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Vietnam Recycled Plastic


Trading Industry Analysis &
Recommendations
Quoc Le
(MBA at Kennesaw State University)

Introduction:
There has been a trading opportunity for the Import and Export Company that I work at. The firm
previously exported electronic devices and industrial equipment to Southeast Asia and imported
agricultural products back to the U.S. The company just entered into trading recycled plastic materials
business for almost a year. Taking advantage of cheap and abundant plastic waste supply from the U.S,
the firm exports the materials to China, Malaysia and Vietnam where the demand for plastics grows
rapidly for the past ten years. However for the past 2 years, there have been stricter regulations from these
governments, especially China and Malaysia to limit and control the importation of recycled materials.
These regulations require worldwide exporters not only to have special licenses issued by the imported
countries to be able to export but also to inspect the materials before exporting. All of these barriers have
made Vietnam to be our main market for exporting recycled materials since its relatively easy regulation
still gives us some rooms for us to do business. This paper is going to present the Vietnam plastic waste
trading industry analysis by employing Five Forces Model, SWOT and Profit & Loss analyses. All
information will be used to help our company to make the decision regarding the acquisition to magnify
our sales potentials.
Under my observation, there has been a steady growth in sales in Vietnam. However, these sales do not
present the real potential. Our recycling plastic materials could have been sold more if we had our
presence in Vietnam. As a person who is mostly engaged in the foreign sales, I have a number of
opportunities to interact with Vietnamese clients. Under our companys policy, buyers have to pay us in
full before we export the materials to them. Our terms of payment are 30/70 which means a buyer has to
deposit 30% in advance, the remaining 70% will be paid before we load the materials on the sea vessel.
These terms have made so many potential buyers walk away from our business. The reason is very
simple. Our buyers are afraid that we will not ship the materials as promised after receiving the payment.
In global trading, both seller and buyer have very limited information about each other; this makes it
extremely difficult to do the business. Involving parties have to spend substantial amount of time of and
money to do the background check, however this minimizes but not terminate the possibility of fraud and
scam. Having said that, it is risky for our company to relax our payment terms for the clients, either use
letter of credit or 30/70 term. Letter of credit means that our clients bank is going to pay us after
receiving the materials at the destination. 30/70 term means that our client pays 30% in advance, the
balance 70% will be paid after receiving the materials at the major sea ports in Vietnam. As happened
several times in the past, after delivering the materials to the destination sea port, our clients refuted to
receive the materials and demanded to ship them back because they claimed that the materials did not
meet the requirement as specified in the contract. As a result, we had to ship materials back to the U.S and
paid for the shipping cost and 30% return fee to our seller. Or another instance, after receiving the
materials, our clients did not pay the remaining balance to our company. Therefore, acquiring a plastic
Vietnamese company is a strategic decision to help us overcome the geographical barrier and payment
terms, to gain trust from the local businesses and in turn reap off our sales potential.
Analysis:
Before investing in the acquisition, we have carried out our research about the Vietnam plastic waste
trading industry. Porters five forces model, SWOT and Profit & Loss analyses will be used to justify the
attractiveness of the acquisition.
Porters Five Forces Model:
Rivalry: Rivalry among existing competitors is relatively low. The plastic industry is one of the fastest
growing industries in Vietnam. For the past ten years, there has been a 20% average growing rate.
According to Vietnam Ministry of Industry and Commerce statistics in 2012, there were around 1,400
plastics firms in Vietnam and most of them are located in the South. The plastic products are going to be
used on both domestic and foreign purposes. Plastic products are exported to 151 countries all over the
world such as Japan, USA, UK and Germany and so on. These plastic companies desperately need
inexpensive and steady supply to keep their facility running; they can either use pure plastic resin or
recycled plastic resin as the materials for their production. Pure plastic resin price is totally depending
upon the price of oil and natural gas because these resins are extracted directly from oil and gas. During
the past few years, the price of resin has been rising significantly due the unstable conditions in Middle
East and Libya which caused the oil price to increase. Therefore, recycled plastic is the best alternative
for plastic firms to hedge to the rise in raw materials. Because of cheap labor, plastic company will be
able to recycle plastic waste and turn them into plastic resin at the cost of one haft of pure resin. Having
said that, plastic recycle materials suppliers are being chased by buyers. Each recycling plastic supplier
already has a number of buyers to sell the materials to. (Refer to Appendices from 1-6.)
Buyers: Power of buyers is low. Buyers comprise of plastic companies who purchase recycling plastic for
production and traders who purchase and resell for markup. As indicated in the rivalry section, there are a
number of buyers while there have been a limited number of recycling plastic suppliers. (Refer to
Appendix 2.)
Suppliers: Power of supplier is extremely high. Due to the rise in pure plastic resin price, plastic
companies turn to recycling plastic suppliers for raw materials. This has put suppliers into a very
advantageous position where suppliers have a stronger voice toward buyers. As estimated by the Ministry
of Industry and Commerce in 2012, there were approximately 150 recycling plastic suppliers which a
majority of them located in the South. Within 150 suppliers, a few of them are capable of providing a
steady supply year in and year out, the remaining are mostly seasonal and brokers. (Refer to Appendix 2.)
Entrance: Threat of new entrants is low. It is relatively easy to enter into plastic recycling trading;
however there are a few barriers that firms have to consider. First of all, language barrier makes it more
difficult to enter into the industry. English will be the official language to be used in international trade,
there are a few Vietnamese people that have efficient English to intensively engage in global trade where
they have to prospect suppliers and search for shipping lines for different parts of the world. Second,
payment terms are one of the most difficult issues. As presented above, both buyer and seller dont want
to risk their money; they will be reluctant to engage in the transaction if they find themselves unprotected.
Substitute: Substitute of recycled plastic resin is pure plastic resin. The relationship between recycling
