rise because of the rise of materials price. In addition, high price will reduce demand for the product and reduce sale as well as the revenue of the firm. However, in a positive note inflation has reduced dramatically from more than 20 percent in 2008 to less than 10 percent in 2009. This reduction is due to the economic slowdown, but the relative inflation of Vietnam with others is still high. Furthermore, the table below of the inflation condition of inflation of Asian country from 2002 to 2008 also showed that Vietnam was one of the highest inflation countries. Country Cambodia China Hong Kong India Indonesia Korea Laos Malaysia Philippines Singapore Thailand Vietnam 2002 3.3 -0.8 -3.0 3.4 11.9 2.8 10.7 1.8 3.0 -0.4 0.6 3.8 2003 1.2 1.2 -2.6 5.4 6.8 3.4 15.5 1.1 3.5 0.5 1.8 3.1 2004 3.9 3.9 -0.4 6.4 6.1 3.6 10.5 1.4 6.0 1.7 2.8 7.8 2005 5.8 1.8 1.0 4.4 10.5 2.8 7.2 3.0 7.6 0.5 4.5 8.3 2006 4.7 1.5 2.0 5.5 13.1 2.2 6.8 3.6 6.2 1.0 4.6 7.5 2007* 4.2 1.8 1.6 5.0 6.2 2.4 5.0 2.7 4.8 1.6 2.5 6.8 2008* 3.5 2.2 2.3 5.0 6.1 2.6 5.2 2.7 5.0 1.0 2.5 6.3
*Forecasted for 2007-2008 Resource: Asian Outlook 2007-Comparison Table: by Runckel & Associates Figure 15: Forecasted inflation in some Asian countries
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Overall, Vietnams economy expanded rapidly with GDP growth at 8.5 percent in 2007. It continued to grow at 6.23 percent in 2008 and 4.3 percent in 2009. However, the economic is slow in 2008 and 2009, and GDP per capital remains low by regional standards and high inflation. Consequently, Vietnam is considered to be highly risky for investment. PART 4: CONCLUSION AND RECOMMENDATION 1. Conclusion From all above, investing in Vietnam face two main risks; political risk and financial risk. Stable political condition, good attitude of Vietnamese consumers toward foreign goods and services and favorable tax condition make Vietnam less risky for investors to make investment in. Inversely, there are a lot of burdens when investing in Vietnam; including strict pollution control standards, local firms subsidy, failure to enforce copyright law, massive and complicated procedures. These factors make Vietnam highly risky to foreign investors, especially failure to copyright law, bureaucracy, and corruption which are serious problems in Vietnam. Overall, Vietnam has moderate or a little bit high political risk by considering all the factors listed above. Besides that, economic improvement, open market policies encourage Vietnamese economy to develop a lot. In addition, emerging economy helps Vietnam be less affected by the world financial crisis. However, Vietnam still remains low GDP per capital only around USD 1,000, and belongs to one of highest inflation countries in Asia. Furthermore, downward pressure on VND, unstable interest rate also creates risk for investors. As a result, the financial risk of Vietnam is high. And then the whole country risk is high. Some evaluation or rate of country risk for Vietnam by some international organizations can be used as references to understand more about Vietnam Country risk. Country risk service by the Economic Intelligence Unit (EIU) for 2008, rated Vietnam as CCC for economic or financial risk, B for political risk and overall country. They rates countries according to scores from 0 to 100 and range in to 10 categories as the table below. Score New model band 0-12 9-22 19-32 29-42 39-52 49-62 59-72 69-82 79-82 89-100 AAA AA A BBB BB B CCC CC C D
Source: Rating band characteristics detail at: http://www.eiu.com/site_info.asp? info_name=eiu_CRS&rf=0 The higher score is, the higher risk is, so AAA is the least risky and D is the most risky, as EIUs evaluation Vietnam has moderate political risk and high economic risk and overall country is moderate risk, too. Another example is ranking from Euler Hermes UK by analyst David Atkinson 2009 which rated Vietnam at grade D according to Country Risk Grades on a scale of AA, A, BB, B, C, D where AA is the lowest and D the highest risk; the highest risk
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level, with P3 for political risk (P1: the best, P4 the highest risk) and E6, the highest risk grade for economic risk. The final one recommended is the country risk report of A.M. Best company, Inc (AMB) in 2009; they evaluated Vietnam to be high in political and economic risk and very high for financial risk. It is showed in the chart in Appendix 8. As analyzed above, the results that researchers have found are equivalent to those our group has studied and come up with. Finally, it can be concluded that Vietnam is seen as a highly risky place for foreign investors to invest in. However, it is likely that high risk brings high return; therefore, Vietnam is still one of potential places for investments in foreign investors eyes all over the world. 2. Recommendation Due to limited scope of our research, we did release only several recommendations for foreign investors who invest in Vietnam. Investing in Vietnam now brings to foreign investors a lot of benefits because Vietnam is one of the most attractive countries to make investment in Southeast Asia with GDP growth rate just behind China. Therefore, expanding business into Vietnam market is one of many foreign investors targets. Despite the fact that foreign investors who want to do business in Vietnam may face high risks, they can still gain a lot of earnings only if they understand thoroughly opportunities and threats of doing business here. Regarding political risk in Vietnam that investors may encounter, as stated above 77% of Vietnamese customers prefer foreign brand. It will create very big opportunities for foreign producers because they can compete very easily with domestic producers. Taking advantage of Vietnamese consumers preference, understanding this chances, foreign investors should keep their quality and also their service in order to satisfy and retain loyal Vietnamese customers. From then, they can keep their strong position in Vietnam market and also stand outstandingly in Vietnamese consumers mind. However, this situation might be changed in the future sooner or later because now Vietnamese government is having a campaign of lets buy domestic products; it will threaten foreign investors future earnings. Therefore, foreign producing firms need to take it into consideration so that they will have appropriate and quick response in the changing demand of Vietnamese people. Vietnamese government now has visions and expectations of foreign direct investment in 2010. With the aims of speeding economic growths, government continues to attract foreign investors to make investment in Vietnam. In order to achieve objective of FDI in 2010 of 22 - 25 billion USD which is increased by 10% comparing with 2009, the government must have detailed policies to provide foreigners incentives for foreign direct investment in Vietnam. Thus, making use of favorable conditions that Vietnamese government give, foreign investors need to expand their business and also make more investments in different Vietnamese industry. If so, they will receive highest level of benefits and advantages which are brought from government. Moreover, understanding the importance of FDI in economic development of Vietnam, foreign investors will have the advantages over tax reduction and land renting expenses. From
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then, they may reduce cost of production and give out products at lower prices comparing with recently in order to compete with small and medium sized firms which receive a lot of Vietnamese government subsidy. Vietnam now strengthens the enforcement of copyright law which guarantees foreign investors intellectual property and ensures fairness for all businesses. Regarding bureaucracy and corruption, they have existed in Vietnam for a long time so that they cannot be eliminated in a short run. Efforts to be clean of corruption in Vietnam will take a long time to complete despite the fact that the country has positive policies to wash out bribery and bureaucracy. Therefore, the foreign investors have to take into account their risks and opportunities carefully when deciding to invest in Vietnam. Actually, bribery to Government official is not a wise idea because nowadays, Vietnamese Government has taken part in an anti-corruption. Doing business in an unethical way does not only can cost investors a huge sum of money but also can put them into prison. Therefore, do not keep the belief that bribery and bureaucracy can help you to have a sustainable position here. How can a business protect itself against currency and interest rate volatility? One risk management tool that can help a business protect its profits from unforeseeable changes in the currency market is hedging. The primary goal when hedging is to protect company's profits from exchange rate and interest rate uncertainty at the lowest possible cost. Therefore, the foreign investors who want to invest in Vietnam can choose some hedging tools like the forward contracts, the swaps, and the option contracts to reduce the possibility of financial risk. Refer to the forward contract; foreign companies may be required to make payments or to receive payments in a local currency, in that case, these companies can enter into the forward exchange contract which is a binding obligation to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange, on a certain future date with a bank. HSBC and many other banks in Vietnam even have a team of specialists available to advice and support for these companies if they need more information. About the swap, many banks offer the interest rate swap which is a derivative in which one party exchanges a stream of interest payments for another partys stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. It can help changing from the floating to fixed interest rate (without changing others conditions) to reduce interest rate risk of rising (in case the company are borrowing fixed rates) and vice versa. The research shows not only the foreign investors the risks they may face in Vietnam but also some suggestions to help them invest in Vietnam more effective. This is a really interesting topic, hope that there will be more deep researches to help investors understand more about Vietnam and also help Vietnam see itself and have appropriate policies to attract more DFI to develop the home economy.
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GAP BETWEEN ORDINANCE AND SMALL-SCALE RETAILERS MANAGEMENT ON FOOD HYGIENE AND SAFETY
Written by: Nguyen Thi Thanh Huong (3K-08) Hoang Thu Ha (CN2-08), Nguyen Thi Thuy (2KT-07) Supervisor: Nguyen Thi Cuc I. INTRODUCTION Food is one of the most necessary things for humans life. It also affects directly and significantly the peoples health. Therefore, the food quality is concerned at not only individual, national but also international level. In Vietnam, recently, it is the fact that the quality of food, especially fresh and raw foodstuffs, has been under serious threats of being unhygienically or unsafely grown, produced and handled. Although the Vietnamese government has already launched the Ordinance on Hygiene and Safety of Foodstuffs in 2003 in responding to a number of requests from different related parties, every year it still witnesses thousands of cases of food poisoning. This can be partially explained by the loosen management on food hygiene and safety during stage of microscale retailing. This research paper will bring a deep view about the variances between the regulation and its implementation, and also suggest some recommendations which help to minimize the gap. II. Literature review 1 Major international standards on Food Hygiene and Safety: As mentioned before, food quality is a globally concerned issue. Therefore, there are a lot of international standards which are set before. However, in this research we based on some basic ones such as Hazard Analysis Critical Control Point (HACCP), Good Manufacturing Practices (GMP), Good Agricultural Practices (GAP) and Good Hygiene Practices (GHP). Hazard Analysis Critical Control Point (HACCP) is a systematic preventive approach to food safety and pharmaceutical safety that addresses physical, chemical, and biological hazards as a means of prevention rather than finished product inspection. HACCP is used in the food industry to identify potential food safety hazards, so that key actions, known as Critical Control Points (CCPs) can be taken to reduce or eliminate the risk of the hazards being realized. The system is used at all stages of food production and preparation processes including packaging, distribution, etc. HACCP itself was conceived in the 1960s by Pillsbury with the aim of providing a basis to design and manufacture the first foods for space flights for the US NASA (National Aeronautics and Space Administration). Since then, HACCP has been recognized internationally as a logical tool for adapting traditional inspection methods to a modern, science-based, food safety system. HACCP was initially set on three principles but now on seven principles (Please see appendix 2).
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Good manufacturing practice (GMP) is part of a quality system covering the manufacture and testing of active pharmaceutical ingredients, diagnostics, foods, pharmaceutical products, and medical devices.GMPs are guidelines, and in some countries such as the USA regulations, that outline the aspects of production and testing that can impact the quality of a product. Many countries have legislated that pharmaceutical and medical device companies must follow GMP procedures, and have created their own GMP guidelines that correspond with their legislation. (Please see appendix 2 for the principles) Good Agricultural Practices (GAP) are "practices that address environmental, economic and social sustainability for on-farm processes, and result in safe and quality food and non-food agricultural products". GAP has been developed in recent years by the food industry and producers organizations, aiming to codify agricultural practices at farm level for a range of commodities. Their purpose varies from fulfillment of trade and government regulatory requirements (in particular with regard to food safety and quality), to more specific requirements of specialty or niche markets. The objective of these GAP codes, standards and regulations include: ensuring safety and quality of produce in the food chain, capturing new market advantages by modifying supply chain governance, improving natural resources use, workers health and working conditions, and/or creating new market opportunities for farmers and exporters in developing countries. GAP focus on 4 criteria: manufacturing technique, food safety and hygiene, working environment and origin trace. Good Hygiene Practices or GHP: All practices regarding the conditions and measures necessary to ensure the safety and suitability of food (GHP) at all stages of the food chain. (Please see appendix 3 for the principles and scopes of examination) 2. Concepts in food hygiene and safety. 2.1 Food hygiene and food safety - Food hygiene has been defined as all conditions and measures necessary to ensure the safety and suitability of food at all stages of the food change (Codex Alimentarius). It encompasses a wide range of measures that can be applied from the growth of food products and the raising of food animals, through harvesting and slaughter, processing, delivery, storage and final sale. However, in case of refresh or raw foodstuffs, food hygiene will be equated with cleanliness; the cleanliness of food premises and food handlers. - Food safety refers to the discipline that involves describing, handling, preparing and storing food in ways that prevent food borne illnesses. These include a number of standard operating procedures that should be followed to avoid potentially severe health hazards. Some of these standards include cleaning of areas, preparing the tools needed to clean the areas, disassembling areas and/or equipments and method of cleaning and sanitizing in general. The reason behind this is that food transmits disease from person to person as well as serves as the breeding ground for bacteria that can cause food poisoning.
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2.2 Retailing and micro-scale food retailers - Retailing consists of the sale of goods or merchandise from a very fixed location, such as department stores, boutiques or kiosks in small or individual lots for direct consumption by the purchaser. Retailing may include subordinates services, such as delivery. In commerce, a retailer buys goods or products in large quantity from manufacturers or importers, either directly through wholesaler, sand then sells smaller quantities to the end-user. Retail establishment are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. - Micro- scale food retailers are simply defined as which shops and stores which sell food and foodstuffs (both dried and fresh food ranging from vegetables, fruits, slaughtered flesh like chicken, pork, beef or fish to ready-to-eat materials) to consumers. 3. Ordinance on food hygiene and safety in terms of fresh and raw foodstuffs (extracted where relevant). Article 8: The following conduct shall be prohibited: 1. Planting crops, raising animals, collecting and gathering, catching and trapping; or partially or fully processing, packing, preserving, transporting or selling foodstuffs in contravention of the law. 2. Manufacturing and trading: (a) Foodstuffs which are stale, rotten, deteriorated or contaminated and dirty and which may cause harm to people's health and lives; (b) Foodstuffs which are toxic or poisonous; (c) Foodstuffs which contain parasites causing disease or which contain microorganisms causing disease or micro-organisms beyond the prescribed levels; (d) Meat foodstuffs or foodstuffs manufactured from meat not subject to veterinary examination or which was examined but failed to satisfy requirements; (d) Domestic animals, poultry or marine creatures which died from disease, poison or uncertain causes; products manufactured or processed from domestic animals, poultry or marine creatures which died from disease, poison or uncertain causes; (e) Foodstuffs which are contaminated or dirty because their packaging or container became dirty, broken or torn during transportation; (g) Foodstuffs which are beyond their use expiry date. 3. Manufacturing and trading animals or plants which contain germs which are able to be transmitted to people, animals or plants. 4. Manufacturing and trading foodstuffs from raw materials other than food or from chemicals which are not on the list of substances permitted to be used.
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5. Manufacturing and trading food additives, substances assisting food processing, nutritious micro-substances, functional food, high risk food, food preserved by irradiation methods or genetically modified food which has not yet been permitted by the competent State administrative body. 6. Using polluted transportation facilities or transportation facilities which have transported toxic substances in order to transport food. 7. Providing false information, advertising or labeling, or other dishonest conduct regarding hygiene and safety of foodstuffs. Article 9. Organizations, households and individuals that produce and/or trade in fresh and raw food must ensure that the places where the food are reared, cultivated or traded in shall not be polluted by surrounding environments and must be isolated from areas where environmental pollution and/or food contamination may occur. Article 10. Organizations, households and individuals that produce and/or trade in fresh and raw food must apply measures to treat wastes according to the law provisions on environmental protection. Article 12. Organizations, households and individuals that produce and/or trade in fresh and raw food shall have the responsibility: 1. To ensure that the food they have produced and/or traded in are not polluted, are preserved at clean places, isolated from places where chemicals, chiefly toxic chemicals, are preserved and other pathogenic sources; 2. To be accountable for the origins of food they have produced and/or traded in. Article 13. 1. Food-processing sites of organizations, households or individuals must be located at places which meet the food hygiene and safety conditions. 2. The food- processing sites must be designed, constructed, installed and operated to satisfy the food hygiene and safety requirements. Article 14. 1. Raw materials used for food processing must ensure hygiene and safety according to law provisions. 2. The food-processing establishments must apply all measures to keep food from being contaminated or infected with pathogens which may spread to humans, animals and/or plants. 3. The food-processing establishments must ensure that the processing process is conformable with the law provisions on food hygiene and safety. Article 29 1. Persons who are directly involved in the manufacture and trading of foodstuffs must satisfy fully health standards, must not have any contagious disease, and must be knowledgeable about hygiene and safety of foodstuffs.
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2. The Ministry of Health shall provide regulations on health standards and on requirements on knowledge about hygiene and safety of foodstuffs applicable to persons who are directly involved in the manufacture and trading of foodstuffs, as appropriate for each manufacturing or trading branch and trade. Article 30 1. Organizations, family households and individuals manufacturing and trading foodstuffs shall be responsible to ensure the health standards of persons who are directly involved in manufacturing and trading at their establishments in accordance with law. 2. The Ministry of Health shall provide regulations on health checks applicable to workers at establishments which manufacture and trade foodstuffs. III. RESEARCH QUESTION Of all the controversial issues taken most concerns recently, food hygiene and safety is considered the most debated one. The ordinance on food hygiene and safety has been come into force since 2003; however, its effects are still relatively small up to expectation. In order to give more information on this concern and some figures to clearly prove the weakness of this ordinance implementation, a research paper named Gap between ordinance and small-scale retailers management on Food Hygiene and Safety was conducted. The purpose of our study has been to work out the gap between Ordinance and its implementation by micro-scale food retailers. The reason why the ordinance stills remains new to micro-scale food retailers and some recommendations to narrow the gap is another objective of our study. Specifically, we try to answer two following questions: 1. What is the gap between the Ordinance and its implementation by Microscale Food retailers? 2. What should be done to narrow the gap? IV. AIMS AND OBJECTIVES The purpose of our research is to work out the gap between the ordinance and the current implementation situation carried by small-scale retailers. By analyzing the results and findings of our survey and then some discussions, the causes of this lag will be pointed out and then some related recommendations will be discussed in order to curb the real problems in retailing industry sector, which brings customers more value concerning to the food hygiene and safety issues. More specifically, the main objectives of our study are to: 1. work out the problems in management practices of micro-scale food retailers in terms of maintaining food hygiene and safety; 2. figure out the main reasons for the problems; 3. and suggest short term and long term solutions to deal with the problems which is believed to enhance the performance of the micro-scale food retailers.
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V. METHODOLOGY In order to work out the gap between the ordinance and the current situation of implementation on the Food Hygiene and Safety issues of small-scale retailers management, we use quantitative method to have numbers and figures supporting the gap with some evidences. To collect the data, a set of 11 questionnaires was designed. Using many types of questions such as yes/no questions, multiple choice questions; and having a clear guide, the questionnaire was easy and convenient for the respondents to answer. On May 11, 2010, thirty (30) copies of questionnaires were delivered to small-scale food retailers located in Phung Khoang market during their business time with 100% returned. Because we asked them when they were doing their business, therefore, some could not write directly the answers to the survey paper. We helped them read the question and marked their choices instead, just like face-to-face interview technique but the main difference is the aid of ready-made questionnaire. This method of doing research is relatively reasonable and straight-forward to harvest accurate outcomes. The surveys, was conducted in Vietnamese since majority of salespersons in small-scale retailers had little proficiency in English. After collecting the data, we translate the survey into English, and both the Vietnamese and English version can be found at Appendix. Basing on the reasons of population size, the result accuracy, time and the number of group members, a sample size of 30 small-scale retailers out of the population of all participating in the retailing sector located at Phung Khoang market was considered suitable for us to conduct the survey. Furthermore, the sample size of 30 was believed rational and large enough to present the characteristics of the population. Last but not least, due to the lack of time and human resource, conducting a survey with such small sample size was reasonable and effective. Besides, some secondary data were exploited to provide this paper with a great deep and comprehensive view. Both primary and secondary data were analyzed and made full use to create completion for this research paper. VI. DATA ANALYSIS AND DISCUSION. 1. Data analysis With the large size of retailing industry in Viet Nam, it tends to widen & widen by the profits through this channel increases 45 %(2009) compared to those of 2008. Although more people are familiar to modern channel- supper market, the traditional markets still play an important role in retailing industry- they account for 68% market share. So we only focus on the subject- traditional market, our samples are 30 microscale retailers in Phung Khoang market(Nguyen Trai street, Thanh Xuan, Ha Noi). With the cooperation of the sales in this market, we did collect & gather the information and the results are illustrated in the following table:
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Question
1 2 3 4 5 6 7 8 9
10years
9 Never 14 Ever 2 Yes 4 Always 7 TV 9 food caregiver 14 Very often 0 Salespersons personal hygiene 2 Through wholesale market 12 Import from prestige supplier 18 46.7% 0 30% 46.7% 6.7% 13.3% 23.33 % 37.5%
5-10years
12 ever 16 never 28 no 20 Sometimes 13 Newspaper 4 Salesperson 11 Often 4 salespersons health condition 0 Through prestige supplier 6 Import from relatives/ friends 12 36.6% 13.3% 40% 53.3% 93.3% 66.7% 43.33 % 16.67 %
1-5years
6 Fully aware 0 20% 0%
<1year
3 10%
30
30 30
Not sure 6 Seldom 4 Medical staff 11 consumer 5 Occasionally 26 Stalls clearances 10 Through relatives/ friends 12 Never know 0
30 20% 13.34 % 45.83 % 16.7% never 86.7% Stall sections clearances 18 30 60% 30 40% 30 0% 30 Never 6 Others 0 30 20% 24 0% 30
6.7%
0%
33.3%
10
40%
20%
11
60%
40%
After collecting the survey from Phung Khoang market, we can realize that the biggest percentage of our sample (40%) is person who worked 5-10 years in retailing industry. 30% of retailers asked seem to have more experience with more than 10 years working in this field. Only 10% of our sample has just entering this industry, may be the new one. Another part, retailers with 1-5 years doing this job account for 20%
With the large proportion of the sample, 70%, working in retailing industry in long time (>5years), whether or not they pay enough attention on food hygiene and safety? Not surprisingly, no one makes sure he/she can fully aware about the Decree on Food Hygiene and Safety (signed 2003), almost of them do not have time to study it or this decree has not popularized to them. 50% has ever heard about that, and the rest 50% do not know what the decree is, may be the first time they hear about it. Intensive course on Food hygiene and safety seem to be stranger to them, only 2 out of 30 admitted to be trained in this kind of courses. The rest has never been trained, some ones have never
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heard about that before. Surprisingly, almost of them might not recognize the important of the course, they though it not necessary, because they believe in their experiences and they always do something out of habits.
Finger1: Have you been given the information about the conditions to run a food business?
When asking Have you been given the information about the conditions to run a food business? Sometimes is the answer which be chosen by nearly half of the sample. 23.33% of responders can get the information frequently while the same amount 20% conceded not be given the relative information. As can be seen clearly from the following bar chart, TV and medical staff seem to be the most effective media to small-scale retailers. Especially, face-to-face method between medical staffs and small-scale retailers makes up to approximately 50% of all kinds of method, by this way retailers may pay more attention, be improved in awareness faster although this method is costly in terms of time & finance. After a lot of epidemic diseases, TV spends more time on Food hygiene and safety, by the relative information about the situations & figures that may attract and affect the retailers positively& deeply.
Finger3: How did you get the information?
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Guarantee food hygiene and safety, however, they did not focus on simple things like Salespersons personal hygiene (courtesy clothes, hair, clean hands, etc.); salespersons health;condition Stalls clearances.which affect directly to the food. As for the origin of food, small-scale retailers often place confidence through wholesale market or through relatives/ friends. The reasons may come from the competitive price in comparison to prestige suppliers. 2. Discussion: From the response for the question about the knowledge on the Ordinance, it can be seen that the majority of our sample-70% respondents work in retailing industry at least 5 years, however Ordinance on food hygiene and safety in terms of fresh and raw foodstuff is still not familiar with them. On conducting the business, the traders still heavily rely on their experiences as well as their habit. It also can be shown that they are lack of appropriate awareness about food hygiene and safety but they seem not to be interested in updating information on it. The brief summary of these responses can be compared with the Decrees given by the Ordinance in the following table:
Compared Criteria Food protection The Ordinance Retailers must ensure that the places where the food are reared, cultivated or traded in shall not be polluted by surrounding environments The factual situation We can see some simply ways to protect their foods such as: protective curtain, dish-cover, showcase.that will not make sense in the case they do not pay enough attention to the surrounding areas where the bacterium are likely to come from. Many shops are near polluted areas (waste, dirty water) or the fresh food is next to dried foodstuff The waste is not gathered & fixed immediately but left until the end of the day or the next day outside or inside the shop/store premises. Cleaning the premises was not considered very crucial factor to traders. The gap These facts show that the food could surely have serious influences or been contaminated by the trading settings.
Environmental protection
Retailers must apply measures to treat wastes according to the law provisions on environmental protection.
Gutters can be the resources which every kind of waste may put into. That causes the polluted surrounding environment of not only the shops/stores but also the nearby settings.
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Origins of food
Retailers are accountable for the origins of food they have produced and/or traded in.
Salesmans health condition
People who directly sale the raw and fresh foods, have to reach the standards about health condition, do not get communicable diseases.
Only 20% of the materials sold are wholesalepurchased from prestige suppliers, the rest places their confidences on wholesale markets or anonymous sole traders. Negatively, over 90% correspondents do not pay much attention on the health condition. They may think salesmans health condition does not match with the safety of food.
This fact suggests the origins of food cannot be guaranteed. Legal requirements cannot be imposed on any anonymous sources.
This reflects high risks for foods being infected by the infectious diseases of the traders if any.
Viewed all together, it is seen that despite being launched 7years ago, the Ordinance is still not popularized widely for retailers in traditional markets even very limitedly known. According to Nguyen Thi Cuc (2010), the possible causes leading to the failure of ordinance application can be both subjective and objective. Subjectively, it is due to the limited knowledge of both managers and workers about the standards. It is the fact that the managers of these businesses are often the owners of the shops. They are often not highly literate to be well aware of the hygiene and food safety themselves. In some cases, even if they may be aware of these as well as the hazards of food borne illnesses, they are too busy running the business daily or they are unable to practice the standards professionally. Next, it is due to ethical problems of both managers and workers. Almost of owners of the micro-businesses mentioned run the businesses to meet their and their family demand. They face with the financial pressures of their daily expenses rather than the pressures of a strategic or long-term development for the business. Therefore, they can be considered profit-oriented and often show little concern over the hazards that maybe caused from the food they sell. Additionally, the workers of these businesses are often poorly-qualified who are often the family members or relatives without formal training generally or ethic training particularly. Therefore, it is likely that they often perform poor practices in handling the food generally. The regulations in the standards would surely be too detailed or too strict compared with their traditional way of dealing with food. Objectively, it is due to the weak legal requirements from the related authorities. The legal requirements tend to reach larger scale businesses and those that apply to micro-scale businesses often minimized to only undocumented requirements. The requirements of the Ordinance seem to overlapped and too general to define clearly what to be done, how to be done, when to be done The obligation of each authority agencies is still not transparent, leading to the interwoven between the duty of one to
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another and the avoidance of accountability once problems occur. Particularly, the responsibility of food hygiene and safetys implementation and supervisor belongs to the Ministry of Health, the Ministry of Agriculture and Rural Development, the Ministry of Commercial and Food Administration Office to small market management board. Furthermore, no clearly-defined or stated punishments announced officially therefore these businesses do not find it compulsory or necessary to apply the standards. Additionally, it is the high cost for applying the standards ranging from consulting services, improving facilities and training employees. Last but not least, it is due to the limited knowledge of consumers on their own food intakes hygiene and safety due to poor living conditions or the unselected purchasing habit. VII. CONCLUSION AND RECOMMENDATIONS It can be concluded from the above analysis that, there is a big gap between the Ordinance regulations and the factual situations in managing Food Safety and Hygiene in the micro-scale food retailers in general and in the correspondents of the research in particular due to a number of subjective and objective reasons. Therefore in order to well manage the activity of retailing sector, we suggest some recommendations. Firstly, at the governmental level, in the proposal for Law on Food Safety and Hygiene which will be ractified in the next National Assembly meeting and Ordinance on Goods Quality must go inline with international regulations and support each other in guaranteeing the act of relevant party in order to provide a comprehensive legal framework for Food Safety and Hygiene implementations. Specially, the responsibility of authorities must be seperated and transparent assigned in order not to avoid their task when problems occur. As mentioned in Proposal, the Ministry of Health would be the agency to implement the technical standard and other requirements on Food Safety and Hygiene, including the activities from manufacturing process to food retailing business; receive the register for food retailing from businesses; examine and supervise Food Hygiene and Safety law implementation and enforce the law to give strict discipline for regulation violators. The Ministry of Agriculture and Rural Development would take the responsibility to manage the quality of import food and foodstuff, the processed goods and other domestic agriculture, fishery products. The Ministry of Commerce will have accountability to manage the manufacturing process domestically and import/exported goods (Anonymous, 2009). The responsibility for process chain is for the Ministry of Agriculture and Rural Development and the market place products quality guarantee belongs to Food Administrator Office, a branch of Ministry of Commerce. A tight relationship amongst the Ministry of Health, the Ministry of Agriculture and Rural Development and Food Administrator Office, small market management boards is needed to well manage the act of food and raw foodstuff retailing from the quality of input material, delivery to distributions to small-scale retailer through supplier intermediaries (Anonymous, 2009). Furthermore, it is the task of the government to deliver the compatile instruction document paraleled with the articles in the Food Safety and Hygiene Ordinance to give
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comprehensive and clearly overview to retailers on their tasks and responsibility for the health of other people. The 134 instruction documents provided by cities and provinces must be written off as soon as the common instruction ractified by government take effect. Information should be publicized from news agencies to each retailers and customers by any means from mass media to words of mouth. Also, the local radio channels need to be improved and broast-casted during their business activity conducted to attain most widely attention from small-scale food retailers. Besides, it is inefficient for Food Administration Office to do examine the safety and hygiene implementation of retailers (include small-scale retailers) strongly and actively just in prevention periods. These preventions take place only in peak seasons such as Tet holidays, summer holidays and other vacations like or other prevention programmes carried out by government once high risk phenomena happens. It is recommended that instead of supervising the Food Hygiene and Safety implementation of small-scale retailers in peak occasions, the Food Administration Office do take their supervising daily in market business time. A meeting held weekly is necessary to conclude some problems each week of their caring areas and then analysis, summarize the possible solutions to form a timely action to promptly tackle the problem. Secondly, at the business level, it is necessary for almost the small-scale retailers form an Association of Retailers, taking as a channel for them to receive directly the Ordinance of Food Safety and Hygiene and other food retailing business related documents from the Food Administration Office. It is expected that the salesmen participate actively into the Associations activities such as weekly meeting to discuss the problems they face when applying the ordinances; the Association will be the agent to collect feedback and submit them to the Food Administration Office for their consideration. In the short term, the Association will guide its members to put the requirements of Food Hygiene and Safety into their practice under the Ordinance. The practical training course for salesmen needs to be held by the Association of Retailers with the assistance of the Ministry of Health. The Association should be given more preference on accessing the high risk food and foodstuff from the list of Food Administration Office directly to stipulate all information needed for the small-scale retailers promptly. This practical training course should give salesmen aware about hygiene and safety requirements market knowledge needed and their role in retailing industry as well as helping them retain positive attitude towards managerial staff. Better quality products following the hygiene and safety criteria would gain more customers through words of mouth. Besides, a training course to differentiate the real and fake goods, the goods with quality and hygiene and safety should be delivered to consumers, which is held by the Association of Consumers protection. The customers will have to learn how to say no or boyscot the unsafe products to protect themselves. Being a smart consumer is a slogan of programme held by the Association of Consumers protection has earned a great attention from the public. Based on this success, the Association of Consumers
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protection should cooperate with the Association of Retailers to inform its members about the benefit of using and selling safety and hygiene products and the retailers meet all the safety food requirements will gain their customers through the advertising activities supported by the association of consumers protection (Thien Chi, 2009). Due to limited time given doing the research, we hope that further research will be conducted by us on the field to extend the scope of research or sharpen the research outcomes. REFERENCES
1. Vietnam Government, 2003. The Ordinance on Food Hygiene and Safety. [online] Available at: http://vbqppl.moj.gov.vn/vbpq/Lists/Vn%20bn%20php%20lut/View_Detail.aspx?ItemID=21036 [accessed15 May 2010]. 2. Nguyn Th Cc, p dng chun quc t v v sinh an ton thc phm: Kh khn t cc ca hng nh bn l thc phm, Bo Kinh t Vit Nam, B Cng Thng, S 2, Thng 1/2010. 3. Anonymous, 2009. An Ninh Thu Do Proposal for Law on Food Hygiene and Safety, Cooperation among ministries is needed. [internet] Available at: http://www.baomoi.com/Info/ Du-thao-Luat-ATTP-Cac-Bo-can-tiep-suc-cho-nhau/45/3199894.epi [accessed 17 May 2010]. 4. Thien Chi, 2009. Build a food hygiene and safety model from farm to eating table. [online] Available at: http://www.baomoi.com/Info/Xay-dung-mo-hinh-an-toan-thuc-pham-tu-trangtrai-den-ban-an/45/2867782.epi [accessed 16 May 2010]. 5. Hong Son, 2009. Proposal for Law on Hygiene and Safety Food Improve the effectiveness of Peoples Health Protection. [internet] Available at: http://giadinh.net.vn/20090824041251920p0c1000/nang-cao-hieu-qua-bao-ve-suc-khoenhan-dan.htm [ accessed 17 May 2010].
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The development of Standby Credit and its application in Vietnam

