MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Specialization: International Trade Policy and Law NGUYEN KIM NGAN Hanoi, 2019 MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Major: International Economics Specialization: International Trade Policy and Law Code: 8310106 Fullname : Nguyen Kim Ngan Supervisor : Assoc. PhD Tu Thuy Anh Hanoi, 2019 CERTIFICATION I hereby certify that the thesis with the title: “Analysis of transaction costs in international trade and practice in Vietnam” is my own research and does not reproduce any other materials. The data indicated in the thesis is clear, accurate and are collected from the confident sources of information. The Author Nguyen Kim Ngan il ACKNOWLEDGMENTS In order to complete this thesis, besides the efforts of myself, I have received the help, encouragement and guidance of my teachers, friends, colleagues and family throughout the course as well as in the period of the thesis research.
Special thanks to Assoc. Tu Thuy Anh, who was dedicated to guide and help me in the process of researching and writing this thesis. I am grateful to the teachers in the Faculty of Postgraduate Education of Foreign Trade University for interesting and useful lectures, for the enthusiastic transmission of the valuable knowledge and for the best conditions offering in the process of the course. I would like to express sincere thanks to my colleagues working on Commercial Department who support me with a lot of data and information related to logistics costs of exporting shipments.
I am grateful to my family for their encouragement and supports during the course and the period of thesis research. This thesis studies on the transaction costs of exporting firms is not a new but a very complicated issues required various knowledge, skills and practical experiences. Thus, the thesis has the inevitable shortcomings and limitation. I look forward to receiving valuable comments for improving the thesis.
Sincerely, Hanoi, 2019 The Author Nguyen Kim Ngan 11 TABLE OF CONTENTS ERTIFICA THƠNN.scccccsssscccscsssccscccecsscscccessssscccsssscnsccssesssccccesssseccceseeees ii TABLE OE CONTTIEN TỀS.0008000000088000196 668 iii LIST OE ABBRREVIA THƠNG.06 0000905006000906600906 660 V LIST OF TABLUEE.006009 450800996 08 vi LIST OF FIGURES.ccsssccsccssccscsssscsccssecscccssssccssesscccssosceassssccassscccsssssscsseeees vii ABTRACT. ccsssssssssccessssccccscsscsssssscsssssccsssssccssssscessssccessssccessssccessssccesssssncsssscseress viii INTRODUCTTIONN. The importance of the r€s€arFCÌh. Objecf and scope 0Ÿ r€S€AFCÌH.
Research me€fÏlOS. ---- << 5 5 55c << «se 99995 Snm88999666088899660 0000985600004 4 IV. Structure Of (he r€S€4arCÌ. 00008866688808960660880080096068060 5 CHAPTER 1: THEORETICAL BACKGROUND OF TRANSACTION 60051672555.
Definition of fransaCfÏOn COSS .---- << << s cm 000 nm800906 me 6 1.1 Definition of transaction costs according to economits’s viewpoint.2 Definition Of transaction COSt IN EXPOTT.2 Transaction cost classification 1M ©XDOIÍ.3 Elements impact on transaction costs in exporting Growth.1 Impact of trade facilitication on transaction COStS MOVEMENL.2 Impact of government’s policies ON transaction COSTS.4 Measurement Of transaction COStS.5 How to evaluate transaction costs level in ©XDOFFÍ.cos<sssss<<esese<s 29 CHAPTER 2: TRANSACTION COSTS ENCOUNTERED BY VIETNAMESE EXPORTING EILIRVMS.1 The transaction costs of exporfing firms in Vietnam.1 Qverview 0ƒ exporfIing dCfIVIGS II VTGÍTI(TN. Current Status of transaction Cost in VÏGÍHH.2 Case study in Vietnamese exporfing ÍÏrm.---- << << <c se se se, 58 CHAPTER 3: RECOMMENDATIONS FOR LOWING TRANSACTION COST ENCOUNTERED BY VIETNAMESE EXPORTING FIRM.1 Experiences from Singapore’s deveÌ0DIme€IIÍ .2 Recommendations for Vietnam’s reduction transaction costs in export.1 Recommendations for Vietnam’s reduction trade costs in export.2 Implementing Trade facilitation AQreemMeNt, .3 The role of government in educating and communicating changes. G0 nọ ng nH0080000884.- Go n0 nn800008888006887006089700088880008888000888000050070000007008 84 LIST OF ABBREVIATIONS ABBREVIATIONS MEANINGS ADB Asian Development Bank APEC Asia-Pacific Economic Cooperation ASEAN Association of South East Asian Nations BRI Belt and Road Initiative FTZs Free Trade Zones FDI Foreign Direct Investment GDP Gross Domestic Product GST Goods and Services Tax GVCs Global Value Chains IADB Inter-American Development Bank LPI Logistics Performance Index by The World Bank LDCs Least Developing Countries MTB Marginal benefit MTC Marginal transaction costs OECD Organization for Economic Co-operation and Development PPP Public-Private Partnership TFA Trade Facilitation Agreement TFAF Trade Facilitation Agreement Facility UPU Universal Postal Union VLA Vietnam Logistics Association WB World Bank WCO World Customs Organization WTO World Trade Organization Mái LIST OF TABLES Table I: Structure of transaCfIOT'I COSÍ .- - SH ng nh 9 I1) ý2byi)ui(0i0vv 0v) 1n. 14 Table 3: Figures on importation and exportation of Vietnam (2005-2017).