plastic resin and pure plastic resin is somewhat overlapping. Plastic firm will preferably use pure plastic
resin to manufacture their products since it will yield better colored product. However, recycled plastic
resin is way less expensive, it costs is almost one haft as compared to pure plastic resin.
SWOT Analysis:
Strengths:
-As an Import and Export Company, we are intensively engaged in international trade. This has provided
us with intensive experience and certain reputation in dealing with both oversea suppliers and buyers.
-We are able to use both languages, including Vietnamese and English. This enables us to easily deal with
Vietnamese clients and at the same time comfortably deals with international suppliers.
-Our company has employees that came from Vietnam, this allows us to share the common background
and understand the culture of doing business with Vietnamese clients.
-Our network of professionals and Vietnamese government officers helps us to resolve problems that may
occur in the future.
-Possessing a number of plastic recycling suppliers allows us to confidently compete with Vietnam local
suppliers.
-A newly acquired local company will enable us to better serve our clients. Within 6 business day, from
Monday-Saturday 24 hour service will be provided. Due to 12 hour difference in time zone, once our
office in the U.S is closed, our oversea office will be opened. Our clients can either contact the Vietnam
office or contact our company at any time.
Weakness:
-Our company imports/exports various products, including electronic devices, industrial equipment and
agricultural products. Thus we do not have enough allotted fund to grow and compete with Vietnamese
local businesses whose products are specialized in recycling plastics.
-We do not fully understand the Vietnamese legal system. Vietnam is one of growing markets in
Southeast Asia; it is a promising market for foreign firms to participate in. However, the complex legal
system is the hurdle that scares so many foreign firms. Various regulation and agencies oversee a
particular business has unnecessarily created many barriers for companies to do business. And we
honestly just understand fifty percent of the legal system.
Opportunities:
-There has been a great demand for recycled plastic materials. The Vietnam plastic industry had a slow
start as compared to other countries in the same Southeast region, such as Thailand, Malaysia and
Singapore. After the war in 1975, Vietnam had closed its door for global trading. Until the economic
reforms of the mid-90s, the Vietnams economy was opened for international trade and foreign
investment. This allowed the plastic industry to grow rapidly which was about 20% for the past 10 years,
and this trend would be stay the same for the next 5-10 year according to a report by the Ministry of
Industry and Commerce.
-Acquiring a Vietnamese local business will allow us to have stronger presence in Vietnam. This presence
will eliminate the geographical barrier and payment terms, to gain trust from the local businesses and in
turn reap off our sales potential.
Threats:
-The difference in working culture between our company and the acquired company may present
problems in doing business in the future. There may be future issues that possibly cause disruption in our
strategic relationship and hence cause losses in the acquisition.
-Changing in regulations will have devastating impact on our business. As it happened in China where the
government enforced a new environmental law, called Green Fence, this law inspects waste materials and
limits the imported quantity.
-Fluctuation in the recycled plastic price can be a problem for us. As developing countries grow rapidly,
the demand for plastic will be increased for both domestic use and export, this trend is going push up the
plastic waste price. Our current suppliers may either increase the price on their supply or go to other
buyers who are willing to pay them higher in price.
-As involved in international trade, exchange rate will affect our profit. Vietnam is considered an
emerging market; this presents both potentials and risks. The economy is relatively sensitive to any
disruption; this in turn will negatively affect the exchange rate. When doing business in Vietnam, any
contract has to be paid by a local currency, Vietnam Dong. However, this currency has easily lost its
value since it is strongly dependent on the nations economy which has been relatively unstable within the
past several years. This affects our profit when converting the Vietnam Dong back to U.S dollar.
-The Vietnams economy has been struggling to grow, for the past 2 years the economy grew just above
5% as compared to 8% in 3 years earlier. Although the plastic industry has grown approximately 20% for
the past 10 years, the stagnant economy will have a certain impact on the plastic industry for sure.
-The global economy also has a significant impact on the Vietnam recycling plastic industry. Local plastic
companies export roughly 60% of their products; any disruption in the international market will in turn
affect both local plastic companies and plastic waste suppliers.
-The recycling plastic trading is regulated by multiple government agencies and laws which in turn make
it more difficult for us to do business. Red tape and corruption are other drawbacks that we have to
consider in our acquisition decision.
Profit and Loss Analysis
If we acquire a Vietnamese local firm, the followings are factors that we have to consider.
First of all, our existing clients will stay with our company here in the U.S. We will not transfer these
accounts to our acquired company. Just only Vietnamese clients, who have been previously walked away
from us due to the difference in payment terms and future Vietnamese clients will be taken care by the
acquired company in Vietnam.
Our initial investments for the acquisition will be less than $300,000. The first $200,000 will be used to
purchase the existing warehouse and necessary licenses. The remaining balance will be used to cover the
first six-month fixed expenses and 1
st
month purchase order paid to our suppliers. The investment will be
accordingly adjusted depending on the financial performance. The plastic waste trading does not require a
whole lot upfront investment. Our business is highly leveraged. As a rule of thumb, buyers have to make
at least a 50% deposit of the sale; the remaining balance will be funded by our money. However, the
selling price that we apply to our clients is already included our markup, so the actual remaining balance
paid to our suppliers will be around 20% of the sales.
Lastly, the expenses are highly depending on the sales which mean the higher sales the higher expenses,
these expenses are factored into the costs of goods sold which include but not limit to shipping cost,
importing tax, bank fees and etc. These expenses account for roughly 80% of sales. The fixed expenses
will be relatively small because labor cost, office rent and utility are not really expensive. As roughly
estimated, with 8 plastic containers sold we can make enough money to cover these fixed costs in a
month, a number that we can easily achieve. Under are the shorten version of projected P&L statements
for the next 3 years which we assume our annual sales and inflation rates will be increased by 20% and
5% respectively. (Refer to Appendix 7.)