Written by: Le Thi Thu Huong, Nguyen Thi Thanh Nga Nguyen Thi Ha Nhung, Nguyen Phuong Van Supervisor: Phan Thi Kim Ngan
Abstract In recent times globalization trend has played such a crucial role in enabling not only the incorporation of Vietnam- an emerging economy towards outside world but also the development of Money and Banking Market along with Market for Guarantee. As a matter of fact, the considerably increasing demand for international contract in the field of commerce, construction investment, service results in the growing need for domestic assurance and the variability of guarantee forms. Furthermore, the expansion of such a preeminent instrument as Standby Credit in the United States and other countries all over the world has a great contribution in introducing this advanced means of guarantee into Vietnamese market for the past few years and promisingly bringing it about a prospective popularity. It is the truth that Standby Credit has its part in reducing unexpected risks in many fields of transactions, diversifying and improving the guarantee market in particular and market for money in general so as to keep up with the pace of world modern banks. Thus, based on several researches together with online references this secondary research is conducted on the purpose of studying and exploring the nature, procedure and the real life popularity of this modern American guaranteeing product-Standby Credit as a fairly new instrument in Vietnam. As such, it is our belief that this report can serve as prototype as well as potential stimulus for larger and further studies in the future
I.INTRODUCTION It is true that nowadays many businesses still choose to obtain a loan from banks to fill a gap in their cash flow, finance an profitable investment project, sign a post-paid sales contract with their suppliers or for any other favorable business purposes. But few know a banks letter of standby credit is also a useful and excellent tool in various business circumstances. Indeed, standby credit is useful when one party wants additional evidence and proof of anothers financial capability and creditworthiness. This particular application of standby credit as a secondary payment mechanism, therefore, explains the reason why many trade dealers find this tool extremely helpful in facilitating them to develop relationship and open line of credit with more and more suppliers. Apart from this, using standby credit can even bring cost advantages to the applicant in comparison with the choice of getting a bank direct loan. To take a quick mathematical example, assume business A chooses to borrow $15,000 from his local bank for 30-day period at interest rate of 10 % per annum. This financing option will pose the business to a repayment of $125 apart from the principal at the end of the borrowing period. However, the amount will become much less if the standby letter of credit method is applied, which accounts for just $18.75 in addition to principal for a
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typical bank charge of 1.5% per annum on the face value of the standby LC. And for any business, reducing financing charges definitely goes hand in hand with improving its producing efficiency. Thus, based on these fundamental benefits of standby credit, there is no doubt about the fact that SBLC should be widely applicable in various business sectors as a profitable device to enhance a firms operating efficiency and empower trading activity. Nonetheless, not so many companies all around the world as well as in our nation put a deep consideration into the use of this wonderful credit method. Furthermore, there are still not so many available academic researches on domestic scale focusing on the detailed explanations of standby credit in an picture of various corners. Bearing this in mind, this academic research conducted by a group of students from Hanoi University has aimed to attack the very details of standby credit. The research is clearly categorized into separate parts under different crucial headlines for the purpose of readers easy understanding and taking notes. The very first part comes with Nature of Study, where a thorough presentation with regard to Rationale for study, Literature review and Research methodology is mentioned. Following this part, a deeply analyzed discussion covering almost every aspect of standby credit becomes the main proportion of our research. This part includes from a very basic description of a backward history of standby origins in association with a most general definition of itself, a detailed illustration of operating process and a clear picture about standby LCs natures together with its categories. Additionally, a section with full comparison of standby credit with normal commercial credit that has been non-popularly described ever is a worth noting point of our research. And discussion part is finally made more complete by the incorporation of Application section where the most updated facts and figures about the popularity of this special credit device on both national and international scale is provided. Closing up, the research comes to a Conclusion and Recommendation part with several crucial suggestions for the greater domestic development of standby LC as a result of all information collected above. II. DISCUSSION A. NATURE OF STUDY 1. Rationale for study During nearly twenty years of Doi Moi period, especially, after joining WTO in 2007, Vietnams economy has been growing significantly. More and more foreign investors come to Vietnam thanks to efficient monetary polices and incentives from the Government. Factually, commercial exchanges among nations are indispensable for the world development, which lead to the increasingly importance of International Payment. On the other hand, making business transactions across borders contain so many risks for the investors. As a result, they require a document to guarantee their profits and
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limit losses. From that demand, standby L/C is brought into the economic world as a mean of assurance for financier in exchange transactions. As stated in the introduction, standby credit, which serves as secondary payment mechanism, is very similar to a guarantee of transactions among parties involved. According to the definition, the beneficiary can show standby credits along with the evidences needed to get money in case of failure to perform the obligations of the applicant. Therefore, it becomes more and more popular in helping reduce the overall risks in commercial operation. Besides, it can be used to support the payment of financial obligations or contractual agreements maintain capital for other personal or business needs, and ease the establishment of new business relationships. However, in Vietnam, standby credit seems to be inexperienced and strange. Not many individuals know how to make full uses of this kind of L/C to strengthen the assurances and increase the profits. Hence, we do this research to help the readers understand deeply the approaches and the process of utilizing standby credits. 2. Literature Review From judgments above, standbys, as they are called, get more and more well-liked in the modern life. As a result, there are loads of investigations about this attractive field. In one research of Buddy Baker, an analyst of ABNAMRO- a Dutch bank in March 7, 2005 (link address: http://www.docstoc.com/docs/29073887/STANDBYLETTERS-OF-CREDIT/), he explained the differences between commercial letters of credit, standby letters of credit, and demand guarantees through procedures and usages in order to show the importance of standby L/C among other types of L/C. He also mentioned some cases in which standbys might not work out. For example, when they are expired L/C or issued during political or economic events in the country of the issuing bank happen, bankruptcy preference period, etc. Thanks to this study, standbys can be used more effectively and suitably. Another amazing comment of Victoria Duff, the reporter of eHow magazines, showed clearly the way standby L/C can be considered as beneficial collateral in business transactions (link address: http://www.ehow.com/how_5703255_use-lettercredit-collateral.html). Not only did she prove that advantage of standbys in guaranteeing contracts, but she also provided some tips for Issuing Bank to secure the guarantee of payment by requiring offsetting deposits or physical collateral adding to the original standby L/C. Thanks to her, our group found out more pros of L/C which are very useful for our research. The last reference we want to point out is some judgments of Vietnamese analysts. As known, although standbys are very preeminent and easy to use, they have not been widespread in our country yet. Therefore, not many studies have been made about this topic so far, which is a main reason that we collect remarks merely upon standbys from several economic websites. Most of them focus a lot on the importance of standby credits in the modern life when financial boundaries are reduced and people make business more freely. In addition, there has also been a research by Dang Lan Anh, a
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student of A7-K35C, Foreign Trade University, that systemized all risks associated with standbys transactions as well as recommendations to put up the popularization of standby L/C in Vietnam. In another discussions, economists also mentioned the most suitable and effective ways to use standbys applying ISP 98 or UCP 600. 3. Research Methodology In this research, we do take advantages of various data collection methods such as reports from journals, books, magazines, internet, etc. Especially, our group catches the valuable consultancy from banking experts. They give us practical experiences and guidance in lieu of theories, from which we can acquire information of real situations of using L/C in Vietnam. Moreover, in order to catch readers interest as well as ensure for their deep comprehension of standby credits, some statistical tools are also added like diagrams, flow charts showing the process of applying standby L/C or demonstrating particular types of L/C in general accompanied with comparison and contrast analysis. B. HISTORY AND DEFINITION OF STANDBY CREDIT Well-known as a superior means of international payment,Letter of Credit is considered one of the oldest forms of transporting money developed by European bankers just before and during the Renaissance (http://library.law.columbia.edu/CircularLetterOfCredit/). Throughout world history, Letter of Credit, whose primary function is aim to serve as the highest level of security in international commerce, has still evolved to various types of credit in order to fulfill a wide range of newly arising business context, scenarios, objectives. While Documentary Letter of Credit was early used around 1840 and especially witnessed the exceptional growth after the First World War (1914-1918), the period during World War II(1939-1945) was the occasion of the increased use of Commercial Letter of Credit. It was not until after the Second World War that Standby Credit emerged a new preeminent means of securing performance under the type letter of credit because of the fast change such as monetary regulations, currency fluctuations and import restriction. In spite of the fact that Letter of credit originated in Europe, its variant-Standby Credit was derived from the history of the United States. The book The law of letters of credit and bank guarantees by Agasha Mugasha reveals that back to the middle of 19th century, as a consequence of the released legislation from the Federal Reserve, no federally chartered banks were allowed to undertake the issuance of guarantee on behalf of the third parties. That regulation, also recognized as No guaranty, was taken into enforce due to several factors. First and foremost, there was a judge-made rule that chartered banks must engage directly to business of banking within its scope. This principle from the judge then permitted that this guaranteed should be responsible by only surety company which later developed. Second, the nonappearance of domestic surety companies at that time, undeniably, was the incentive for customers to ask bankers act as their sureties. Like a coin has two sides, the surety action also had to face up with the severe problem which stemmed from customers default-the inability to make payment. If so, banks always repudiated their liability since that bankers act of
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surety apparently were ultra vires banks power and banks could not take action of guarantee on behalf of clients due to shortage of legal capital. Last of all, it was the ultra vires doctrine that the courts readily applied to treat banks as other corporations17. Reversely, the end result of the Second World War had essential function in expansion of such credit. As in a position of becoming not only victory and almost unaffected country thanks to the separate geographic location, the United States, which has been famous for both developed economy and rich natural resource, took the chance to boost the major economy more by entering a large amount of international contract. However, the another issue regarding to international trade became apparent as a result of incapability of American surety companies that at that point of time had tendency to operate within the domestic market, which means that there would be no means of guaranteeing the performance outside the USA-a potential risk for counter partners of American business people. Having realized the necessary importance of guaranteeing instrument, several major banks began to issue guaranty letters of credit which nowadays is legally known as Standby Letter of Credit. Moreover, it can not be denied the help of some other crucial factors that also made great contribution the rapid growth of SBLC. First, it is evident that Standby credit was a must to fill the gap in international trade. Next, the rising previous problem concerning to ultra vires doctrine seemed to be increasingly dubious; together with this banks were permitted to have freedom in operating banking business. Last but not least, as a preferred superior toolSBLC protects the interests of each party involved. Obviously, much cheaper costs would be paid by the applicants; more income flowed to banks along with the certain protection for the beneficiaries. Consequently, it it appears that the expanding of United States economy led to the increased use of Standby Credit, whose role are both financing transactions and securing performance. Standby Letter of Credit (Standby L/C) is an irrevocable undertaking from Issuing Bank to support payment, when due or after default, of obligations based on money loaned or advance, or upon the occurrence or nonoccurrence of another contingency. Standby LC, therefore, can be functioned as a Guarantee or an LC where the Beneficiary can receive payment from the bank on presentation of compliance documents. C. OPERATION PROCESS: Honestly, it can not be ignored that there are many parties engage in procedure of operating the standby letter of credits. Each participant has its own role and responsibilities. Rather than a three-party agreement, standby L/C is an independent agreement issued by Issuing Banks (bank of the Applicant) to pay specified amount to the Beneficiary upon the presentation of required documents in case of nonperformance of the Applicant. Another party involved is Advising Bank, representative of the beneficiary.
17
The Law of Letter of Credit and Bank Guarantee Agasha Mugasha
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With an aim to provide readers with detail procedures, a flow chart is thoroughly vital for translating all the complex explanations into clear steps:
As indicated by this chart, after a contract is made between Applicant and Beneficiary, an applied standby will be sent to the Issuing Bank to get the acceptance of opening a LC in favor of the beneficiary. As indicated by this chart, after a contract is made between Applicant and Beneficiary, an applied standby will be sent to the Issuing Bank to get the acceptance of opening a LC in favor of the beneficiary. Secondly, the Issuing bank will approve the credit worthiness of the Applicant and then, forward a standby L/C to an Advising Bank or Confirming Bank that are usually located in the same geographical region as the Beneficiary. Following of this, the Advising Bank will check all terms and clauses of the documents to assure that the Beneficiary can have a guarantee in dispatching the goods and services. After the Beneficiary make the performance done, he/she has to bring the required documents to the Advising Bank to get payment. If all the documents are accepted, Advising Bank will claim the fund by asking for the Issuing Bank accompanied with sending those documents to that bank. In the last step, Issuing Bank has to check the documents again for compliance, send it back to the Applicant and debit his/her account. D. NATURE The standby documentary credit is considered as the obligation on the part of the issuing bank to pay the beneficiary in case of non performance of the applicant.
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Therefore sometimes Standby letter credit is also called non performing letter credit. It is also because they are only used as the back up payment method if the collection on the primary payment method is pass due. Standby LC in some ways is different from the traditional commercial LC. In nature, when issued it is an irrevocable, independent, documentary and binding undertaking. In the first place, standby LC is deemed to be irrevocable because it cant be revocable. It means that once LC is stated irrevocable, there is no amendment or cancellation to the issuers obligation except it is provided in the standby or it is consented by all the parties involved that the amendment or cancellation is asserted. Secondly, standby LC is independent which means that the enforceability of the issuers obligation under the standby LC does not depend on the issuers right or ability to obtain reimbursement from the applicant; the beneficiarys right to obtain payment from applicant; it is also separated from the reference in the standby to any reimbursement agreement, underlying transaction. Also, the issuers knowledge of performance or breach of any reimbursement agreement is independent from standby LC. Next, documentary is the third characteristic of standby LC. Because standby LC is documentary, obligation of issuer depends on the presentation of documents and examination required documents on their face. All the documents must be carefully examined to ascertain whether or not, they appear on their face, to be in compliance with the terms and condition the credit. Compliance of the document shall be determined by the international standard practice. Last but not least, binding is also an important feature of standby LC. When issued, it is considered as binding, so it is enforceable against an issuer whether or not the applicant authorized its issuance, the issuer receive a fee or the beneficiary received or relied on the standby or the amendment. E. CLASSIFICATION When referring to Standby LC there are many kinds used in each specific conditions. In reality, it is flexibly used. The most commonly used is the commercial standby credit that supports the obligations of an applicant to pay for goods or services in the event of non-payment by business debtor. This kind of credit is to protect the seller from non performance of the buyer. Under this kind of document the bank proceeds to reimburse the exporter when the importer defaults the payments. A standby letter of credit will then be presented along with the needed information to show that the buyer has not paid for the merchandise. Another popular type of Standby LC is performance Standby. This instrument expresses an obligation to perform other than to including the purpose of covering losses arising from a default of the completion of the underlying transactions. Performance Standby is used some sort of performance of a contractual obligation. For example, a
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company building a highway bridge might be required by the highway department to put up a performance standby letter of credit ensuring that they will complete the project contracted or to warranty the work. Under normal circumstances the standby would not be drawn upon, however if the contractor abandoned the project midway through completion or if the bridge were unsafe, the standby letter of credit could be drawn upon for its specified dollar amount. In contrast with performance standby, financial standby LC is to support obligation to pay money, including instruments evidencing obligation to repay money or outstanding loan. Financial standbys are frequently used between buyers and sellers who have frequent, ongoing trade shipments for an extended period of time. The standby acts as a blanket guarantee for the overall obligations of the buyer to pay and does not contains specifics related to any one particular shipment. Moreover, advance payment standby is the one which is used in advance payment method. This instrument supports an obligation to account for an advance payment made by the beneficiary to the applicant. To ensure the benefit for importer in case the exporter has received LC, advance payment, deposit, but hasnt fulfilled his obligation to delivery goods as stipulated in LC, importer can require the issuing bank to issue standby LC to repay advancement and all the cost related to opening LC for them. The last one used in construction is bid bond or tender standby LC. This standby supports an obligation of the applicant to execute a contract if the applicant is awarded a bid18. In this case, contractor will be the person who opens standby LC according to the requirements of the project s owner to ensure the project execution19. As can be seen from above, there exists many types of standby LC and each has its own function so used in different case. F. COMPARISON OF STANDBY CREDIT WITH COMMERCIAL CREDIT As both documentary and standby credit are undertakings to pay against the presentations of one or more documents (as reflected by their mutual features of being independent and documentary), the distinction between them is almost nowhere precisely stated. The UCP states that it applies to both without specifically defining them. Similarly, the UCC that also takes care the application for both gives no room to distinguish them at all. Nevertheless, the distinctions between the two are significantly worth being discussed as they are subject to fundamental differences in terms of role, nature, conditions as well as governing rules. Therefore, a thorough understanding about their discrepancies undoubtedly can help improve the appropriate use and application of each type under necessary cases to maximize benefits and minimize risks for all involved parties. On one hand, the outstanding nature of each seems to have contrasting feature. The Documentary Credit is conditioned on the performance of the Beneficiary, meaning that
18 19
International course on trade service Edward G. Hinlkeman See Appendix 1 for a Sample SBLC
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the Beneficiary is entitled to get payment strictly based on the obligation completion of himself. In contrast, the Standby credit is conditioned on non-performance or default by the applicant party, who asks for the opening of Standby credit. In other words, the beneficiary in Standby credit is entitled to get payment in case of applicants failure to perform20. In pursuant to this big difference, there is no doubt about another dissimilar characteristic in associated with the role of two credit types. If the Documentary credit is universally implemented in the trade world as a mechanism of payment, the Standby credit is generally accepted as a mechanism of guarantee rather than a means of payment. Frequently, a standby credit is given to support an obligation of the applicant in a variety contract types applied in numerous industries, as a means to add assurance as well as higher level of trust to the beneficiary. It is used to support an obligation by the applicant to make advance payment; it is used as bid bonds to assist the bidders duty to execute a contract; it is also referred to as an excellent tool in loan transaction to ensure repayment of the borrower. As a consequence of application under likely expectations about the unexpected, it is rational to understand why Standby credit is often issued with an expectation that it will not be drawn on by the beneficiary. However, the opposite site holds for the case of normal credit. On the other hand, the requirement for documents to be presented under two types also stands out as a point of distinction. In a traditional letter of credit, the beneficiary obtains payment against documents evidencing performance. In fact, the set of documents required under L/C that follows the rule of UCP600 is both numerous and complicated. As the presentation of documents under documentary credit is a sign that the transaction is generally proceeding as according to schedule, documents required may include important ones such as B/L, commercial invoice. insurance certificateAny lack of the required documents or inconsistency in information between these and L/C content will become absolute obstacles to the right of receiving payment for the beneficiary. On the contrary, the set of documents under Standby credit is neither numerous nor complicated. As an indication that something has gone wrong in the underlying transaction, the required documents are quite simple with all the proof, clarifications and statements that applicant has defaulted or failed to complete his task. Last but not least, it is worth taking into account the different set of governing rules. UCP600 (for the latest) is the reference source of Commercial letter of credit while for Standby letter of credit, ISP98 is an important reference source besides the general application of UCP600. ISP98 (short for international standby practice) that was prepared by Institute of International Banking Law & Practice, Inc in the US reflects generally accepted custom, practice and usage of standby credit in a comprehensively detailed way21. Unlike UCP600 that covers generalized terms and conditions of all types of credit, ISP98 is devoted specifically to Standby credit and therefore has become the most widely applicable reference source for parties involved in standby transactions.
20 21
The Complete guide to Documentary Credit/Chapter 3/Use of Standby Credit A guide to the use of ISP 98, published by Institute of International Banking Law and Practice,Inc
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III. Application A. International use of Standby letter of credit (SBLC) As mentioned above, it was from the period of post World War II the U.S economy witnessed the birth of Standby Credit - a newly strong means of guarantee. At first, this newborn form was applied within the domestic banking system, yet, it just took a short time to spread out in other parts of the world, which was unquestionably based on the significant power of this North American country. As having advantage in not only the field of economy but military also, the United States has widened out its global business relationship with a variety of countries, in facts made use of economic strength to force many countries both developing as well as developed partly or even wholly rely on it. Such considerable condition was the main factor bringing a prospective future for SBLC outside its motherland. To clearly illustrate, the case of Japan should be taken as a clearcut example where there used to be the existence of legislative prohibition of issuing guarantee. Japanese banks also issue standby letters of credit for similar reasons. Moreover, the use of SBLC is actively encouraged in many developing countries. Consequently, this upward trend in the use of SBLC in banks, the major participants in international trade, actively raised the demand for legal framework. It is surprising enough that it was until 1983 that there was the first reference of SBLC in UCP (Uniform Custom and Practice for Documentary Credits), specifically in Article 1 These articles apply to all documentary credits, including to the extent to which they may be applicable, standby letters of credit, and are binding on all parties thereto unless otherwise expressly agreed. They shall be incorporated into each documentary credit by wording in the credit indicating that such credit is issued subject to Uniform Customs and Practice credits, 1983 revision; ICC Publication No. 400 Nevertheless, the limited adequacy of UCP to Standby Credit became more acute with the increasing growth of standby credit. Apparently, UCP 500 and UCP 600 have a handful of articles pertaining directly to standby and there are several articles, if applied for the case of standby cause confusion in both interpretation and application. In recognition of the need, the Institute of International Banking Law and Practice has obtained the approval of the international banking community for the introduction of separate rules for standby letters of credit, known as the International Standby PracticesISP98. The International Standby Practices 1998 (ISP98) is a carefully written set of 89 rules designed to facilitate the domestic and international use of standby letters of credit as well as reflects generally accepted practice, custom, and usage of standby letters of credit. This standardized text is intended to be the typical reference for the use of standbys worldwide and offers a precise and detailed framework for practitioners dealing with standby letters of credit. It provides separate rules for standby letters of credit that are more specialized than those outlined in the Uniform Customs and Practice for Documentary Credits (UCP500) (http://www.encyclopediaofcredit.com/WebHelp/international_credit/financing_internat ional_sales/isp98_rules.htm).
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Throughout nearly half of the 20th century, it can not be denied the extremely vital contribution of these uniform rules in reducing the cost and time of drafting, limiting problems in handling and avoiding countless disputes and unnecessary litigation that have resulted from the absence of internationally agreed rules on standby. (http://www.iccbooks.com/Product/ProductInfo.aspx?id=201) Standby Credit Facility by international financial institutions As can be seen from above, SCF has been used for a long period of time. Especially many International financial corporations have used it as an effective tool to make more flexible and better tailored financial support to meet diverse needs of the low income countries(LICs). Among all of the International Finance Corporations using SCF, International Monetary Market is the one mostly use SCF because it plays the very important role in helping IMF supporting poor countries. In IMF, standby credit facility was created under a newly established Poverty Reduction and Growth Trust (PRGT-the program established by IMF with the objective of poverty reduction and growth by lending operation to its poorest countries). It is formed to replace the High-Access Component of the Exogenous Shocks Facility. The support of SCF can be under a wider range of circumstances, allows for higher access, carries a lower interest rate, and can be used on a precautionary basis which means that the countries that no longer face protracted payment of balance problem but may need help and can be used on precautionary basis to provide insurance.And in particular, it places greater emphasis on the countrys poverty reduction and growth objectives. "http://en.wikiversity.org/wiki/Letters_of_Credit/Types_of_Letters_of_Credit The SCF is available to PRGT-eligible member countries facing an immediate or potential balance of payments need, where the countrys financing and adjustment needs are normally expected to be resolved within two years, thus establishing a sustainable macroeconomic position. About duration, an SCF arrangement can range from 1224 months. As the SCF is intended to address episodic short-term needs, its use is normally limited to two and a half out of any five years. Subject to these limits, an SCF arrangement can be extended or cancelled, and consecutive arrangements can be approved. The specific examples for using SCF of IMF is the recent IMFs supply for 15month standby credit of SRD 22.8 billion(about USD 30.4 billion) to support the Brazils economic and financial program through December 2003. Of the standby credit, the equivalent of SRD 7.6 billion(about USD 10.1 billion) would be made available under the Supplementary Reserve Facility. Furthermore, SFC is also used by other corporation such as World Bank Group, which has signed an agreement to provide a medium-term standby revolving credit facility of $30 million to LanChile S.A (one of the leading airline in Latin America with wide network). This is IFC's first project in this sector in Latin America. The facility will help strengthen the airlines long term working capital position. http://www.imf.org/external/np/sec/pr/2002/pr0240.htm. From all mentioned above,
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we can find that the contribution of SCF is not negligible and its likely that in future SCF will be much more widely used. B. Domestic use of Standby letter of Credit: 1. Current situation of standby products in Vietnam As a result of a significant development in the domestic financial market that often goes hand in hand with the domestic economic progress, standby credit in Vietnam has also been steadily applied though not yet rapidly. However, the popular term in domestic banking industry normally comes with bank guarantee rather than standby credit. Basically, bank guarantee can be understood as an undertaking by a bank to pay the beneficiary a certain sum to cover the action or default of a third party22. Therefore, from a legal point of view, standby credit is equal to demand guarantee in terms of producing the same results to parties involved. The most outstanding feature that separates the two lies in the range of application. The SBLC has evolved into a complex instrument that encompasses a much wider range of uses than that covered by bank guarantee. It has developed into an all-purpose financial support instrument while demand guarantee has not become so powerful widespread. Indeed, it is commented in the ICC publication number 511 that it was unanimously agreed that the Standby credit is not to be merged with Bank guarantee regulated under URDG (Uniform Rule for Demand Guarantee). In Vietnam, it is financial organizations that operate under the national Law for financial institutions and commercial banks are allowed to provide bank guarantee services. In fact, besides a variety of services that are offered by urban joint-stock commercial banks such as mobilizing funds, credit operation, discounting and rediscounting commercial and valuable papers, bank guarantee has occupied an increasing important position in a diversification strategy of local banks nowadays. Most of our local financial healthy banks such as Vietinbank, Vietcombank, BIDV, EXIM bank, ACB, Maritime bank, Military bank have been able to satisfy customers with various forms of bank guarantee like loans, advance payment, contract performance, bidding and other forms for individual, credit institutions. Also, in accordance with regulation of State bank of Vietnam under Decision No 26-QD-NHNN, banks that are permitted to provide international services may issue guarantee for loan, advance payment and other forms of bank guarantee when Beneficiary is a foreign individual or organization. As a result of an unofficial release of several local banking experts research in the field of bank guarantee, bid bond and performance bond guarantee have been ranked as the most popular type of guarantee services being offered by Vietnamese banking sector. In reality, it is true that the nature of construction projects is such that significant money must be spent and liabilities incurred prior to the completion and delivery of a final product. Because of huge uncertainties involved in the process, prudent developers
22
Finance of International trade - ric Bishop, published by Elsevier 2004
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often require the tender to submit an acceptable bid bond as an assurance that the tender cannot walk away from a contract once it has been awarded to him. In addition with that, the construction sector of Vietnam has been flourishing for the past few years with the goal of completing the process of industrialization and modernization. Hundreds of investment projects financed with both domestic and foreign capital have been in progress with an aim to upgrade our infrastructure system has reinforced the need of bid and performance bond. Hence, local banks have been competing with each other in terms of bank guarantee service fee in association with other accompanied services like free consultancy on the issues related, quick and convenient procedures23, experienced and skilled staff with professional knowledge and polite conduct to help improve applicants prestige with their partners and strengthening the possibility of successful transactions. A quick comparison at the type of guarantee products and fee schedule of two local banks that are quite successful at implementing this service is incorporated for further reference (next page).
VCB PRODUCTS - Commercial Guarantee. - Performance Guarantee - Advance Payment Guarantee - Bid Bond Guarantee EXIM Bank -Bid bond Guarantee - Performance guarantee - Guarantee for product quality - Loan guarantee - Payment guarantee - Advance reimbursement Guarantee - Tax submission guarantee Issuance fee: 100% margin: 0.06%/m Below 100% margin: 0.1-0.2%/m Advising fee: USD 20 Amendment fee: same as Issuing fee / VND 200,000
FEE SCHEDULE
Issuance fee: 100% margin 0.05-0.06%/m Below 100% margin: 0.15 %/m Advising fee: USD 20 Amendment fee: same as Issuing fee /USD 20
2. Reasons for underdevelopment of demand for SBLC in Vietnam Thanks to the examinations above, it can be stated that standby L/C is extremely important in business transactions. In common sense, it has been applied effectively and extensively all over the world, particularly, in developed countries such as United States, German, etc. to limit the risks and assure profits for the beneficiary. In other word, standby credits are often used as a bank guarantee in the international trade. However, next to obvious advantages, standby credits have some drawbacks that restrain Vietnamese entrepreneurs from utilizing and making full use of this kind of
23
See Appendix 2 What should be in a Bank guarantee
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letter of credit. This problem can put the economic growth of our country at the considerable disadvantages in trading domestically and internationally. As a result, in this research, our group tried to analyze the reasons why standbys are not popular in Vietnam, from which we would give out useful recommendations to improve that issue in the later part. First and foremost, factually, standby L/C is quite new in Vietnam. There are not numerous specific instructions as well as detailed laws for applying standbys. Until now, ISP (short for International Standby Practices) 98 and UCP (short for Uniform Customs and Practice for Documentary Credits) 600 are the most familiar sets of regulations that stipulate and reflect generally accepted practices, customs and the usages of standby credit. However, it is the fact that not many Vietnamese people can understand these two documents deeply and accurately. Hence, businessmen have been facing with many difficulties whenever they want to use standby credit as an assurance in business undertakings. The second reason is that standby L/C serves as a secondary payment mechanism, which indicates that standby credit is just used as a backup payment method, not a main means of payment. Consequently, in most normal operations with the main purpose of making profits basing on the amount of money received, individuals do not really prefer and raise awareness of standbys. Of course, it can not denied the nice effects of standby L/C, but in case of business that focus merely on receiving money, it is not a significant requirement of using that type of letter of credit. In addition, it is known from the part of comparison between normal L/C and standby letter of credit that the normal L/C supports equal gains as well as securities for both parties of applicant and beneficiary engaged in international trade. Moreover, normal letter of credit can be used as a stipulated document of making payments in business world. Meanwhile, standbys just protect the beneficiary through promising to pay him/her in case of nonperformance of the applicant. Hence, it is easily understood that people use letter of credit more widely than standby credit in common judgments. More detailed, standby credit is more effective and useful in complicated infrastructure projects or contracture obligations. Last but not least, there are some other causes for the limited distribution of standbys in our country. For example, Vietnam lacks of talented people who work on the major of international payment in general, and standby letter of credit in detail. Furthermore, the Vietnams economy does not develop strongly enough to run huge projects; therefore, standbys are not remarkably needed. Lastly, Vietnams economic management system is quite complicated and overloaded which makes entrepreneurs meet many obstacles in operating their business. 3. Recommendations Standbys are definitely subject to a seemingly bewildering array of rules and laws. Even the banks that promulgate many of these rules have not settled definitely on whether to use the ISP 98 or the UCP for the simplest standbys. The precision and detail
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of the UCP and more especially of the ISP 98, however, are intended to maintain confidence in the continued use and acceptance of standby letters of credit for a wide range of assurance across diverse industries and through the world. The most fundamental issue facing the SBLC users is whether to choose to be governed by UCP 500 or ISP 9824, in whole or in part. Thus, in order to help parties involved (especially banks) have the right selection to apply the most appropriate one for each specific case, the final part of our research is aimed at providing readers with a deeper look at the main discrepancies in terms and conditions of the two governing rules for SBLC. Unlike popular recommendation part that aims to provide too macro suggestions or solutions to solve a particular problem, it is our intention to clarify the representative characteristics of two basic governing rules of SBLC as a way to resolve the confusion between them, hence assisting users to make wise and suitable decision when incorporating either in a standby contract. In terms of transference Under both ISP 98 and UCP 600, SBLC is not transferable unless it is stated to be so. However, transference can be conducted more than once while it is restricted to be once only under UCP. In terms of condition for complying presentation Documents presented under ISP neednt be examined for consistency and therefore, each presented document needs to be complied only with requirements provided in the LC. This is certainly an advantage for Beneficiary when there is a dispute between beneficiary and applicant. However, under UCP600, drawing documents that appear on their face to be inconsistent with one another will be considered as not in compliance with the LC. Force Majeure Under ISP 98, beneficiary doesnt have to suffer from risk when applicant is subject to force majeure. Following Article 3.14(a) of ISP 98, if the place for presentation is closed on the last business day for presentation, then the last day for presentation is automatically extended to the day occurring thirty calendar days after the place for presentation reopens for business. Unlike that, under UCP 600, banks dont have to bear any responsibility for the interruption of their business due to causes beyond their control and it is the beneficiary who may suffer from risk. To summarize, ISP addresses several topics that are not addressed by UCP at all or addressed only generally. Moreover, ISP contains several rules crafted for SBLC that differ from their UCP 600 counterparts. Consequently, it is well advised that banks should consider carefully before making the decision to choose which one to include in the standby contract. REFERENCE
A guide to the use of ISP 98, published by Institute of International Banking Law and Practice, Inc. (Assessed on 7th, May 2010)
24
See Appendix 3 for a complete guide to ISP 98
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Agasha Mugasha, The law of letters of credit and bank guarantees. http://books.google.com.vn/ books?id=7SO3WUrTN-IC&pg=PA14&lpg=PA14&dq=characteristics+standby+letter+of+credit& source=bl&ots=THtb5FGv4d&sig=nXAp0SKlPo7A-CsOREs_kVb-Vvo&hl=vi&ei=88qsS-7Mijk ssgOtm9WFDA&sa=X&oi=book_result&ct=result&resnum=6&ved=0CCMQ6AEwBTgK#v=onepage &q=characteristics%20standby%20letter%20of%20credit&f=false. (Assessed on 5th May, 2010) International course on trade service Edward G. Hinlkeman. (Assessed on 7th May, 2010) IMF Approves US$30.4 Billion Stand-By Credit for Brazil. th http://www.imf.org/external/np/sec/pr/2002/pr0240.htm. (Assessed on 10 , May, 2010) ISP 98. (Assessed on 8th, May, 2010) Letters of Credit/Types of Letters of Credit. http://en.wikiversity.org/wiki/ Letters_of_Credit/Types_of_Letters_of_Credit. (Assessed on 9th, May, 2010) STANDBY LETTERS OF CREDIT. http://www.docstoc.com/docs/29073887/STANDBYLETTERS-OF-CREDIT. (Assessed on 3rd, May, 2010) The Circular Letter of Credit. http://library.law.columbia.edu/CircularLetterOfCredit. (Assessed on 4th, may 2010) The Complete guide to Documentary Credit/Chapter 3/Use of Standby Credit. (Assessed on 4 , may 2010)
th
Letters of Credit/Types of Letters of Credit. http://www.encyclopediaofcredit.com/ WebHelp/international_credit/financing_international_sales/isp98_rules.htm. (Assessed on 8th, May, 2010) Victoria Duff, eHow Contributing Writer How to Use a Letter of Credit As Collateral. http://www.ehow.com/how_5703255_use-letter-credit-collateral.html. (Assessed on 11th, May 2010) UCP 500. (Assessed on 6th, May 2010) UCP 600. (Assessed on 6th, May 2010)
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BILL OF LADING AND ENDORSEMENT PROCESS

