MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Major: International Economics 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 Full name : Nguyen Kim Ngan Supervisor : Assoc. PhD Tu Thuy Anh Hanoi, 2019 ERTIFICATION 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 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 TABLE OF CONTENTS ERTIFICATION.4 TABLE OF CONTENTS.5 LIST OF ABBREVIATIONS.7 LIST OF TABLES.8 LIST OF FIGURES. The important of the research. Object and scope of research. Structure of the research.15 CHAPTER 1: THEORETICAL BACKGROUND OF TRANSACTION COSTS.
Definition of transaction costs.1 Definition of transaction costs according to economits’s viewpoint.2 Definition of transaction cost in export.2 Transaction cost classification in export.3 Elements impact on transaction costs in exporting growth.1 Impact of trade facilitication on transaction costs movement.2 Impact of government’s policies on transaction costs.4 Measurement of transaction costs.5 How to evaluate transaction costs level in export.39 CHAPTER 2: TRANSACTION COSTS ENCOUNTERED BY VIETNAMESE EXPORTING FIRMS.1 The transaction costs of exporting firms in Vietnam.1 Overview of exporting activites in Vietnam. Current Status of transaction cost in Vietnam.2 Case study in Vietnamese exporting firm.68 CHAPTER 3: RECOMMENDATIONS FOR LOWING TRANSACTION COST ENCOUNTERED BY VIETNAMESE EXPORTING FIRMS.1 Experiences from Singapore’s development.2 Recommendations for Vietnam’s reduction transaction costs in export.1 Recommendations for Vietnam’s reduction trade costs in export.2 Implementing Trade facilitation Agreement.3 The role of government in educating and communicating changes.94 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 LIST OF TABLE Table 1: Structure of transaction cost.19 Table 2: Transaction cost classification.24 Table 3: Figures on importation and exportation of Vietnam (2005-2017).50 Table 4: Descriptions of each indicator.54 Table 5: Compare TFI of Vietnam between 2013 and 2017.58 Table 6: Logistics Performance Index 2018 in ASEAN members.64 Table 7: Logistics cost of developed countries (Donald & Roger, 1998).65 Table 8: Estimated Vietnam's import and export cost.66 Table 9: Export details in Vietnamese company.70 Table 10: All expenses of Vietnamese export shipment.71 Table 11: Major heading of exports shipment.72 Table 12: Ratio of production and transaction cost.73 Table 13: Singapore’s LPI ranking across 2007-2016.76 Table 14: Vietnam’s LPI ranking across 2007-2016.77 Table 15: Features and Benefits of Singapore’s TradeNet System.83 LIST OF FIGURES Figure 1: Internal and external transaction.18 Figure 2: A particular source of trade costs is important (goods).25 Figure 3: Population living on less than USD 2 per day (2008-12).27 and number of days needed to export.27 Figure 4: Doing Business costs to export, USD per container, 2014.28 Figure 5: Average number of days required to export by income group.29 Figure 6: Types of trade costs in goods markets.35 Figure 7: Policies affecting trade costs in goods markets.37 at all points in the supply chain.37 Figure 8 - What makes up the time and cost to export to an oversea.44 Figure 9 - Trading across borders: time and cost to export and import.45 Figure 10: Import – Export Growth ( 2011-2016).47 Figure 11: Key export commodities (2017).48 Figure 12: Vietnam’s trade facilitation performance: OECD indicators.57 Figure 13: Trade Facilitation Indicator of Vietnam in 2017.58 Figure 14: Time and costs of Trading Across Borders.60 Figure 15: Time and costs of Trading Across Borders in Vietnam.61 Figure 16: Logistics Performance Scores, Vietnam.63 Figure 17: Vietnam Logistics Performance Index 2007 – 2018.65 Figure 18: Overall potential trade cost reductions for.67 ASEAN member countries (%).67 Figure 19: Comparison of the trade declaration system before and after the establishment of TradeNet.79 Figure 20: Factors contributing to the success of Singapore’s Logistics Industry.81 Figure 21: Economies that offer regular training for customs clearance officials have shorter customs clearance times than thoses that do not.92 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 important 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.
Transaction cost related to trade involves a host of regulatory requirements, procedures and compliance measures; besides infrastructure-related cost- including transport cost to bring product to the border, time and money spent in ports on border procedures, international transportation costs and communication costs. Along with this, documentation has become an additional burden. Transaction cost is a key determinant of a country's competitiveness in the international market. High transaction costs effectively nullify comparative advantage by rendering exports uncompetitive.
High transaction costs deny firms access to technology and intermediate inputs, preventing their entry into, or movement up, global value chains. High transaction costs also erode consumer welfare narrowing the range of good and services on offer and pushing up prices. While transaction costs do not alone explain the development pathways of economies, they are a major factor explaining why some countries are unable to grow and diversify. The range of policies that affect transaction costs is broad.
Although transaction costs are ubiquitous, they are not immutable. Action can, and is, being taken to reduce transaction costs.