Recommendations:
Based on the analyses of Porter Five Forces model, SWOT and P&L, it is a highly valuable opportunity
for our company to fully take advantage. Acquiring a local plastic company is going to help us overcome
the geographical barrier and payment terms, to gain trust from the local businesses and in turn reap off
our sales potential. It is quite intriguing to see an industry where buyers have to actively look for sellers
and compete with other buyers to secure their supply chain. The incremental sales associating with the
acquisition are highly considerable. The biggest risk will be the loss of our investment in the acquisition.
However, considering all the factors, the potential gains outweigh the losses. Acquiring a local plastic
business is highly encouraged.
If the acquisition is approved, under are the recommended actions:
-Periodically send people from the parent company to train the acquired companys workers, to assure the
success of know-how and professionalism transfer.
-Install a trusted person from our side into acquired company to ensure the accuracy of profits& expenses
and the soundness of the company.
-Discover other business opportunities and fully take advantage of the acquisition to increase our sales in
electronic devices and industrial equipment.
-Provide 24 hour service to help our clients as mentioned in the SWOTs strength. This allows us to
differentiate ourselves with other suppliers.
-Partner with shipping lines on global scale to ensure the consistency of our shipping service at reasonable
cost.
-Lock into contracts with both buyers and sellers to ensure our steady supply and demand, prevent
possible disruption in our supply chain and secure our interests.
-Allocate more fund into the plastic waste trading, this enable us to rapidly reap off the market
opportunity before it may get saturated.