Written by: Nguyen Van Anh (FB-07) Kieu Thi Thu Hang, Nguyen Le Quyen (FB-07) Supervisor: Phan Thi Kim Ngan
Abstract Among a variety of paper instruments utilized in international payment, it is undeniable that Bill of Lading (B/L) is one of documents which deserve ultimate attention from the traders throughout the world. Under the legal terms related to Bill of Lading, endorsement and endorsement process are peculiarly taken into account by entrepreneurs and parties involved in Bill of ladings usage for the reason that it links up to the matter of goods ownership. The purpose of this research is to investigate the issue of Bill of Lading in a fairly broad scope, which is derived from usage of B/L, B/L endorsement importance to practical cases for B/L usage in reality. Besides, this research paper introduces detailed guidelines to apply B/L properly and in standard procedure for B/L users. The materials and information used are incorporated with both external sources and internal sources to conduct this research. After all, this empirical research is under a great effort of researching group, in the hope that the students and the learners could exploit this as a helpful reference for further study in this area.
1. Introduction Among the four international payment methods; open account, documentary collection, advance payment and letter of credit (abbreviated as L/C), the use of L/C is the most favorable choice for many corporations, companies and organizations for the reason that L/C can assure the interests of both parties exporter and importer. In addition, applying L/C as method of payment would benefit exporters and importers in the way that it reduces the risks that may appear in transaction through a credit-worthy intermediary the bank. As for the nature of international commerce, the transactions from nations to nations are operated mainly through paperwork, for instances, sales contracts, insurance documents, Bill of Exchange (B/E), commercial documents and the very essential one transport documents. Exceptionally, it is the ocean bill of lading (B/L) which is considered as the heart of transport documents. First and foremost, it is noticeable that ocean B/L is account for 80% of trading volume globally (vietship.com). For that reason, ocean B/L is specifically prevalent and gets a great concern from the traders. In the process of presenting the full set of document to advising bank, the exporters always take B/L into cautious consideration since the accuracy and coherency in handling B/L have strong impact on the success of payment process. The importance of B/L in L/C transaction arises from the sheer nature of B/L, the evidence of possession of goods exported for the legally accepted bearer. Another issue arising from this feature of B/L involves the matter of endorsement in B/L.
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Similarly to other types of documents as bill of exchange or Letters of Credit, the ownership of B/L can be transferred from one person to another one or another organization by endorsing, which means the ex-owner of the goods transfers the possession of goods to another person by endorsing. However, the legal procedures associated with B/L endorsement are a fairly thorny problem requiring the involving parties to study in detail. In this result, the usage of B/L and B/L endorsement can be conducted in proper manner. Loosely speaking, the purpose of this research paper is to help the readers by bringing them a comprehension to the B/L issue and related information about B/L definition and its functions in international payment. A predominant part of this research gives out more details about B/L endorsement process as well as noticeable matters of it. What is more, the empirical information about B/L would open up the a closer view about how B/L endorsement is performed in actual fact and how far the distance of B/L endorsement application is between practice and theory. 2. Literature review Prior to entering a great volume of information about Bill of Lading, it is vital to comprehend precisely the term Bill of Lading. Bill can be understood with many different meanings, however, in the scenario of international payment, bill is translated as any written paper containing a statement of particulars. With regard to the interpretation of Bill of Lading, it means the act of constituting a load / freight / burden on a ship. With general understanding of bill of lading (sometimes referred to as a BOL, or B/L) is a document issued to acknowledge that specified goods have been received on board as cargo for conveyance to a named place for delivery. An interesting section of this part is to provide the readers with information about the brief usage of Bill of Lading in the old time along with the legal source to control and manage the use of B/L internationally. The earliest and most fundamental application of B/L dated back from the thirteenth century. At this time trades among the ports of the Mediterranean began to grow significantly. Some record of the goods shipped was required, and the most natural way of meeting this need was by means of a document so called ship's register, compiled by the ship's mate. And this is a document of evidence that the goods had been shipped on board and delivered at the port. Originally, the purpose of this document was considered as a bill of the carrier to confirm the receipt of goods to deliver. The aim of ship's register was compared to the bicycle ticket at the present, in which a person will receive a ticket when he stored his bike in the parking lot, and then he gives back the ticket to the conductor when he takes out his bike. Similarly to the case of the ship's register, this document is a proof that shipment of goods had been happened and the goods was delivered to the receiver. As time elapses, this primary document of shipment is accepted by the law makers, the name of it has changed to Bill of Lading and it is added in with more functions than long-ago.
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The bill of lading issued by different shipping offices and agents would be different in terms of appearance. But all of the B/L issued to ship the goods in sea route internationally must be controlled by the only international source: the International Convention on the bill of lading and sea transport. These international rules stipulate the significant issue, for instance, the obligations and responsibilities of shippers, the carriers, the B/L content as well as problems of claim for compensation and other legal actions. Currently, there are 2 main kinds of international conventions constituted for the merchants to comply on international trade, which are International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (known as "Hague Rules") and United Nations Convention on the Carriage of Goods by Sea ("Hamburg Rules"). When implementing business in transaction of goods by sea, the traders must refer to these two conventions as a prerequisite. For Vietnamese merchants, the use of B/L on carriage of goods on sea has officially accepted and recorded in Maritime Law of Vietnam. Maritime Law of Vietnam was released on June 6, 1990; its starting date to be in valid is on January 1, 1991 and amended in 2005. In principal, this Law is similar to Hague Rules Visby. The relation between the carrier and the consignee under B/L has been claimed in article 1, clause b of Hague Rules and article 81, clause 3 of Maritime Law of Vietnam, The bill of lading determines the legal relationship between the carrier and the consignee. Provisions of the contract of carriage are binding upon the consignee only when the bill of lading refers thereto In general, the usage of B/L has been far and widely accepted and governed under the international convention of rules related to Bill of Lading during the twentieth century. Owing to the prevalent existence of these rules, the companies all over the world and in Vietnam can implement their international carriage on sea route with the most standard practice. 3. Methodology In the work of conducting this research, the data and information are in great need to support the working group. With the great effort of the whole group, the information and materials and documents necessary are sought through two types of source: external sources and internal sources. The data taken from external source are mainly available on internet and reference books which provide with core knowledge about B/L. Moreover, with the usefulness of searching tool internet the process of finding data is conducted with rapidity. Especially, a number of academic writings and many needed laws and codes are widely posted on websites. This did help the researchers to obtain official information at ease. In terms of references books, the authors give clear and systematic presentation about the overview of the issue and details of the matters from different angles with the clear-cut view. Another valuable source for this research to be worked out is through external source through the support of officers and specialists who have worked directly with profession related to B/L. By conveying face-to-face interview as well as telephoning interview, the researching group attains supportive information which is not available online or in text books. Furthermore, the researching group have chance to get closer to the profession of dealing with B/L in reality.
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4. Bill of lading 4.1 Definition A Bill of lading (Ocean Bill of Lading or Marine Bill of Lading abbreviated B/L) is one kind of transport documents by sea-way, issued by a carrier (a transporter of goods) or carriers agent to a shipper (an exporter), and signed by the captain, agent, or owner of a vessel. It is, in addition a receipt of the goods (cargo) which must be presented for taking delivery at the destination, a contract of the carriage and the engagement to deliver goods at the prescribed port of destination to the lawful holder of the Bill of lading. The Bill is issued in a set of originals, which can be made up by any number of originals but two or three are the most usual, other than a set of numbered originals the carrier can issue some copy ones as required. These copies do not have legal status as originals, are non-negotiable, used in case of checking goods, notifying about delivery and making import and export clearance. Content of the B/L is exposed in both sides of paper. In the front side, it contains some main parts such as: shipper (consignor), consignee, notify party and carriers name and address, names of the ports of departure and destination, name of the vessel, list of being transported goods with number of packages and kind of packing, marks and numbers on packages, gross weight/volume of cargo, freight details/charges, place and date of issue and signature of captain, carriers agent, or owner of a vessel. Terms and conditions of shipping company are printed in the back side, yet sometimes these terms and conditions are set in the front side and the back side is blank. These terms and conditions are in accordance with the provisions of conventions and international custom and practice on carriage of goods by sea; currently there are two major sources of international law applied: Brussels Convention 1924 and United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules). In fact, the carrier prints and issues the B/L to the shipper by himself, therefore, each company has its own form of Bill with different color and content; however, it still has the core parts written above. (A Bill of Lading sample is in appendix 1) 4.2 Functions The Bill of lading has three functions, which are a receipt of goods being transported, evidence of a transportation contract between carrier and shipper, and a document of title to goods - proofs of who has title to the goods covered by the document. Firstly, when the bill of lading in the hands of the shipper, it becomes a receipt for the quantity of goods received by the carrier; it is a confirmation about receiving cargo with quantity and quality noted in the Bill of lading. Due to issuing this receipt the transporter has responsibility to ensure the amount and state of goods along with deliver these to who show a legal B/L issued by the transporter. The task of carrier can be considered complete when one original Bill of lading is recovered and then the other originals are worthless.
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Secondly, Bill of lading is regarded as evidence of a transportation contract because it contains only one signature. According to practices, a contract must have two signatures of two parties. Although it is not an actual contract, it still has legal value as a real contract; hence content of Bill of lading is used to deal with any conflicts arising between the carrier and a holder of Bill of lading. The Bill of lading is independent to transportation contract if any. Last but not least, the function as a document of title is presented that the person who holds the legal original Bill of lading will take possession of cargo noted on the Bill. Therefore this person has right to offer the carrier to deliver goods at the place of destination. The holder of Bill of lading can be a person named on B/L (in case of a straight bill), or an endorsee of B/L (in circumstances of an order bill), or anyone keeps B/L in hand (in case of endorsement B/L in blank). Thanks to this function, the Bill of lading can be easily to trade and transfer in the market by endorsement. However, it has to notice that in two basic types of B/L a straight bill and an order bill - the straight Bill of lading is a non-negotiable document as it is made out to a specially named consignee so the consignee cannot trade or transfer this transport document, in other words, cannot endorse. For that reason, the endorsement function is applied to only an order bill in two kinds of B/L. As functions mentioned above, it can be seen the Bill of lading is significant to each parties involved an exporter, an importer, a bank With the exporter, B/L is a document confirmed that goods has been sent to the carrier for delivering to the importer, it also expresses the legal relation with the carrier and the way to pay freight charge. In side of the importer, B/L is a receipt helping to receive goods at a port of destination as well as a document to possess cargo. Under the letter credit (L/C) method of payment, Bill of lading contributes an important role in the document package needed to present. While issuing L/C, bank has to stipulate the exporter present a full set of original B/L, if not it must be issued to the order of bank so that bank could have a right to control goods. 5. Endorsement of Bill of lading 5.1 Definition Bill of lading, as well as other types of document such as Letter of credit, Insurance document or bill of exchange, engages with one of distinguishing characteristics in general international payment endorsement. Endorsement is generally known with common knowledge as the act of signing on the back of a note, bill, or other written instruments documents. From time to time, this is totally acceptable understanding of this term. However, according to a legal understanding, endorsement should be understood in relation with involved individual or with another party. In this understanding, the definition of endorsement, under B/L, is clarified as following: Endorsement is an act of transferring the proprietorship of a beneficiary to another beneficiary. The endorser (the previous beneficiary) signs on the back of the B/L and hand over the B/L to the endorsee (the subsequent beneficiary). Legally, the
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action of endorsing of endorser on the B/L means the acceptance of endorser to reject his proprietorship of goods reported in B/L and to transfer it to another beneficiary Consequently, the application of endorsement in B/L requires the involvement of at least two parties the previous beneficiary and the subsequent beneficiary. 5.2 Features of endorsement in B/L In accompany with definition of endorsement under B/L, it is crucial to pay attention to the relating properties of endorsement, for the reason that, these are the guidelines to general instruction of endorsement. The readers can be aware of two main features of endorsement as following: Endorsement is unconditional and abstract. It means that the endorser is able to endorse without any action of making a list of causes to endorsement, or informing the previous transferor and the carrier of his endorsement to another beneficiary. Simultaneously, the endorser is not allowed to require any condition enclosed with B/L for the endorsee to obey. Endorsement is the claim of endorser that he has undertook to confirm the ownership of goods reported on B/L is given to the endorsee. Therefore, the current endorser confirms to transfer the obligation and responsibility of the previous endorser to the current endorsee. 5.3 Types of transport document with transferable feature Transport documents comprise many types of instrument, which are Bill of lading (used for ocean transportation), multimodal transport, seaway bill, airway bill, truck bill of lading, railway bill of lading or inland bill of lading. With the wide network of international trade, ocean traffic becomes more and more essential. In the view of ocean transportation, there are three types of document, which are Bill of lading, Multimodal transport and Seaway bill. Nonetheless, only two of them have the property of negotiability or transferability, which are Bill of Lading and Multimodal Transport. It is to say that endorsement is applicable to Bill of lading and Multimodal Transport only. In the context of profound study of Bill of Lading, the uses of Seaway bill (SWB) and Multimodal transport B/L are mentioned briefly. It is noticeable that the functions of the three transport documents are the stressing point in order to explain the existence of transferable feature for each. 5.3.1. Definition of Multimodal transport and functions of Multimodal transport B/L International multimodal transport means the carriage of goods by at least two different modes of transport on the basis of a multimodal transport contract from a place in one country at which the goods are taken in charge by the multimodal transport operator to a place designated for delivery situated in a different country. The operations of pick-up and delivery of goods carried out in performance of a uni-modal transport contract, as defined in such contract, shall not be considered as international multimodal transport (United Nation Convention on international multimodal transport of goods, Geneva, 5/24/1980).
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Multimodal transport bill of lading is B/L issued for containerized door-to-door shipments that have to use different ships and/or different means of transportation (aircraft, railcars, ships, trucks, etc.) from departure to destination. Unlike a through bill of lading, the principal carrier or the freight forwarder (who issued the multimodal B/L) takes on full liability under a contract of carriage for the entire journey and over all modes of transport. Both multimodal transport and ocean B/L have three main functions as shown below: Being a receipt for the delivered goods. Being the proof of the previous contract between the carrier and the shipper. Being a title deed to loaded goods on board. 5.3.2. Seaway bill (SWB) and its functions Seaway bill is used as a non-negotiable shipping document issued by shipping company as an alternative for Bill of Lading. SWB has two functions, first is a receipt for the delivered goods and second is the proof of the previous contract between the carrier and the shipper. These functions are applicable the same as multimodal transport Bill of lading and ocean B/L. In short, the three above transport documents have two similar functions- a receipt of goods and a contract of the carrier. However, multimodal transport bill of lading and ocean B/L have an additional function as being a title document to loaded goods. This function is the determinant key for the application of endorsement so that multimodal transport bill of lading and ocean B/L can be negotiable in the market while SWB, without the third function, becomes a non-negotiable instrument. 5.4 The significance of endorsement under B/L Under the light of 3 main functions of B/L as indicated previously, it is undeniable that endorsement plays an important role to contribute the prevalence of B/L in the worldwide trade as today. The significance of B/L endorsement results from the feature that ownership of B/L is transferable from one to another; endorsement has improved the liquidity of B/L in the freetrade market. Definitely, the endorsement of B/L can be utilized to transfer the ownership for unlimited times. In particular, this is very convenient for the trade of goods among the subsidiaries and agents of a company. Due to the fact that the subsidiaries belong to one company, the buyer can resell the goods to another agents and this process still goes on and goes on. In reality, the transfer of B/L would be done even before the shipment of goods approach the named place. Besides, B/L can not only be considers as document of title but also as a collateral in the market. B/L is totally regarded as a valuable instrument; as a result, the buyer can use the original B/L in exchange for other kinds of asset or cash. This is to say that B/L is fairly preferable and flexible in circulation.
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Another reason that B/L plays a vital role as a necessary document in Documentary Credit is that B/L is used a tool of hedging risk for Bankers. In reality, many banks require their exporters to indicate bank as consignee in B/L. In this case, bank is in possession of goods and bank has full right and obligation to goods on shipment. If the importer wants banks to transfer the ownership of goods to him, he is in need of capability to pay full or partial of the amount of money to bank. Definitely, bank has more security and assurance when bank pay money on behalf of the buyer. After all, from the angle of buyers or importers, B/L is such a beneficial document because the endorsement process in B/L would improve the circulation of cash flow in the market. 5.5 Parties involved in the B/L For any document, it is very necessary to shed light on (make clear) each party involved in the process, because it would help to determine the obligations and responsibilities of each one to the others. Especially, for any endorsement document in the international payment, endorser and endorsee are always the two main mentioned parties. We also take concern about the endorser and endorsee for the case of the Bill of Lading or Multimodal transport comprised the endorsement. Furthermore, it would be clarified in this research in detail, which parties can act as endorser? Which one can be the endorsee? What are their senses of duties? First of all, endorsers, in practice, can be known as the shipper, the issuing bank or a third party. Whenever the Bill of lading is made out to the order or to the order of the shipper, or blank endorsed, it is automatically understood that the shipper will be the party which can endorse the B/L. In other situations, when the Issuing bank acts as a consignee, it also means that bank will be the endorser party. In reality, with the view to controlling the merchandises, the Issuing bank often regulates that the goods would be delivered to their order. Besides, the endorser can also be another third party, such as an individual, an organization or a company- which are all under the order of a named party type. It, however, makes no difference to which party is the endorser. Why? As mentioned above, because Bill of Lading represents a very important function: title of document; therefore, it is negotiable, totally can be traded in the market. Hence, no matter it is, either shipper, the issuing bank or a third party- as long as they own the B/L, can endorse it to another party. It is proved that, the Bill of lading, is, on the whole, endorsed in almost of the transactions in international payment. Secondly, referring to the endorsee, it can be known as a person or firm to whom a negotiable instrument transferred by endorsement. It is also called a transferee or payee. The endorsee becomes a holder-in-due-course upon delivery of the endorsed document. Like other types of financial documents such as Bill of Exchange, deliver orders, the terms and conditions in Bill of Lading also allow the endorsees to prolong the endorsement list. It is a continuous succession, which is very convenient in commercial trade.
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Finally, understanding the requirements and tasks of each party also plays a very important role in making the international transactions smooth and fluent. The endorser will be responsible for transferring the ownership of the B/L, whereas, the main duty of the endorsee is to take over the B/L to get the goods (in case of no other endorsements). Any mistake or discrepancy should be dealt basing on the full set of original Bill of Lading. More particularly, it is also crucial for the endorsee to bear in mind that he/she can only recourse their previous endorser for any unexpected problem. In conclusion, for either Bill of lading or Multimodal transport comprised of seaway document (MTD), parties involved should always be taken into account carefully, to avoid any troublesome things. 5.6 The endorsement process Endorsing is a complicated process that is always performed cautiously by the bank checker. One of their duties is to determine which kind of the B/L belongs to. What rules should be followed for different situations of B/L endorsement? Within the scope of this research, we only concern about the Bill of Lading endorsement rather than the endorsement for the MTD. Basing on the title of the goods, it is divided into three different kinds of Bill of lading. They are: straight B/L, B/L to the order of and to bearer B/L. The Straight Bill of lading is issued when the goods are consigned to a specified person named on the consignee blank of B/L. For this characteristic, straight B/L cannot be endorsed for another party. The non-endorsement is also applied the same for the bearer B/L- which allows anyone who holds the B/L to be the consignee. Finally, among those above kinds of B/L, only the B/L to the order of is employed in case the endorser wants to transfer their ownership of the goods to another party. Under the second kind of B/L, we now keep on breaking up it into different forms of order B/L. First of all, the B/L is endorsed to a named person- which implies that only the one with the precise name on the back of the B/L can be the consignee and can get the goods. In reality, due to the inconvenience of this form, the endorser will prefer the second type to the first one. The second kind is the bill of lading to the order of a named person This is known as the most popular endorsement type- which can benefit all parties and make the endorsement process become more flexible and convenient (Huy, 2008). Thirdly, the endorser can leave blank or write deliver to order of bearer at the back of the B/L, this represents that anyone who keeps this B/L is the legal owner of the goods, and he/she can totally transfer the B/L to any other parties. However, due to the feature of unknown B/L holders, in fact, bearer order bill is not widely brought into play. While conducting the endorsement, it may concern the related parties an issue about the responsibility of each others in case there is any inconsistency or any problem. This is really very significant and vital for both of the endorsers and endorsees. And the appearance of the phrase without recourse is extremely important for the endorsers; otherwise, they may cope with unexpected matters. In order to avoid any responsibility
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with those holding on this bill of lading, the endorser often adds a notation without recourse beside their signature. As the result, if there is any misunderstanding or litigation, later on, the endorser can use the B/L without recourse as an evidence for their immunity. However, the rule of without recourse is not applied for the shipper, because they are always the final party to bear the responsibilities if all other endorsers record without recourse. With the aim of making it clearly in terms of the endorsement process, this report will give out the step-by-step procedure in the case that the bank acts as a consignee and they have the right to endorse the Bill of lading. In practice, for the sake of bank, while making the Letter of Credit (L/C), the Issuing bank often requires that they would perform as the consignee of the goods and it must be stated very obviously in the L/C. Following that requirement, the carrier will issue a bill of lading to the order of the Issuing bank. As the rule of the bank, the request of making an ordered endorsement must be submitted by the applicant of L/C (the importer). It is open to a question that why the applicant needs to summit the order while they are not the endorser. The reason is that the bank has engaged itself in the L/C that it will act as the consignee- which means that they are the owner of the goods. The purchaser wants to get the commodities; therefore, they need to make an ordered endorsement application for the bank to endorse the B/L later on. The guidelines for this claim will vary from bank to bank due to the reason that there is no common, detail and specific instructions about the Bill of lading and the endorsement process. Consequently, each bank will make up its own instruction. Still, it, in general, comprises of some steps (refer to the appendix): Application for an endorsement of Bill of lading Documents attached (Bill of lading, commercial invoice, sale contracts) The commitment of the company (importer) It may appear some other requirements at other banks, but those three-mentioned necessities above are the focus. Figure1: The first and the back side of an endorsement application:
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Figure 2: A bill of lading with the endorsement to the order of
6. Practice Document submission With the intention of matching up the theory and the practice in the use of endorsement the bill of lading, this study tends to provide some information about the actual daily transactions of the bank dealing with endorsement orders. All of the information is gathered not only in the Internet or newspapers, but it is also the experience of the researchers at banks. At the previous, the report has mentioned some necessary steps that must be complied with if there is an order of the endorsement. According to article 23, UCP 500 (article 20- UCP 600), the B/L can consist of a sole original B/L, or, if issued in more than one original, the full set as so issued. Basing on this article, the bank also strictly requires the exporter to hand in the original B/L. Even though it may not be stated in the L/C but the exporter always needs to submit the full set of original documents. After the seller has finished shipping goods to the importer, they will have to send the L/C, together with the B/L issued by the carrier for the bank to check. In accordance with the theory, in case the bank does not act as the consignee (which has already been stated in the L/C at the Consignee box), after checking, bank will send directly the B/L to the importer for them to get the cargos. However, as mentioned above, for their sake, the bank normally insists on their consignee position. And most banks are applying this in their transactions. At this time, bank will require the importer to make the application for endorsement (see the appendix). It happens that the B/L is issued under the straight B/L term to the bank- which means that no other party except the bank can get the merchandises. Thus, in this case, the importer needs to produce an authorized letter to receive goods for the bank to authorize them to get the cargos.
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The necessary documents needed to be presented: Application for endorsement/ an authorized letter to receive goods Commercial invoice Original bill of lading Identity card The bank may also ask for some other requirements to guarantee that the importer will pay them money. For example, Vietcombank may ask the customer to fulfill some commitments such as to escrow, borrow at the bank, or engage in some forms of collateralizing. Or, Agribank asks their client to escrow 100 % of the payment value so that the bank can trust them and agree to endorse the B/L. Wrong endorsers, wrong endorsees When conducting several interviews with few staffs in banks, we also discover some very interesting things about the endorsement in practice. From the opinion of one banker in the Bank of Tokyo- Mitsubishi bank, she has experienced some very difficult circumstances that she had never learned through books before. The theory and the practice are at the two different sides she said. One of the most complicated cases that the bank checker may cope with in dealing with endorsement the Bill of lading is the wrong endorser or endorsee in the B/L. Especially, these situations do not appear in any book, and just doing practice reveals it. So, what does it mean by wrong endorser? As we know, when endorsing, the endorser will sign at the back of the B/L, write their name and the endorsee party. However, sometimes, for the case of a company, it requires that the endorser - who signs the B/L, must be the director of that business or bank branches. Therefore, if there is signature of any other people such as the vice-president, or head department B/L will not be accepted by the bank and they consider it as the discrepancy. How to fix this problem? According to the banker, in that situation, the bank will ask for an authorized letter signed by the exact endorser (say, director), confirming that he had given permission to his assistant to sign on behalf of himself. By that way, the B/L can be acknowledged and become effective. It is also very important to bear in mind that any correction of the Bill of Lading endorsement will not be allowed and must follow the instruction from the bank. The statistical data at the bank shows that there has been a numerous of circumstances of wrong endorsers as described above- which can be seen as a reminding for the endorsers. Besides the mistakes related to the endorsers, there are also mistakes referred to the endorsees. From the opinion of another interviewee- a staff at the Eximbank- where many international payment transactions are performed every day, he said that he had resolved quite many cases of endorsement. The name of the endorsee at the back of the bill of lading is inconsistent with the actual person to receive the B/L. This fault may occur when the endorser writes wrongly the name of endorsee party, or, they want to endorse to another person later on, not the named party anymore. Hence, what are the
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solutions for this state? Normally, to make everything become easier and smooth for all parties, bank may ask the endorser to fill in a confirmation letter, affirming that he/she is wrong and then, he will notify the correct name of the endorsee. The endorser party needs to commit that he will bear all the responsibilities in case there is any unexpected problem. The bank may accept the confirmation of the endorser party afterward and allow the B/L to become effective. Particular situation of the straight B/L to be endorsed As mentioned at the beginning of this finding and discussion, it is known that the straight B/L is endorsed to a specific named person; therefore, it cannot be used to negotiate, transfer or trade in the market. But in the textbook Thanh toan quoc te va tai tro ngoai thuong of Master Nguyen Van Tien and in article 84 of Maritime Law of Vietnam 2005, stated that the straight B/L, in reality, still can be utilized to trade if it has got the official permission from the local authority. This approval of the authority can make the trading market of documentary credit happen to be more flexible. 7. Limitations, conclusion and recommendation Limitations of research In spite of enormous endeavor from the researching group, our carrying out this research has met some obstacles and inconvenience. Consequently, the findings in this study still do not achieve such a perfect outcome in consequence of lack of information and database. Even though a lot of useful information is available on external sources such as on websites or in book materials but there is still a shortage of statistical data under the content of B/L and B/L endorsement. In particular, in Vietnam, databases and figures on the official websites is virtually inadequate and unavailable. In addition, there is not much prior research worked out in this issue. The lack of data and practical information leads to the absence of description overall outlook of B/L and B/L endorsement usage in Vietnam, which may have been an attractive part to concern in our study. In addition, although we have chance to interview some bank checkers, but the information got are not enough to bring more reality into the research. It is definite that B/L and B/L endorsement have closed relation with involved parties - the companies and the entrepreneurs who operate their transaction oversea. With little assistance from the person who works directly with B/L, this research has excluded the proximate view of entrepreneurs, how they deal with problem of B/L when performing international transaction what disadvantages or difficulties have come up with them. It is a regrettable restriction in this research. Conclusion In conclusion, it can be seen very obviously that Bill of lading has become very popular in the world. As a result, understanding its functions, type and its use is an important operation in the commercial trade, especially in the import and export operation. It relates to not only the exporter, the importer but also the bank- which is the
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intermediary providing the services for both parties. The role of the bank turns out to be more significant when there exists the appearance of the endorsement operation for the bill of lading. With the purpose to promote the development in the international payment, it is very important for Vietnamese businesses and banks to fully comprehend the context and the procedure of ordered bill endorsement- which can help to increase significantly the numbers of international transactions between Vietnam and the worldwhich, in turn, enforce the economy to grow up (Ngan, vneconmy.com). Recommendation As mentioned above, Bill of lading is an important document in document package presented to the issuing bank, so that bank should check B/L carefully to prevent from any dispute about cargo afterward. According to Eximpro webpage (a website supports to import and export - http://www.exim-pro.com/) some points which bank should notice while checking the Bill are: Whether name and address of shipper, consignee, notify party are matched with a content in a L/C or not. Whether name of port of loading and port of discharge are the same as what is noted in the L/C or not. An authenticity of Bill of lading (check up the signature on Bill of lading of captain, agent, or owner of a vessel and his legal status). Whether Goods is identical to what is described in the letter of credit and other documents like insurance documents, invoice or not. Type and number of original Bill of lading. Any amendment and supplement on B/L need confirming by signature and printer of a shipper, carrier or captain. Transport condition and fee charge. The second recommendation is consignee or anyone who is authorized to receive goods should notice time to take delivery of goods because over free time from the date of discharge, they have to bear all demurrage and/or damage to risk of cargo and container. The last recommendation is given about a wrong endorsement situation mentioned in the practice section. As stated, this case occurs when a person who does not have enough right to endorse the Bill of lading signs as an endorser or when the endorser writes name of endorsee incorrectly. Both cases can lead to a dispute about title to goods in the future unless any correction is made at once. Therefore, the endorsee should pay attention to the authority of the person who is regarded as the endorser whether he has a right to endorse or not. Moreover, the endorsee and the endorser should check up again a name of endorsee in order not to arise this mistake.
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REFERENCES
2007, Original B/L & Copy B/L. Available at URL: http://www.vietship.vn/showthread.php?t=630 (Accessed 8 May 2010) Cc Hi quan TP.HCM. 2008, Vn n ng bin v chng nhn thc xut. Available at URL: http://www.scribd.com/doc/21199789/van-don-duong-bien-va-chung-nhan-thucxuat (Accessed 12 May 2010) Edward G. Hinkelman. 2003, A short course in International payments, 2nd edition, World Trade Press publisher, California. International Convention for the Unification of Certain Rules of Law relating to Bills of Lading ("Hague Rules"), and Protocol of Signature, Brussels, 25 August 1924. Maritime law of the Socialist Republic of Vietnam number 40/2005/QH11, 14/6/2005. Michael Dennis. Encyclopedia of Credit. Available at URL: http://www.letterofcreditforum.com/lcfbackup/content/how-do-i-make-blank-endorsed-lc (Accessed 10 May 2010) Nguyen Huu Duc. 2010, TO ORDER BILL OF LADING AND ENDORSEMENT. Available at URL: http://my.opera.com/mroldmanvcb/blog/2010/03/06/to-order-bill-oflading-and-endorsement (Accessed 10 May 2010) PGS.TS Nguyn Th Thu Tho (National Economics University). 2009, Nghip v thanh ton quc t, Ti chnh publisher, Vietnam. PGS.TS Nguyn Vn Tin (Banking Academy). 2009, Cm nang thanh ton quc t bng L/C, 2nd edition, Thng k publisher, Vietnam. PGS.TS Nguyn Vn Tin (Banking Academy).2008, Thanh ton quc t v ti tr ngoi thng, Thng k publisher, Vietnam. United Nations Convention on the Carriage of Goods by Sea ("Hamburg Rules"), Hamburg, 31 March 1978. V Hong Anh. 2010, Vn n ng bin (Ocean Bill of Lading - B/L). Available at URL: http://vietforward.com/showthread.php?p=300 (Accessed 12 May 2010)
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EFFECTIVENESS OF INNOVATIVE TRAINING