40 Table 4: Descriptions of each indicator .cccccccssssseccesssseeeeeesseceeeeessseeeeesssseneeeees 44 Table 5: Compare TFI of Vietnam between 2013 and 2017 .-------««- 48 Table 6: Logistics Performance Index 2018 in ASEAN members.-- 54 Table 7: Logistics cost of developed countries (Donald & Roger, 1998). 55 Table 8: Estimated Vietnam's import and export COSt .ccccsssssccccesssesccesessseeeeees 56 Table 9: Export deta1ls In Vietnamese cormnpany .------«- s5 ssccsssssssssss 60 Table 10: All expenses of Vietnamese export shiprmer.---- -- s«« «5s ss++sss 61 Table I1: Major heading of exports shiprmerif .---- 25s s+sssssssssseeesersss 62 Table 12: Ratio of production and transactfIOf COSỀ .---- 555 ss+ssssssssssss 63 Table 13: Singapore’s LPI ranking across 2007-2016.:cccccssccssestceeenteesesseeeeens 66 Table 14: Vietnam’s LPI ranking across 2007-206 .---- Ăn ng 67 Table 15: Features and Benefits of Singapore”s TradeNet System. 73 Vil LIST OF FIGURES Figure 1: Internal and external transaction. «5S S3 xi eesrseerrrsere 8 Figure 2: A particular source of trade costs is Important (øoodđ).
---- 15 Figure 3: Population living on less than USD 2 per day (2008-12).- 17 and number of days needed to ©XDOF. 1 ng xếp 17 Figure 4: Doing Business costs to export, USD per container, 2014. 18 Figure 5: Average number of days required to export by income eTOup. 19 Figure 6: Types of trade costs in goods markets.cccssccccsssssscceessssseeeesesseeeeees 25 Figure 7: Policies affecting trade costs in øoods 1maTÌK€fS.
27 Figure 8 - What makes up the time and cost to export tO an OV€rSea. 34 Figure 9 - Trading across borders: time and cost to export and Import. 35 Figure 10: Import — Export Growth ( 2011-2016). ccc ccecessecessreeeenseeeeensneeeens 37 Figure 11: Key export commodities (2017) .cccccssscccssssseceeesssseeeeessseeeessesseeeeeees 38 Figure 12: Vietnam’s trade facilitation performance: OECD indicators.
47 Figure 13: Trade Facilitation Indicator of Vietnam 1n 2017 .« «5< «s<+ss<2 48 Figure l4: Time and costs of Trading Across BOrd€rs .---- «5c c2 50 Figure I5: Time and costs of Trading Across Borders in Vietnam.-- 51 Figure l6: Logistics Performance Scores, Vietnam.-- ---- s sa 53 Figure 17: Vietnam Logistics Performance Index 2007 — 2018.-«- 55 Figure 18: Overall potential trade cost reductions fOP.ccccesccsssessseessneeeeseeeees 57 ASEAN mernber counitr1€S (Ÿ%9) .- - -- S311 HH ngà 57 Figure 19: Comparison of the trade declaration system before and after the establishment of Trade Net. -- - - -- TH TH ve 69 Figure 20: Factors contributing to the success of Singapore’s Logistics Industry .71 Figure 21: Economies that offer regular training for customs clearance officials have shorter customs clearance times than thoses that do not.ccsecceeeccneccceceeees 82 Vili ABTRACT In trade, transaction costs are components directly into the price of goods and services and are increasingly focused and paid more attention. Today, the economy in general and businesses in particular want to compete in the world market, it is impossible to ignore the management and control of this type of cost so that they are as low as possible. For developing and underdeveloped countries, transaction costs are often high due to underdevelopment of infrastructure, science and technology.