Year 1 Year 2 Year 3
Sales $3,000,000 $3,600,000 $4,320,000
Cost of Goods Sold $2,400,000 $2,880,000 $3,456,000
Gross Profit $600,000 $720,000 $864,000
Total Expenses $67,800 $71,190 $74,750
Income Before Tax $532,200 $648,810 $789,250
Taxes $117,084 $142,738 $173,635
Net Income of the Acquired Company $415,116 $506,072 $615,615
Works Cited
Anh-Analyst, N. T. (2011, 05 06). http://vninvestment.files.wordpress.com/2012/03/plastic6may11.pdf.
Retrieved April 26th, 2014, from http://vninvestment.files.wordpress.com/
Concetti. (2013, August).
http://www.ice.it/paesi/asia/vietnam/upload/198/Vietnam%20Plastic%20Industry%20-
%20Dec%202013.pdf. Retrieved April 26th, 2014, from http://www.ice.it/
Deloitte. (2014). http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-
vietnamhighlights-2014.pdf. Retrieved April 28th, 2014, from http://www2.deloitte.com/
DNSGCT. (2013, July 11). http://english.vietnamnet.vn/fms/environment/78878/vietnam-spends-more-
money-on-waste-recycling.html. Retrieved April 24th, 2014, from http://english.vietnamnet.vn/
NamViet News. (2011, May 22). http://namvietnews.wordpress.com/2011/05/22/vietnam-plastics-
industrys-bottlenecks-block-its-growth/. Retrieved April 20th, 2014, from
http://namvietnews.wordpress.com/
Nguyen, T. (2014, March 20th). Vice President of Vietnam Sea Imexport LLC. (Q. Le, Interviewer)
Pham, D. (2014, March 15th). C.E.O of Vietnam PN CO. LLC. (Q. Le, Interviewer)
Vietnam News Agency. (2013, August 04). http://en.vietnamplus.vn/Home/Plastic-exports-continue-to-
rise/20138/37421.vnplus. Retrieved April 26th, 2014, from http://en.vietnamplus.vn/
Vietnam Trade Promotion Agency. (2012).
http://www.vietrade.gov.vn/en/index.php?option=com_content&view=article&id=966:strengths
-of-vietnams-plastic-sector&catid=270:vietnam-industry-news&Itemid=232. Retrieved April
26th, 2014, from http://www.vietrade.gov.vn/









Appendices
Appendix 1


Appendix 2








Appendix 3











Appendix 4


Appendix 5







Appendix 6
Appendix 7


Year 1 Year 2 Year 3
Sales $3,000,000 $3,600,000 $4,320,000
Cost of Service Sold $2,400,000 $2,880,000 $3,456,000
Gross Profit $600,000 $720,000 $864,000
Expenses
Payroll $36,000 $37,800 $39,690
Lease $12,000 $12,600 $13,230
Advertising $6,000 $6,300 $6,615
Utilities $3,600 $3,780 $3,969
Telephone $2,400 $2,520 $2,646
Employees' Health
Insurance $3,600 $3,780 $3,969
Office Supplies $1,800 $1,890 $1,985
Miscellaneous Fees $2,400 $2,520 $2,646
Total Expenses $67,800 $71,190 $74,750
Net Income before Tax $532,200 $648,810 $789,251
Taxes $117,084 $142,738 $173,635
Net Income of the
Acquired Company $415,116 $506,072 $615,615