Written by: Do Duc Thu (4K -07) Duong Hong Hanh, Nguyen Hai Yen (1D-07) Supervisor: Nguyen Le Phuong Tram
ABSTRACT Training refers to a process of acquiring different skills and competencies through a series of learning activities specifically designed for increasing performance. Training is a major input of skills, some of which are not feasible to be accumulated through ones life, for a parttime cleaner to a highly professional Wall-street trader. Every new entry to an unfamiliar occupation needs to be trained in order to desirably undertake the tasks required. Training traditionally takes two forms which are on-the-job training and off-the-job training. The need to have innovative training emerges to not just provide practitioners the skills required in a more advanced way with regards to time, distance, finance and technology, but also to collaborate other methods of training to create the most all-rounded entries. This paper will provide a glimpse into the concept of innovative training, its methods, how it is applied from industries to industries and finally, some recommendations to make training become more innovative.
I. INTRODUCTION Nowadays, any organization which wants to survive in such an aggressive business world should be able to invest in its workforce. One common method used is training. The workforce belonging to each company, besides being trained about the company philosophy, they also learn how to work effectively. Different company employs different method; however, they aim for better future income. Nonetheless, whether only training is enough is still a rough question for every company. Hence, some companies have changed their traditional training method into better ones which fully exploit employees potential. This method is generally known as innovative training. Innovative training can take different forms, dependent on the culture and the organizational mission and goal. This research paper, with the purpose of providing more information on this new type of training, discusses how it is employed around the world as well as in Vietnam and finally, what can be done to improve innovative training in Vietnam. II. THEORETICAL UNDERSTANDING 1. Training: a. Definition In Human Resource Management, training plays as a key role in the employee development. Training can take both two stages in a career of an employee: the job orientation- when employees just begin their job or during their job- while either they cannot catch up with some changes with equipment, technology, etc or they have insufficiencies in work performance. Training can be defined in some ways, for example: The term training refers to the acquisition of knowledge, skills, and
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competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies or Training is about the acquisition of knowledge, skills, and abilities (KSA) through professional development or just simply Training is the process of providing employees with specific skills or helping them correct deficiencies in their performance. b. Training process:
A training process normally takes three steps: First, it is from the organization itself, top managers should always be kept updated with changes or challenges in the outside or even inside the organization. The sooner the need is recognized, the sooner it is likely to be tackled. The second step is to gather employees who need training to deliver training. Finally, when training ends, it should be evaluated under tight control to see if the training provided is working appropriate or not. c. Role of Training:
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As the diagram illustrates, no business does not face with any challenges or movement of the environment. When those things happen, they cannot stand in one place unless they want to be the losers or go bankrupt. What they have to do is to adapt to the changes and challenges through training their own staff. Through learning and training, the staff may comprehend how to adjust themselves to the job and to get it done with more ease. This surely leads to the enhancement in their job and generally, the success of the whole business. d. Types of Training: Training in any organization can take two forms: On-the-job training: On-the-job training takes place in a normal working situation, using the actual tools, equipment, documents or materials that trainees will use when fully trained. On-the-job training has a general reputation as most effective for vocational work. However, since the trainees still lack skills and job experience, this type of training can cause slowdowns that decrease production or even irritate customers. Off-the-job training: Off-the-job training takes place away from normal work situations. Employees are gathered to study in a classroom implying that the employee does not count as a directly productive worker while such training takes place. Off-the-job training has the advantage that it allows people to get away from work and concentrate more thoroughly on the training itself. This type of training has proven more effective in inculcating concepts and ideas. However, the trainees lack realism, hence, time for getting used to the actual tools, equipment, documents or materials will be demanded. 2. Training and Career Development: Training and Career development differentiate themselves to some respects: In training, the focus is mainly on the current job whilst in development, the focus is on both current job and the future jobs that employees may hold in their career paths. The scope of training is on individual employee while that of development is on the whole work group and organization. That is, training job specific and it is used to tackle deficits or problems existing in the job. On another extreme, development tends to associate with the work force skills and versatility. Another difference is, training focuses on the immediate need of the organization when development can be saved for the future use. Finally, the goal of training is enhance the workers performance quickly and the development goal is to enrich the overall human resource of a company. III. INNOVATIVE TRAINING 1. Definition of Innovative Training: Recently there are influxes of new training definitions that focus on competencies rather than purely performance orientated methods. These are known as innovative training. It is though hard to find out the most apparent definition of innovative training or what it is combined of. Innovative training can be understood as a collaboration of activities which differentiates from the past methods. Innovative training is of great variation, depending on the very nature of the industry.
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2. How to apply innovative training in an organization: Table 1: Organizational Training Development Refining Process
Effective training strategies are core to the development of an effective training solution including snippets. Guided by the framework, one can design, develop, evaluate and implement training snippets with appropriate instructional strategies and delivery methods. By integrating instructional strategies with appropriate delivery mechanisms, organizations achieve better results and a high return on investment. Table 2 Snippets design strategies, delivery and evaluation mechanism
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An example provided by Chaturvedi (2008) on taking role-play as an innovative training method. The trainee develops a strategy to how should he react or think in a particular situation and possible suggestive solutions for resolving the problem or analyzing the situation.He also learns and forecasts what the other party or as per the case may be what can be the other reaction. This technique thus not only leads to self learning about expected job outcome or to create a fit in the job but also helps in understanding others perception about the task or issue. The objectives of this activity are: 1. It helps in developing a better understanding of the job 2. It helps in understanding how to handle a particular situation. 3. It helps in developing better understanding of the issue a better decision making 4. It helps in anticipating reaction of other party 5. It helps in developing communication, management development and leadership quality 6. It helps in improvement of interpersonal relationship. 7. It helps in providing an insight to understanding behavioral patterns of others. She also identified the benefits of applying role-play in the training process as follow: 1. It helps in both cognitive and effective development of trainees and better learning by doing. 2. It permits practice by repetition and helps in better reinforcement 3. It also helps in improving human relation since it helps I developing empathy 4. It helps in making people sensitive towards others 5. It helps in better SWOT analysis of individuals and thus the feedback given helps in identifying and overcoming the deficiencies. 6. It enables the role player to control his behavior and enact as if he is enacting in a real life situation 7. It helps in bringing attitudinal changes in the employees as trainees It is a more practical approach than other technique since in this the learning by doing and feedback that whether a behaviour reflected is acceptable or requires change can be given. IV. INNOVATIVE TRAINING TREND 1. In the world: In today's fast-paced business world, employee training has become an essential component to maintaining a competitive edge. Training programs not only benefit the organization as a whole but help boost employee morale through enrichment of their professional development. Especially, Innovative Training program which has recently played a significant role in improving the employees work outcome and the performance of a huge number of organizations as well. Therefore, it is not surprising when recognizing that Innovative Training has been employed in different kinds of business across many countries in the world. Being the pioneer in the hospitality industry, Hilton Garden Inn Austin NW hotel which is in the Northwest Arboretum area of Austin*s Golden Triangle uses Innovative
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Game-Based Technology to Enhance Guest Experience and Recruit Next Generation Team Members. Hilton Garden Inn launched of its training program on January 2009, Ultimate Team Play for PlayStation Portable (PSP). After an intense introductory session Hilton Garden Inn General Managers Conference now underway in Austin, each hotel will receive a PSP handheld entertainment system and the Ultimate Team Play game featuring guest satisfaction training for positions in housekeeping, food and beverage, engineering and maintenance, and the front desk. This program is initially being rolled out to hotels in the United States with global implementation to follow in the later part of 2009. We take the guest experience as well as our team member training very seriously but we believe that having a little fun along the way will enhance our team members ability to deliver incredible service to our guests, said Adrian Kurre, senior vice president, brand management - Hilton Garden Inn. Ultimate Team Play responds to the evolving training needs of our employees while focusing entirely on enhancing the guest experience which has made Hilton Garden Inn an industry leader. Particularly in this economy, it is imperative that each interaction with our guests acknowledges their needs as effectively and efficiently as possible. Not only is Hilton Garden Inn the first in its industry to develop a game-based training tool in the hospitality industry, it is also the worlds first hotel brand to offer an interactive employee training system created specifically for Sony Computer Entertainment Inc.s PSP system. Ultimate Team Play puts team members in a 3-D virtual Hilton Garden Inn hotel where they must choose how to respond to various guest-related scenarios in a given timeframe while also ensuring that they complete their specific hotel duties and so forth, answering the telephone, checking guests in and out, and general guest interaction (in the front desk scenario). The level and speed as well as the appropriateness of their response directly affect the simulated guests satisfaction. Another famous ones, the Innovative Training Program - Electrical Power Technology Program has filled critical need as well as brought bright futures for next generation of energy industry employees in Miami since June 2009 which used to be in the midst of difficult economic times. This program was an innovative partnership between Miami Dade College (MDC), Florida Power & Light Company (FPL) and the International Brotherhood of Electrical Workers (IBEW) and is designed to support workforce development and respond to the growing energy need in the Miami-Dade County area for employees trained in the latest energy technologies. The nation is experiencing a critical shortage of energy and nuclear-skilled workers. This situation is particularly acute in the nuclear energy sector. This partnership addresses that challenge, said James Auld, college and community coordinator for FPL. We are pleased to be able to tap into a natural resource in our area students eager to learn important and valuable skills and offer them the opportunity to build a career with FPL for years to come. We all benefit from this partnership. In addition, Groundbreaking. Innovative. Progressive. These words describe this great program, said a jubilant Victor del Cid who graduated and received a job offer from FPL. I finally feel I have plotted the right course for me, my family and this community.
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Additionally, an innovative training program as part of a joint initiative to proactively plan and secure the availability of key skilled resources for the $1.8 billion was launched on February 2010 by Adelaide Desalination Project South Australia Water and Adelaide Aqua that was developed to help secure skilled welders for South Australia. The specific aim is to attract, train and enhance the skilled resource capacity in the area of specialized welding, welding supervision and welder qualifications. SA Water ADP Director Milind Kumar said the desalination project has a need for specialized welding trades people, due to the highly-technical infrastructure for its seawater reverse osmosis operations. This joint initiative will build essential capability and capacity not only to service the needs of the highly specialized area of welding for the ADP, but also build on local South Australian resources which can service other similar projects nationally and worldwide, SA Water ADP Project Director Milind Kumar said. Furthermore, Mr. Tracey who was the Adelaide Aqua Project Director said he envisaged the creation of a specialized welding expertise and resource pool which will benefit many local industries well beyond the projects completion date. Moreover, todays Innovative Training providers are increasingly in many fields under the pressure of the demand of many organizations. Center For Innovative Training And Education could be a typical illustration. It is located in a large city, in Philadelphia, PA. The school is a private, for profit institution. Degree level at Center For Innovative Training And Education top out at the Certificate. Table 3: Center For Innovative Training And Education Programs (2008-2009) General Category Office And Administration Most Common Majors Office data entry, general office occupations
Business And Management Banking Table 4: Student Bodys Diversity in Center For Innovative Training And Education (2007-2008) Age 20-21 22-24 25-29 30-34 35-39 40-49 50-64 Percent 4% 6% 26% 23% 17% 20% 4% White Black Hispanic Asian Race Percent 10% 77% 11% 2%
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The table 3 and table 4 show that Innovative Training can be employed in various majors with the diversification of educators in terms of both age and race. Moreover, most of trainees are adults being from 25 to 34 year olds. Especially, a number of candidates enjoying the Innovative Training are black people contributing approximately 77 % in total. The other instance that is The Innovative Training Company (TITC) made up of a team of experts who initially supplied successful training and consultancy solutions to the financial, manufacturing and technology service industries in the United Kingdom. TITC provides tailored training and consultancy solutions developed by the unique combination of practical skills, industrial experience and training interventions for a range of clients in the area of Information Technology Security, Leadership and Management; Recruitment and Selection to meet all requirements. Focusing on providing bespoke training and consultancy, which when applied to a clients business adds real value and has helped to distinguish TITC. WMware, Inc. is also one of the leading providers offering an innovative training solution for the of Net services software. Available immediately worldwide to Novell authorized education partners, Novell Quick Classroom allows for dramatically reduced classroom set-up time for Novell classes and freeing technical staff, equipment and classrooms for billable training activities. Furthermore, students can freely experiment without damage to the operating system and its applications. Furthermore, Training centers can better manage their hardware resources since VMware Workstation allows a complete network to be built on a single computer.
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As seen from the list above, the network of VMware has been extended in all most continents on the earth that shows off the popularity and vitality of Innovative Training highly appreciated by customers. Besides those providers offering The Innovative Training, there are a lot of other companies working quite well such as Heartland Innovative Training Company, Praesto Company, Marlin Training Company, DOCEP SafetyLine Institute and so forth. All those are very supportive and helpful in Innovative Training programs of companies who are both performance- and employee-oriented. 2. In Vietnam: In spite of the application of innovative training popularly and effectively in the world, there is no attention paid to creating the innovation in training workforce. Recently, the improvement of the knowledge, job skills, behavioral culture and creative working environment has been ignored by lots of Vietnamese companies since they are production- and market share-oriented. Another reason is their special characteristic that is almost Vietnamese enterprises being small and medium. Hence, the effectiveness of innovative training has been not appreciated highly as a solution improved employees performance that plays an important role in the development of an enterprise. Moreover, due to the limited capital, they often regard training workforce as cost instead of investment. Therefore, some traditional training methods have been applied usually despite its ineffectiveness and obsolescence. However, there are still some companies being aware of the significant role of innovative training in keeping pace with the changing business environment. Viglacera Ha Long Company is one of those clear-sighted enterprises in Vietnam. It could be the typical illustration in fostering workforce provided worth experiences that others should study and learn. In the corporate strategy in development, one of the most vital factors contributing our companys success is the way we training the workforce that helps to level up and encourage the job skills for each employees said Mr. Nguyen Quang Mau, Viglacera Ha Long Companys CEO. Nowadays, Viglacera Ha Long has provided employees with both short- and long-term courses that offer not only professional knowledge but also job skills. Additionally, it also shakes hand with some universities and vocational training college such as Hanoi University of Technology, Hanoi University of Civil Engineering, Hong Cam Vocational Training College and Training Center of Quang Ninh Province to hold some classes trained employees in order to improve the quality of staffs. Moreover, all officials are motivated to take a part in English and computer skill course meeting the changing works requirement. Especially, Viglacera Ha Long Company often sends its co-workers abroad to learning technology and experience so that they can apply better to the practical condition of company. Besides, Viglacera Ha Long usually brings favorable conditions in terms of time, facilities and budget to encourage its employees enjoy training courses. Furthermore, company always creates the dynamic and creative working environments in every activity originated from for innovation. Due to innovative training for workforce, the huge amount of money has been flown in terms of budget spent and productivity reduction. Impressively, Viglacera Ha Long Company has gained the great achievements since applying this strategy focusing on fostering employees. For instance, the revenue of company had increased by 15 times in the period between 2000
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and 2007. Thereby, employees average salary also goes up constantly and it is expected to be VND 2.5 million per month on average. In addition, the level of job satisfaction is also improved with the happiness and passion when working. Viglacera Ha Long Company has given a good lesson for other Vietnamese companies in terms of taking the full advantage of the innovative training. In recent years, Petro Vietnam Exploration Production Corporation (PVEP) has been well-known with the successful application of innovative training in developed human resource strategy since it has the guideline of People- the foundation of the constant development. Beside trying to attracting talent and excellent candidates and providing with the favorable environment, PVEP has also paid attention to the training workforce, especially innovative training. In 2008, it offered new employees training programs giving good conditions to revise the theoretical knowledge and approach the modern technology of PVEP as well with the purpose of simulating the work passion and creation ability. Additionally, its employees also take a part in both the short- and long-term courses abroad go along with self-studying. Moreover, in 2009 International Human Resources Development Corporation the top consultants in human resource development of petrol field - helped PVEP standardize the evaluating workforce system. Based on the results, PVEP set the plan to training staffs and had salary, compensation as well for each position and job type. That has been expected to bring new success and achievement in the near future of PVEP. V. E-Learning A innovation solution for innovative training The Internet has been a very influential medium that fueled the technological movement of the 21st century. It has an encompassing effect on our society most especially on the corporate world, where information dissemination could automatically spell life or death for a company. Any company owner in the world would not contend with the fact that Internet and the booming information technology have paved the way for more efficient operations, and of course the ability to connect to various markets that were impossible to reach in the past. The Internet has also helped companies manage internal workforce performance, not only in terms of output, but also in terms of developing skills of new and existing employees. Traditional corporate training methods have been replaced by an innovative approach called E-Learning. A few years ago, David Dam, head of sales development for Golden Harvest Seeds Inc., was frustrated with his company's sales-training program for 250 employees and 2,000 independent crop-seed dealers. Mr. Dam would rent meeting rooms for 30 people, and only 15 would show up. He had trouble finding great trainers. Fuel prices were making travel more expensive, and the sessions took valuable time out of workers' days. But in the spring of 2004, Mr. Dam's company tried planting some seeds in a new field online training. Golden Harvest hired EJ4 LLC, a video-based online trainer in St. Louis, to produce and post online videos for teaching sales reps how to sell Golden Harvest seeds. Mr. Dam tracked the results and found that employees were watching the videos, mostly on Saturdays or Monday mornings. Sales increased, as did demand for more courses, and training costs fell to less than $100 per person from between $175 and $200. "This would have been next to impossible if we had just standard [face-to-face] training," Mr. Dam says. Now, Golden Harvest, of Waterloo, Neb., offers about 120 training courses
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on its internal Web site, with 2,000 page views a month. "We're getting more done with less money," he says. Figure 1: Corporate Training Methods:
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Many people may question why E-Learning has been used in training workforces popularly and utilized effectively. Since lots of imagining benefits that it could bring for users. a. Saving time without decaying learning benefits and minimizing time away from work Fletcher (1990) after carefully reviewing over forty independent studies found that E-Learning used for training workforces yielded timesaving of 35-45% over traditional classroom instruction while obtaining equivalent or better gains in learning retention and transfer. Adams (1992), Cantwell (1993), Baradley (1994) and Hofstetter (1994) later confirmed these results across several years and hundreds of studies. Likewise Halls (1997) in-depth review of over 130 case studies found that computer-base training required significantly less time than instructor-lead training. The amount of reduction in time ranged from 20-80%with 40-60 % being the most common range for timesaving. More recently, Hemphill (2005) found that E-Learning saves time but it does not negatively impact effectiveness of learning. b. Minimizing travel costs For years corporate America realized that travel and entertainment (T&E) made up the bulk of their training costs. However, numerous studies have shown that E-learning can cut the travel and entertainment cost associated with training by at least 50% (Hall 1997). Other studies have shown that if implemented properly these costs can be reduced by at least 80% (Hemphill 1999). c.Being cost effective Numerous studies have shown that the cost of developing multimedia training is significantly higher than creating custom classroom instruction approximately four times (Hall 1997). This is obviously not cost effective for small class size but as the number of employees increases, the cost per trainee is dramatically reduced. This is the cost efficiency of e-learning; it can reach more people in a shorter amount of time than traditional learning. d. Meeting better the needs of geographically diverse employees E-Learning is flexible. It is self-paced and can occur any time any place. As such, it is ideally suited for training employees who are dispersed globally. E-Learning is easily modified thus making it more adaptable for translation an change of content for different cultures and languages. e. Providing more consistent course delivery We are all aware that live theatrical performances vary in times and sometimes obviously ways from one performance to another. There are days when a particular actor may feel good and give a good performance as well as those in which they may feel bad and give a poor performance. Moreover, lots of times those trainers can miss lines and make mistakes. In contrast, when a performance is filmed or taped the actors and director can review their performances and redo as well as edit those areas that are not up to the standards. No matter how many times you view the film or tape it will be the same. Adam (1995) found an average delivery variance of 59% between presentations by classroom by instructors. Whereas, E-Learning is very similar to a performance until it is just right.
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It is not a surprise that most industries would rather integrate e-learning into their system rather than using traditional modes of improving the performance of their employees. This training innovation has found its way into various industries, such as, information technology, engineering, architecture, and the health care industry. Professionals from different parts of the globe can now have access to the latest practices in their field, which would contribute to better performance, quality service, and growth of their industry. It would also help industries measure the impact of human resource development programs on employee performance and its return on investment. Gains and achievements of employees will be transformed into a comprehensive and quantifiable report that managers and executives can use to evaluate and assess their business development. VI. Conclusion In short, through out this paper, it has been found out that innovative is even more essential to organization. It not only motivates trainees but also benefit the businesses to some extent. Even though it is not widely applied, it is believed that, in the future, with the help of technology and changes is competitive advantages, innovative training will become more popular among the workforce. Investing in the workforce is the most precious investment of a business. VII. Recommendations: Recommendation: To make use of Innovative training and apply it successfully in your organization, our group has some suggestions considered as training tips, training icebreakers. That will help your training classes hold interest, capture imagination, and help employees learn. Firstly, in a training class, a trainer should think about how to develop an Ice Breaker? You can develop an ice breaker that will warm up the conversation in your training class, reinforce the topic of the training session, and ensure that participants enjoy the training. - Divide the meeting participants into groups of four or five people by having them number off. (You do this because people generally begin a meeting by sitting with the people they already know best.) - Tell the newly formed groups that their assignment is to share their five favorite movies of all time, or their five favorite novels, or their five least liked films, and so forth. The topic can be five of anything - most liked or disliked. This ice breaker helps the group explore shared interests more broadly and sparks lots of discussion about why each person likes or dislikes their selected five. - You can also use this ice breaker for topical discussion. As an example, in a session on team building, you might ask, "What are five dysfunctional behaviors you have experienced when participating on an unsuccessful team?" Or, "Think about the best team you have ever been on. What are five key factors that made it your best or most successful team?"
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- Tell the groups that one person must take notes and be ready to share the highlights of their group discussion with the whole group upon completion of the assignment. - Debrief the team building ice breaker by asking for a volunteer to read their list of five of anything. Or ask the volunteer to list any movies, for example, that more than one person had in common and shared as their favorite. Then, ask each group to share their whole list with the whole group. Because people are almost always your best source for laughter and fun, the reading of the lists generates a lot of laughter and discussion. You can also catch the drift of the conversation in the small groups based on the transitions made from item to item. - When the volunteer from each group is finished, ask the rest of the participants if they have anything they'd like to add to the discussion before moving on with the rest of the session. This team building icebreaker takes 10 15 minutes, depending on the number of groups that need to report their discussion. Tips about How to Develop an Ice Breaker:
Decide how much time, relative to the length of the training session, you have to invest in an ice breaker. Keep in mind that with adult learners, the facilitator should talk and present 60-70% of the time. Thus, your time for trainee participation, including the ice breaker, is 30-40% of the training time. Figure out the characteristics, interests, and preferences of the participants for whom you want to develop the ice breaker. Different groups have varied preferences.
Determine the goal of your ice breaker. Is the purpose of the ice breaker to warm up the group and provide the opportunity for participants to meet each other? Is the goal to bridge the group into the topic of the training session? Is the goal of the ice breaker to allow participants to demonstrate what they know or have experienced on a particular topic?
Or, is the goal to let the attendees participate in an activity that will demonstrate insights about the participants' functioning together? The ice breaker can combine any of these goals. Just match the goals to the needs and preferences of your participants. Secondly, how to create team norms? The members of every team and work group develop particular ways of interacting with each other over time. Effective interpersonal communication among members and successful communication with managers and employees external to the team are critical components of team functioning. With the potential power of the impact of these interactions on team success, why leave team interaction to chance? Form team relationship guidelines or team norms early to ensure team success. Thirdly, Training and Development for Motivation and Retention: Training and Development Options: One key factor in employee motivation and retention is the opportunity to continue to grow and develop job and career enhancing skills. There are a couple of secrets to what employees want from training and development opportunities, however. Plus, training and development opportunities are not just found in training classes and seminars.
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Training and Development Option: Job Content and Responsibilities: You can impact training and development significantly through the responsibilities in an employees current job. Expand the job to include new, higher level responsibilities. Reassign responsibilities that the employee does not like or that are routine. Provide more authority for the employee to self-manage and make decisions. Invite the employee to contribute to more important, department or companywide decisions and planning. Provide more access to important and desirable meetings. Provide more information by including the employee on specific mailing lists, in company briefings, and in your confidence. Provide more opportunity to establish goals, priorities, and measurements. Assign reporting staff members to his or her leadership or supervision. Assign the employee to head up projects or teams. Enable the employee to spend more time with his or her boss. Provide the opportunity for the employee to cross-train in other roles and responsibilities. Training and Development Option: Formal Training and Development Enable the employee to attend an external seminar. Enable the employee to attend an internally offered training session. Perform all of the activities listed before, during, and after a training session to ensure that the learning is transferred to the employees job. Ask the employee to train other employees with the information learned at a seminar or training session. Purchase business books for the employee. Sponsor a book club or offer the time at a department meeting to discuss the information or present the information learned to others. Offer commonly-needed training and information on an Intranet, an internal company website. Pay for the employee to take online classes and identify low or no cost online training. Provide a flexible schedule so the employee can take time to attend university, college, or other formal educational sessions. Provide tuition assistance to encourage the employee's pursuit of additional education. Last but not least, besides sitting in the class, the trainees should be taken out on field trip to the place will be working on. There, let them spend some time observing the real work by themselves. They can make questions on the work if they want to. This can help trainees somehow understand the operation of the company. Besides, watching others working and handling problems in real can be an interesting experience because no matter how much theory they have, the real situation is varied and different. The development of a life-long engaged learner is a positive factor for your organization no matter how long the employee chooses to stay in your employ. Use these training and development activities to ensure that you optimize the employee's motivation and potential retention.
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REFERENCES
Luis R.Gosmez-Meja, David.Balkin, Robert L.Cardy, 2006, Managing Human Resources, 5 edition, page 239-250. Journalist, Leonardo da Vinci, 2007, Index of innovative training practices in SME, [online]. Available at URL: http://www.smelearining.eu (Accessed 18th May 2010) Journalist, Manfred Walleborn, 2009, Innovative training for poverty reduction in rural central asia, [online]. Available at URL: www.adb.org/Documents/TARs/AFG/ tar-afg38044.pdf (Accessed 18th May 2010) Journalist, Trace A. Urdan, Cornellia C. Weggen, 2000, Corporate E-Learning: Exploring a new frontier, [online]. Available at URL: www.educause.edu/.../CorporateELearningExploringaNe/151480 (Accessed 18th May 2010) Journalist, A. William Wiggenhorn, 2002, A vision of E-Learning for Americas workforce, [online]. Available at URL: www.educause.edu/Resources/AVisionofELearningfor AmericasW/151554 Accessed 17th May 2010) Anonymous, 2005, Training Research and Evaluation [online]. Available at URL: http://www.cdc.gov/niosh/topics/Training/ (Accessed 19th May 2010) Anonymous, 2010, Innovative Training Company [online]. Available at URL: http://www.theinnovativetrainingcompany.com/product.html (Accessed 19th May 2010) Anonymous, Marlin Training [online]. Available at URL: http://www.marlinnet.co.uk/firstaid/OutdoorFA.html (Accessed 19th May 2010) Anonymous, Firms Go Online to Train Employees [online]. Available at URL: http://online.wsj.com/article/SB118704261866596434.html (Accessed 16th May 2010) Anonymous, Hilton Garden Inn Austin NW/ Arboretum. [Online]. Available at URL: http://www.istaygreen.org/property.cfm/hid/11294433 (Accessed 19th May 2010) E-learning An Innovative Training Approach to Improve the Workforce [online]. Available at URL: http://www.slideshare.net/tonydestroni/elearning-an-innovative-trainingapproach-to-improve-the-workforce (Accessed 19th May 2010) Tn hiu mi cho E-Learning ti Vit Nam [online]. Availlable at URL: http://www.sara.com.vn/detailNews.aspx?id=240&lang=vi&Cate=35 (Accessed 16th May 2010) AdelaideAqua, Innovative training course developed to help secure skilled welders for South Australia [online]. Available at URL: http://www.newsmaker.com.au/news/2447 (Accessed 16th May 2010) Heartland Innovative Training [online]. Available at URL: http://www.heartlandinnovativetraining.com/. (Accessed 16th May 2010) Licensed training providers [online]. Available at URL: http://bizline.docep.wa.gov.au/ safetyline/pages/providers.cfm (Accessed 16th May 2010) VMware Partners With Novell to Provide Innovative Training Solution [online]. Available at URL: https://www.vmware.com/company/news/releases/novell.html (Accessed 16th May 2010)
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ANALYSIS OF THE DEPENDENCE OF TOURISM REVENUE ON THE NUMBER OF VISITORS, INVESTMENT, CPI
Written by: Hoang Thi Hue, Ngo Van Lung (TR-08) Supervisor: PhD DAO Thanh Binh
Abtract Nowadays, tourism is considered a very important industry with many chances to enlarge and develop. Each year, tourism has a big contribution to GDP of the whole country (15.7%). Tourism not only supports for government in general but also increases the standard of living for the people participating in tourism industry. Being concerned about this fact we decide to do this project with the topic: Analyzing the dependence of tourism revenue on the number of visitors, investment, and CPI in Viet Nam from 2000 to 2007.After collecting the data from some believable sources we have the model with three independent variables: visitors, investment and CPI. Firstly, we do model specification to make an overview about the model and have some predictions of the sign of the independent variables. Next, we do the individual partial test to find out the impact of each predictor on the prediction. Also, we do the test of overall significance as well as the test of drop variable. Moving violations part, we do with three problems that may be exist in the model, they are multicollinearity,heterocedasticity, autocorrelation. Seeing R2 and t-statistics of coefficients and using auxiliary regression, we can conclude that multicollinearity exists in our model. About heterocedasticity, we use whites Heterocedasticity test without cross term to detect it. Similar to multicollinearity and Heterocedasticity problems, the violation of one of the OLS assumptions gives rise to autocorrelation. We use Durbin- Wastson d test to detect autocorrelation.
1. Introduction The issue of priority to tourism development, creating the best conditions to convert tourism into the spearhead economic sector of our country is currently being concerned more and more by the Party and the State of Vietnam. Like many countries, our tourism is being viewed as one of the leading economic sector by the huge benefits of economy and society that the tourism industry itself brought about.In addition to economic efficiency, the development of tourism also impacts directly the national economy, promotes the production and services sectors. In fact, the tourism performance has brought the growth of important steps to contribute to the industrialization, modernization of the country, reflected in the proportion of GDP of the sector in the economy(according to the General Statistics Office, in 2005 the revenue reached $2.3 billion, in 2008 has reached over $ 4 billion and the average growth rate reached 15.6% per year), offering great revenue to the country, creating jobs for the society, contributing to ensuring and maintaining the security and defense. This project with the objective of forecasting the tourism revenue of Vietnam, actually, based on the secondary research and the information resources available in the
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Internet and others printed media is to test how the number of visitors, the total investment as well as the CPI affected the revenue of Vietnam Tourism for the period of 2000-2007. This study was conducted on the basis of constructing a model to reflect the relationship between the variables just mentioned above, testing their significance and the errors of the model to find out the BLUE one. Due to the limit of time and available resources, the project cannot cover all the factors influencing the revenue of Vietnam Tourism, rather than the number of tourists, the total investment and the consumer price index. The object of this study is to give the readers and the people who are concerned the detailed insight into the inter-relationship between the revenue of Vietnam Tourism and the influential factors, the importance degree of each factor so that ideas can be formed to foster the further development of Vietnam Tourism in the coming years. 2. Sample data Obs 2000 2001 2002 2003 2004 2005 2006 2007 Revenues (billion VND) 4458.5 5869.4 7855.9 8649.8 10734.5 14693.4 16732 20078.4 Number of visitors (thousands) 12727.8 17205.4 24280.5 24660.4 29257.4 32339 33004.3 37233.6 Investments (billion VND) 4453 2975 3847 4230 5549 6628 8613 9899 CPI (%) 100 100.1 100.3 100.2 100.8 100.7 100.5 101
Table 1: Data table includes one dependent variable and three independent variables. Acording to the collected data, it can be seen that all the variables have the same trend which increased through the period from 2000 to 2007. It seems that there is a relationship between the independent and depependent variables. Thus, to check it, we do the hypothesis testing 3. Model specification Base on the data of Vietnam National Administration of Tourism & General Statistic Official, in this project we will define whether Y-Revenue of Tourism is influenced by three factors: the number of tourist visited, the consumption price index and the governmental projects invested in Tourism. Applying the economic theory, we construct the following model: Y= 1 + 2 * X 2 + 3 * X 3 + 4 *X 4 Y: revenue of tourism X2: number of visitors X3: investment X4: consumption price index In the model above, Y is set to be dependent variable and the rest are independent one.
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The first concept is Y-the revenue of Tourism yield. This concept is measured in billion people that means total number of money created by Tourism. Understanding this concept seriously is very important because it helps us to see a large of distribution of Tourism to GDP every year and crucial role as the whole in economy. For example: it makes rising in GDP, change the face of centre and countryside, create many different jobs to local community as an result is the living standard of citizens improves, motivate trading not only between people inside the county also people outside of country, etc. The second concept is X2-the number of tourist. It is clear that the number visitor is the most important factor which affects to the revenue of tourism. Base on the searching, we see that in recent years the number of tourists visit Viet Nam has increased significantly. In 2000 there are 12727.8 foreigners went to VN, however, it tripled in 2007 at 37233.6 (people). This result made dramatic increase in interest of tourism, reached 51 billion VND and played an important role in GDP. Another example about influence of number of tourist on revenue is event in 2009, with global crisis and going down in economy of almost countries, inflation rose as a result the price was high. That is the reason why foreigners trended to save money and cut-off spend on relax activities such: travelling or entertainment. It made a remarkable decrease in total number of tourist at 8% in comparison with last year and had negative effects on tourism. In contrast with outbound tourist, inbound tourist in Viet Nam had strong upward trend with 19% equal 25million visitors. GDP gained 70billion from tourism in 2009. The third one is investment in tourism. As we know just 20 years ago, tourism in Viet Nam was far from foreigners knowledge, only a little awareness they had. But it changes; Viet Nam is well-known country not only in Asia but also in all over the world, nowadays. Now, people in the world know Vietnamese characteristics, history, traditional value,etc. We have those achievements are due to governmental projects, plans, and strategic marketing to show images of our country. Furthermore, tourism organizations have combined together to improve and develop tourism and make tourism smokeless industry become a real strength in the near future. In recent years, seeing the importance of tourism in developing economy, most of provinces have noticed their potentials, invested more to exploit and get revenue. Some typical governmental strategies as positive prospects to motivate tourism with projects: Viet Nam-hidden charm, amazing Viet Nam develop in 2010-2913, the view in 2020 others: national action on tourism is granted 40 billion VND, to promote products related to tourism, human resource, promotion tourism programs, building infrastructure, resort to attract more tourist. Therefore, Investment is factor that has to be noticed if we want develop tourism. The last concept is CPI; in this case CPI is the price of goods and services. We have to know that, when do travelling, tourist will be willing to spend much on recreation such as: shopping, movie, theater or outdoor activities,etc. From the matter of fact that most of foreigners said that: Viet Nam is a cheap place. Actually, the price of goods and services in Viet Nam is very low compared with around countries, that is the reason
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why revenue of tourism still low level. To some extent, if CPI increases reasonably, people are still willing to travel and the revenue of tourism also rises. To sum up, we can estimate the sign of all parameters ( 4. Result & Discussion: 4.1 Hypothesis testing 4.1.1 Eview table & Interpretion Dependent Variable: Y Method: Least Squares Date: 05/18/10 Time: 14:36 Sample: 2000 2007 Included observations: 8 Variable Coefficient C 122850.1 X2 0.384061 X3 1.210804 X4 -1282.461 R-squared 0.985694 Adjusted R-squared 0.974965 S.E. of regression 873.5519 Sum squared resid 3052371. Log likelihood -62.75946 Durbin-Watson stat 2.754617 Interpreting the result From the Eview table, we have the summary for the results of regression analysis: Y = 122850.1 + 0.38* X2 + 1.21* X3 1282.5* X4 Se t p R2
^
) are positive.
Std. Error t-Statistic 217767.0 0.564136 0.106824 3.595266 0.248612 4.870259 2190.142 -0.585561 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)
Prob. 0.6028 0.0229 0.0082 0.5896 11133.99 5520.925 16.68986 16.72959 91.86822 0.000382
= (217767) (0.10) (0.25) (2190.14) = (0.56) (3.59) (4.87) (-0.58) = (0.6028) (0.0229) (0.0082) (0.5896) = 0.985694, df =7
1 = 122850.1 is the intercept of the line, which indicates that Tourism revenue
will be 122850.1 billions VND on average when the number of visitors and investment and CPI are equal to zero. It has no economic meaning because they are never equal to zero.
2 = 0.38 is the slope of the line which shows that tourism revenue will increase by
0.38 billion VND on average when the number of visitors increases by 1 thousand, holding other independent variables constant
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3 = 1.21 means that the tourism revenue will be higher by 1 billion VND on average when the investment rises by 1 billion VND, holding other independent variables constant.
4 = -1282.5 indicate that tourism revenue will decrease by 1282 billion VND
when CPI increases by 1%, holding other independent variables constant. To test the influences of independent variables on the tourism revenue, we make hypothesis testing. 4.1.2. Individual partial coefficient test: This hypothesis testing is the test for the impact of each independent variable on the dependent variable. All of the test below is tested through a time- series of 8 years, from 2000 to 2007 and at the level of significance: = 0.05 Test for the number of visitors: Ho: 2 = 0 H a: 2 0 t- statistic: t =
2 2
se ( 2 )
0 . 38 = 3 .8 0 .1
Critical value: tc = t0.05,7 = 1.895 We have: tsta > tcri => reject Ho Conclusion: the number of visitors is statistically significant and is significantly different from zero. Test for the investment: Ho: 3 = 0 Ha: 3 0 t-statistic:
t=
3 3
se( 3 )
1.21 = 4.84 0.25
Critical value: tc = t0.05,7 = 1.895 We have: tsta > tcri => reject Ho
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Conclusion: the investment is statistically significant and is significantly different from zero. Test for CPI: Ho: 4 = 0 H a: 4 0 t-statistic: t =
4 4
se( 4 )
1282.5 = 0.6 2190.14
Critical value: tc = t0.05,7 = 1.895 Decision: t sta < t cri => Do not reject Ho Conclusion: The CPI is not statistically significant and is not significantly different from zero. 4.1.3. Testing the overall significance of the multiple regression: Now, we consider a joint null hypothesis that all are jointly or simultaneously equal to zero. This test is a test of overall significance of observed or estimated regression line, that means whether the value of tourism revenue is linear related to all the number of visitor, investment, and CPI Ho: All variables are zero effect. ( 2 = 3 = 4 = 0) Ha: At least one variable is not zero effect, at least one variable has the effect. ( 2 0, 3 0, or 4 0). F-statistic:
R 2 /(k 1) 0.98 /(4 1) F= = = 65.33 2 (1 R ) /(n k ) (1 0.98) /(8 4)