The international integration, trade barriers, qualifications also challenges them to minimize this type of cost, thereby increasing their commercial competitiveness. This paper presents the current status of the transaction costs encountered by Vietnamese exporting firms. From the collection, analysis shows that transaction costs of Vietnam tend to decrease but remain high compared to other countries in the region and the world. This is due to infrastructure traffic in Vietnam has not yet caught up with the development progress of the logistics industry, transport infrastructure system is not synchronous, connectivity is still limited between sea, rail and road transport; lack of national and international logistics centers in key economic areas to act as a focal point for goods distribution.
The main transport fees, surcharges and taxes constitute a barrier for the logistics industry to develop. In addition, the policy of many ministries and transport trends makes cost cutting more difficult. From these studies, the Thesis would like to provide solutions for Vietnam to reduce transaction costs encountered by Vietnamese exporting firms. The importance of the research In modern economies transaction costs have become equally (and perhaps more) important than production costs.
This is quite a development considering that early economic theory (e., the perfect market economy model) focused entirely on production costs assuming that transaction costs did not exist. Implication for economic research: It has become relatively more sensible to do research in transaction cost dynamics rather than production cost dynamics. This is perhaps also contributing to the surge of interest for research in corporate governance that clearly has more to say about transaction cost dynamics rather than production cost dynamics. You can’t manage costs effectively without taking into account the transaction costs.
Many economists like to divide costs incurred by a business into two categories; transaction and production costs. Production costs include costs of producing as well as distributing a good or service. Everything else is categorized into the types of costs. The managers can’t make right choices without analyzing transaction costs.
For examplem, a buyer wanted to purchase a colored Doppler (ultrasound machine) for their charity hospital. However, the price of the device from well-known companies was out of our reach. On the other hand, they didn’t want to buy a product from some less reputed company. This led to go for a refurbished colored Doppler.
There were dozens of sellers all around the province. We were touchy about the model, availability of spare parts and price of the product. Our searches cost us spending on telephone calls, letters, emails, etc. Similarly, we had to spend a lot of time which involved an opportunity cost.
All these expenses were made to purchase a single product. What can be the volume of the cost in case of economies of scale? In fact, without analyzing these costs, we can’t find out the exact turn out of our deals. They become a detrimental factor in measuring the level of profits. The profits of a business decrease with increase in transaction costs.
They also reduce the volume of our reserved capital which we can invest in specific profit yielding opportunities. In a world without transaction costs but with perfect markets, the penetration ofinternational markets would be a simple matter of production cost; thus, comparative advantages would determine which producers penetrate international markets and when.Yet, despite remarkable technological improvements relevant to the costs of internationaltransacting, especially with respect to communications and data storage, and considerablerelaxation of exchange controls and the like, the costs of international transactions aregenerally far from negligible. In particular, from around the world there is growingevidence that reforms designed to provide the right economic environment for the localproduction of exportables and incentives for exporting are insufficient in themselves togenerate rapid export growth (Keesing, 1979; Morawetz, 1981; Dean, Desai and Riedel, 1994 and Greenaway and Morrissey, 1993). In some respects, moreover, the transaction costs of international marketing may even be increasing over time, preventing otherwise beneficial transactions from taking place.
Unless the high transaction costs in international marketing are recognized and appropriate strategies are designed for dealing them, even the best of general macro economic and trade policy reforms may be doomed to failure. The costs of reform failures are high-as are the costs of failing to try. Exports have played a pivotal role in the growth of the each economy. It mainly contributes to GDP of each country, therefore, it has become imperative that there should be a focus on not only increasing exports base but also improving their export competitiveness in the world market.
A key factor hindering export competitiveness has been the high transaction cost involved in exports.