F-critical value: Fc,k-1,n-k = Fc0.05,3,4 = 6.59 Decision: Fsta > Fcri => Reject Ho Conclusion: There is evidence to conclude that there is at least one variable has effect on the tourism revenue. 4.1.4 Testing the drop variable in the regression model: From the result of t- test as well as the P- value (P-value of X4 = 0.5896), we can see that CPI (X4) is not statistically significant or have a very small effect on the tourism revenue. Consequently, we use this test to find out whether our model be better if we drop the last independent variable (X4) out of the origin model. The new model after dropping X4:
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Y = 1 + 2 *X2 + 3 *X3 New Eview table: Dependent Variable: Y Method: Least Squares Date: 05/18/10 Time: 14:39 Sample: 2000 2007 Included observations: 8 Variable C X2 X3 R-squared S.E. of regression Sum squared resid Log likelihood Coefficient Std. Error -4664.058 1028.832 0.338058 0.067459 1.193937 0.230139 0.984468 814.1280 3314022. -63.08843 t-Statistic -4.533352 5.011308 5.187886 Prob. 0.0062 0.0041 0.0035 11133.99 5520.925 16.52211 16.55190 158.4557 0.000030
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)
Adjusted R-squared 0.978255
Durbin-Watson stat 2.744549
New model: ^Y= - 4664.058 + 0.34*X2 + 1.19*X3 Ho: 4 =0 H a: 4 0 F-statistic: F= ( R new R 2 old ) /# drop (0.984468 0.985694 ) / 1 = = 0.395 (1 0.984468 ) /(8 3) (1 R 2 new ) /( n k )
2
F-critical: Fc,k-1,n-k = Fc0.05,1,5 = 6.61 Decision: Fsta < Fcri => Do not reject Ho Conclusion: There is evidence to conclude that X4 (CPI) is not relevant to drop out of our model.
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4.2. Violations 4.2.1 Multicollinerity Dependent Variable: Y Method: Least Squares Date: 01/01/06 Time: 03:18 Sample: 2000 2007 Included observations: 8 Variable C X2 X3 X4 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient 122850.1 0.384061 1.210804 -1282.461 0.985694 0.974965 873.5519 3052371. -62.75946 2.754617 Std. Error 217767.0 0.106824 0.248612 2190.142 t-Statistic 0.564136 3.595266 4.870259 -0.585561 Prob. 0.6028 0.0229 0.0082 0.5896 11133.99 5520.925 16.68986 16.72959 91.86822 0.000382
Y = 122850.1 + 0.384061X2 + 1.210804X3 1282.461X4 Using Eviews software, we want to check whether the multicollinearity exists in our model or not. In another word, we want to find out the relationship among independent variables. From then, the solution to address this problem will be given in order to help us have better model with more reliable statistics. Imperfect multicollinearity cause some consequences:From the model. R2= 0.985694 very high t stat = 0.564136 & t stat = -0.585561 is not significant Multicollinearity may be exist
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Auxiliary regression
Dependent Variable: X2 Method: Least Squares Date: 01/01/06 Time: 00:50 Sample: 2000 2007 Included observations: 8 Variable C X3 X4 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat
^
Coefficient -1494685. 1.110948 15078.23 0.861659 0.806322 3657.079 66871135 -75.10685 1.556388
Std. Error 619940.3 0.914562 6212.759
t-Statistic -2.411014 1.214732 2.426978
Prob. 0.0608 0.2787 0.0596 26338.55 8309.875 19.52671 19.55650 15.57125 0.007118
Y = 122850.1 + 0.384061X2 + 1.210804X3 1282.461X4 X 2 = -1494685 + 1.110948X3 + 15078.23X4 Ho: multicollinearity doesnt exist Ha: Ho is false From the model, we have R '2 = 0.861659 Compute F statistic:
F (1 R' 2 ) / n k 0.861659 / 4 1 F stat = F = 15.57125 (1 0.861659) / 8 4 Choose = 0.05 F c (k-1; n-k) = F c (0.05,3,6) = 4.76 Compare: F stat > F c
^
F-stat =
R' / k 1
Reject Ho.
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There is enough evidence to conclude that multicollinearity exist in the model. Remedical measure: From the problem above, we need to give remedial method to correct the problem and make our model better. The best way here is dropping one variable from the model. We choose CPI variable to drop it because it has no statistical significance on tourism revenue. After dropping it, we see that R2 falls from 0.985694 to 0.984468. It is still high and shows the goodness of fit in our model. Furthermore, t- statistics are more statistical significance in the model. Using this method, it is clear that our model becomes more accurate and significant. Final model: ^Y= - 4664.058 + 0.34*X2 + 1.19*X3 Interpretation for the final model Final model: ^Y= - 4664.058 + 0.34*X2 + 1.19*X3
1 = -4664.058 is the intercept of the line, which indicates that Tourism revenue
will be 122850 billion VND on average when the number of visitors and investment and CPI are equal to zero. It has no economic meaning because they are never equal to zero.
2 = 0.34 is the slope of the line which shows that tourism revenue will increase by
0.384 billion VND on average when the number of visitors increases by 1 thousand, holding other independent variables constant
3 = 1.19 means that the tourism revenue will be higher by 1.19 billion VND on average when the investment rises by 1 billion, holding other independent variables constant.
4.2.2. Heteroscedasticity Heterosedasticity is the problem of violating the assumption about variance of error terms. The existence of heteroscedasticity means that the variance of ui is not constant for all the observations. To see whether this problem exists in our model, we use the Whites general heteroscedasticity test without cross term: Ho: homoscedasticity Var (ui) = H1: heteroscedasticity Var (ui) = White Heteroscedasticity Test: F-statistic Obs*R-squared 0.293521 Probability 5.102631 Probability 0.885543 0.530719
i
Test Equation: Dependent Variable: RESID^2 Method: Least Squares Date: 01/01/06 Time: 03:16 Sample: 2000 2007 Included observations: 8
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Variable C X2 X2^2 X3 X3^2 X4 X4^2 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat
^
Coefficient -4.87E+10 -290.5845 0.003997 -1139.503 0.078147 9.66E+08 -4795803. 0.637829 -1.535198 713975.4 5.10E+11 -110.8626 3.074313
Std. Error 7.94E+10 842.5364 0.020192 1141.223 0.088215 1.58E+09 7844231.
t-Statistic -0.613130 -0.344893 0.197921 -0.998493 0.885866 0.612275 -0.611380
Prob. 0.6498 0.7886 0.8756 0.5005 0.5385 0.6502 0.6507 381546.4 448412.1 29.46564 29.53515 0.293521 0.885543
Y = 122850.1 + 0.384061X2 + 1.210804X3 1282.461X4

u = -4.87E+10 290.5845X2 + 0.003997 X 2 ^ 2 0.078147 X 3^ 2 9.66E+08 X4 4795803. X 4 ^ 2
Compute W = n * R 2 = 8*0.637829 = 5.102631
^
1139.503 X3 +
2 (0.05,6) = 12.59
Compare W & 2 we have seen that: W< 2 Do not reject Ho There is not enough evidence to conclude that Heteroscedasticity exist in the model. 4.2.3. Autocorrelation To check whether this disturbance term of 1 observation has influence on the error term of the other observation; we use Durbin Watson test DW 2.754617 *. = 1=1= -0.3773 2 2 Negative autocolerration. Ho: = 0 no autocorrelation Ha: < 0 yes, negative autocorrelation We have DW = 2.754671
= 0.05, N=8, k= 3
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Look at the table D.5A we find that: d l = 0.368 d u = 2.287 If d l (4-d) d u not reject Ho We have 0.368 < (4 -2.754617) < 2.287 0.368 < 1.245< 2.287 Not reject Ho There is not enough evidence to conclude that Autocolerration exist in the model. Dropping a variable is very important because it helps our model more accurate and significant. If we drop CPI from the model, there are many changes in t- tests and R2. ttests. They are very statistically significant and show the goodness of fit in our model. It imply that tourism revenue depend a lot on number of visitors and investment. CPI seems that it has no impact on tourism revenue. After using remedial method, we can fix the multicollinearity problem. Two rest problems are heterocedasticity and autocorrelation is shown that they doesnt exist in our model. Generally, three errors in our model are illustrated and fixed necessarily. 5. Recommendations: Through our research, we would like to give out some recommendations for Vietnam tourism following: 1. Have a clear objectives and a strategic plan to attract the visitors come to Vietnam, especially to improve the quality of services in order to increase tourism revenue 2. In addition to, the government should have policies to attract more the investment projects from both domestic and foreigner investors in tourism industry. This is one reason to increase the sale revenue.
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THE FACTORS AFFECTING STATISTICS FINAL RESULTS OF FMT STUDENTS

Written by: Pham Viet Dung, Luu Dieu Linh (BA-08) Nguyen Thi Dung (BA-08) Supervisor: PhD. Dao Thanh Binh
Abstract Realizing that the subject of Statistics and Probability much related to the subject Econometrics which is being learnt by almost all of the students in Faculty of Management and Tourism Hanoi University (FMT HANU), our group which consists of three students from Econometrics Tutorial 3-BA08 has decided to conduct a survey regarding the results of Statistics and Probability as well as the factors affecting this subjects result.It was carried out in the end of April 2010, using questionnaires distributed to 45 FMT-08 students. The data collected are used to test how significant the FMT-08 students result of Statistic and Probability is affected by the factors such as: gender, Mathematics mark of university entrance examination, IELTS mark, time of self-study and the participation in part-time jobs, etc. A multiple regression model was estimated using figures with the help of Eviews software. Then, Tests of Significance, Test of Multicollinearity, Test of Heteroscedasticity and Test of Autocorrelation were carried out. In details, the Test of Significance was tested directly by the t-test and F-statistics shown in the estimation output table obtained by running Eviews; the Test of Multicollinearity was conducted by the Auxiliary Regression method; the Test of Heteroscedasticity was based on White Heteroscedasticity Test and scatter diagrams and the Test of Auto-Correlation was carried out by the Durbin-Watson d Test. Surprisingly, the Test of Significance showed that the variable of Calculus mark did not have much impact on the Statistics result, while the variables of Mathematics mark and Entrance exam mark and Self-study time appeared to be the determinants. The test of Multicollinearity unexpectedly forced us to drop Self-study time though it at first is considered to be the key factor. Also, the White Heteroscedasticity Test revealsed the Heterocesdasticity did not exist. Finally, by using the Durbin-Watson d Test to detect the Auto-correlation, the result appear to be negative. Eventually, a regression function illustrating the relation between statistics mark and some of its explanatory variables was successfully established despite of the unexpected absence of self-study time (of Statistics).
1. INTRODUCTION Statistics in the last semester was considered one of the most challenging subjects, and the results of our FMTs students did appear to be generally low. Depart from that fact, we are interested in finding out the possible relation (if any) between the Statistics final results and a number of relating variables. Based on some subjective ideas, we target the following variables as the explanatory variables for our models: Entrance Mark (Group D) Math Mark Self-study time per week Calculus final average mark
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After collecting necessary data from both our real survey and from the internet, we first specify the model and identify the one the best fit the data and illustrate appropriately the relation between statistics final mark and the explanatory variables. Having the right model on hand, we estimate the slope coefficients for each regressor and provide the explanation for them. Then we test our established model with the test of significance, test of multicollinearity, test of heteroscedasticity and test of autocorrelation.After all, some ending conclusions are given about the concerned relation between statistics final mark and the explanatory variables. 2. DATA Entrance Mark (Group D) Since entrance mark is a good indicator of general competences of students, high entrance mark perhaps reveals some advantages for a student regarding to his/her mentality. On the other hand, English is included as a subject in the entrance exam for group D and it is even double counted, so that a high entrance mark should illustrates good English skills, which are considered a big advantage when studying at Hanoi University generally, and studying Statistics particularly. Source of data: The data about Entrance mark (group D) collected directly from the real survey. Expectation: It is expected that the slope coefficient for that variable take positive value Math Mark Math refers to logical analysis, and high Math mark means good logical analyzing skills which are necessary to study such a subject like Statistics. Source of data: The data for this variable is collected from the real survey Expectation: A positive value of slope coefficient attaching to Math Mark is expected. Self-study time per week One may think that Math Mark and Entrance Mark are not really good determinant of Statistics result, and it is his choice. Self-study time, however, cannot be refused as it is obviously one of the most influencing factors that can affect the result of any subjects. Practice suggests a high mark for a student who spends enough time and puts adequate effort on Statistics Course since it is very hard to be handled. Practice also suggests bad marks for those who spend just limited time and effort studying this subject. Source of data: The data for this variable is collected directly from the survey Expectation: Obviously, we expect a positive value for the slope coefficient going with this variable Calculus final average mark Since calculus is a subject focuses more on the mathematic knowledge relating to economics and well supports the academic subjects like statistics, econometrics we expect a student who is good at calculus to perform well in statistics. Moreover, in
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Hanoi university that subject is taught and tested in English which is quite similar with Statistics course, that is significantly different from the math in the entrance exam. Source of data: From the website of Hanoi University FMT. The data we use include unrounded figures rather than the rounded total mark available, and it means that we have to re-calculate all the total mark based on the internal marks of each student in our list of interviewees Expectation: We expect a positive relation between Statistics mark and Calculus final average mark. 3. MODEL SPECIFICATION From the data collected, we first examine the linear model with four explanatory variables including: Math mark Entrance mark Self-study time Calculus average mark a. Drop test Base on the draft calculation from Eview as follow:
Eview result- linear regression of statistics final marks and the 4 regressors
Abbreviation- MATH Unit: point Abbreviation- ENTRANCE Unit: point Abbreviation- SELF Unit: hours Abbreviation- CAL Unit: point
Dependent Variable: STA Method: Least Squares Date: 05/16/10 Time: 23:15 Sample: 1 45 Included observations: 45 Variable C ENTRANCE MATH SELF CAL R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -4.050027 0.166739 0.408691 0.523061 0.165666 0.755570 0.731127 0.642930 16.53435 -41.32473 2.379016 Std. Error 3.329212 0.108035 0.119336 0.106197 0.143841 t-Statistic -1.216512 1.543378 3.424695 4.925378 1.151730 Prob. 0.2309 0.1306 0.0014 0.0000 0.2563 6.911111 1.239909 2.058877 2.259617 30.91146 0.000000
It is clear that the variable Calculus average mark (or Cal) appears to be insignificant. Since the p-value of Cal is about 0.2563, the probability to make Type-I error is more than 25% which is pretty high, the null hypothesis: 5 =0 is not rejected. Now we wonder whether it is appropriate dropping that variable or not and a formal drop test is employed:
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The following result is for the model omitting Cal as an explanatory variable:
Eview result- linear regression of statistics final marks and regressors after dropping variable cal
Dependent Variable: STA Method: Least Squares Date: 05/16/10 Time: 23:28 Sample: 1 45 Included observations: 45 Variable C ENTRANCE MATH SELF R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat F-Test: Ho: 5 = 0 H1: 5 0 Rold2 = 0.755570 Rnew2 = 0.747464 F* = = 1.3160 < Fcritical 4 (with = 5%) -> Do not reject Ho Coefficient -3.803626 0.194495 0.423612 0.555000 0.747464 0.728986 0.645485 17.08266 -42.05877 2.259929 Std. Error 3.335532 0.105731 0.119103 0.102920 t-Statistic -1.140336 1.839528 3.556702 5.392544 Prob. 0.2608 0.0731 0.0010 0.0000 6.911111 1.239909 2.047056 2.207649 40.45101 0.000000
The former is the old model, the latter is the new one.
Conclusion: Base on the result of the F-test, we can drop the variable Cal from the model, and the model then is better. Without that variable in the model, now we have only 3 independent variables, the next step is to test and find out the best function for the relation between the regressand and the regressors b. Functional model test Then it is the time to test for the best model illustrating the relationship between Statistic Final Mark and the explanatory variables. We regress all the functional models, as well as the linear model, to find out the one providing the least coefficient of variance (CV) In different words, the one which has least CV will be chosen.
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CV= THE LINEAR MODEL: CV= = 0.093398 THE LOG-LIN MODEL CV= =0.056491
THE LOG-LOG MODEL CV= =0.051617
THE LIN-LOG MODEL CV= =0.089668
Since CV is the criteria and CV corresponding with the LOG-LINEAR MODEL is the least out of 4 CVs We determine that LOG-LINEAR MODEL is the model best fit the data and well illustrates the relation between dependent variable and independent variables Conclusion: the model specification process ends with the following result: LOG(STATISTICS_MARK)^= 1^ + 2^LOG(ENTRANCEMARK) +
3^LOG(MATH_MARK) + 4^LOG(SELFSTUDY_TIME) c. Result Estimation and explanation of parameters Estimation of parameters By regressing the dependent variable Y (which is Log(Sta)) on the independent variables (Log(Math), Log(Self), and Log(Entrancemark)), we obtain the following results:
Slope coefficients of the 3 regressors (excluding the intercept term) in the Log-Liner model of the regression
Variable C LOG(ENTRANCE) LOG(MATH) LOG(SELF)
Coefficient -2.919611 1.042083 0.547531 0.177579
Std. Error 1.724387 0.495089 0.127018 0.032380
t-Statistic -1.693130 2.104839 4.310646 5.484282
Prob. 0.0980 0.0415 0.0001 0.0000
Formally we obtain the following sample regression:

LOG(STA) = -2.919611345 + 1.042083192*LOG(ENTRANCE) + 0.5475306843*LOG(MATH) + 0.1775794188*LOG(SELF)
Explanation of parameter From the model, it is obvious that there is a positive relationship between Log(STA) and Log(ENTRANCE). Other things holding constant, 1 %(0.01) changes in entrance mark results in an increase on the STA mark by 1.04% on average.
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Likewise, the math mark is positively related to The STA mark. The positive coefficient slope of log(MATH) = 0.5475306843 indicates that if the MATH mark increases by 1% (0.01), the STA mark will increase by 0.547% on average with assumptions that other things hold constant. Moreover, the slope coefficient of SEFT is also positive. This indicates the positive relationship between STA and SEFT. The value of estimated slope coefficient of SEFT = 0.1775794188 reveals that as SEFT time rise by 1%, other things hold constant, the estimated STA increases by 0.177% on average. The value of R 2 =0.756846, which is the coefficient of determination of the line, indicates that approximately 75.68% of variation of STA can be explained by variation of ENTRANCE, MATH, and SELF. d. Model testing Test of significance Individual partial coefficients Individual partial coefficient- Result from Eview Variable Coefficient Std. Error t-Statistic C LOG(ENTRANCE) LOG(MATH) LOG(SELF) -2.919611 1.042083 0.547531 0.177579 1.724387 0.495089 0.127018 0.032380 -1.693130 2.104839 4.310646 5.484282 Prob. 0.0980 0.0415 0.0001 0.0000
It is clear from the result that, given the significant level = 0.05 all other slope coefficients are statistically significant since their p-values are not greater than 5% Overall significance testing
Eview result- Log-linear model of regression function of statistics final marks and the 3 regressors
Dependent Variable: LOG(STA) Method: Least Squares Date: 05/17/10 Time: 16:08 Sample: 1 45 Included observations: 45 Variable C LOG(ENTRANCE) LOG(MATH) LOG(SELF) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -2.919611 1.042083 0.547531 0.177579 0.756846 0.739054 0.098888 0.400935 42.36171 2.168499 Std. Error 1.724387 0.495089 0.127018 0.032380 t-Statistic -1.693130 2.104839 4.310646 5.484282 Prob. 0.0980 0.0415 0.0001 0.0000 1.915773 0.193584 -1.704965 -1.544372 42.53917 0.000000
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We conduct F-test to test the overall significance for the model and since F-statistic = 42.53917 which is indeed big enough to conclude that the regressors in fact have impacts on the regressand Test of multicollinearity, heteroscedasticity and auto-correlation In order to test multicollinearity to see whether it exists or not, we first establish the correlation matrix among the independent variables:
Correlation matrix among 3 regressors
LOG(ENTRANCE) LOG(ENTRANCE) LOG(SELF) LOG(MATH) 1.000000 0.476393 0.178240
LOG(SELF) 0.476393 1.000000 0.457087
LOG(MATH) 0.178240 0.457087 1.000000
Since the correlation between Log (SELFSTUDY) and Log (ENTRANCEMARK) appears to be relatively high, we suspect there may be multicollinearity in the model established. We decide to form the auxiliary regression, the variable Log (Self) is regressed on the other independent variables. The F-statistic obtained from the auxiliary regression F=12.33382 (which is small) lead to the conclusion of no multicollinearity. Then we formally use the whites general heteroscedasticity (with cross term) to detect heteroscedasticity. The following table provides E-view result of the model which has just been adjusted to fix the error of multicollinearity (by dropping Log(self)). From the output of Eview, n.R2 = 9.212771 follows the chi-square 2 2 distribution and since (0.05, 5) ) = 11.0705 > n.R we conclude that there is no heteroscedasticity. We continue to use Durbin Watson d test to detect autocorrelation in the model, and the output of Eview show dstatistic = 2.262378, which is greater than du and smaller than 4 du.Thus, there is no auto-correlation 4. CONCLUSION Since the interest is to find out whether there is any relation between the statistics final marks of FMT students and other suspicious factors which are in focus, specifically they are: Math mark, self-study time and entrance examination mark, we collect necessary data from our real survey at Hanoi university and examine the information on hand. Base on Eview package, we successfully establish a regression function estimating the relationship of the variables. Model specification process (which we do to determine the best model possible) and testing process to determine the significance of the model, as well as ensure the model is free from some serious problems such as multicollinearity, heteroscedasticity and autocorrelation are completed. We can now safely provide our model to illustrate the relation between statistics final mark and some affecting factors as follow: LOG(STATISTICS_FINAL_MARK)^ = -7.611080901 + 2.267310581*LOG (ENTRANCE_MARK) + 0.8471985753*LOG(MATH_MARK)
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5. LIMITATION Due to limitations in time and capability, we could only implement a small survey which provided a small number of figures as our models raw data. Due to the nature of the survey, there can be inaccuracy figures that are submitted to us from the interviewees due to many reasons. Furthermore, the result may also be depended on other variables apart from the indicators that we chose; therefore, our conclusion in this writing is supposed to subjective to some extents.
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Ky Yeu KHSV Tong Hop

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Trng i hc H Ni KHOA QUN TR KINH DOANH DU LCH

Hi ngh khoa hc Sinh vin Khoa Qun tr kinh doanh - Du lch

2. ROLE OF AUDIT IN VIETNAM ........................................................................... 18

3. MANAGEMENT ACCOUNTING: FRAMEWORK AND PRACTICES IN VIETNAM CASE STUDY:NATEXCO .................................................................. 30

4. ACCOUNTING FOR FIXED ASSETS................................................................... 42

6. DANCE WITH VIETNAM INFLATION 2005-2010............................................. 84

7. COUNTRY RISK ANALYSIS IN VIETNAM ....................................................... 98

8. THE IMPORTANCE OF PHYSICAL EVIDENCE IN SEVICES ORGANIZATION.................................................................................................. 120

9. MARKETING AFTER CRISIS ............................................................................. 135

Hi ngh khoa hc Sinh vin Khoa Qun tr kinh doanh - Du lch

10. COUNTRY RISK ANALYSIS IN VIETNAM ..................................................... 169

13. BILL OF LADING AND ENDORSEMENT PROCESS ...................................... 225

14. EFFECTIVENESS OF INNOVATIVE TRAINING ............................................. 240

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AN EXPLORATORY RESEARCH INTO WALKING TOUR DEVELOPMENT IN HANOI

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ROLE OF AUDIT IN VIETNAM

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Scale of Vietnamese Independent audit

2500 2000 1500 1000 500 0 1991

Certified auditor Firm

2005 year Revenue(billions VND)

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MANAGEMENT ACCOUNTING: FRAMEWORK AND PRACTICES IN VIETNAM CASE STUDY:NATEXCO

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Photo 1: Nam Dinh Textile Company in the early 1920s (yahoo.com)

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ACCOUNTING FOR FIXED ASSETS

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