Aquaculture industry in Vietnam

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EXECUTIVE SUMMARY
Currently, the aquaculture industry has now developed into a spearhead economic sector, a major commodity producer, leading the way in international economic integration in Vietnam. With the rapid and effective growth, fisheries have contributed positively to the restructuring of agricultural and rural economy, contributing effectively to hunger eradication and poverty reduction, creating more than 4 million jobs, as well as raise the standard of living and labor for people in rural, coastal, delta, midland and mountainous areas, and at the same time contributing an important part to the national security and defence in the sea areas of Vietnam. In this regard, the purpose of this paper is to make a thorough analysis on Vietnam aquaculture industry. In specific, this paper will include five main contents. The first part will present a brief introduction of the industry. In the second part, an industry analysis based on Porter’s Five Forces will be also provided. The third part gives some conclusions about the industry attractiveness and situation, and the next part will point out strategic issues facing for a new company which would like to participate in this industry. Last but not least, the final part will suggest some recommendations to the new entrants regarding strategic issues mentioned in the above. 
Dịch vụ viết thuê Assignment
Dịch vụ viết thuê Assignment
1. A brief introduction of aquaculture industry in Vietnam
With a dense network of rivers and long coasts, Vietnam is very favourable for developing fishing and aquaculture industry. Vietnam’s seafood output has maintained its continuous growth in the past 17 years with an average increase of 9.07% per year. With the policy of boosting the development of the government, the aquaculture has achieved rapid growth and the production has been increasing continuously in the past years with an average of 12.77% per year, contributing significantly on the growth of total seafood production of the country. However, before the depletion of natural aquatic resources and the level of fishing activities have not been improved, the production of seafood from fishing activities has increased relatively low over the years, with the increase an average of 6.42% per year (VASEP, 2016). According to the statistic by Directorate of Fisheries, total production of fishery products produced in 2016 reached over 6.7 million tons, an increase of 2.5% compared with 2015.
Figure 1. The output of fisheries and aquaculture in Vietnam
Source: Directorate of Fisheries
Accordingly, the ability to shut down the production process is important with seafood firms. The more self-contained the production is, the greater is the ability to self-source material and business efficiency. On the contrary, the less closed the business, the more dependent on the outside, will lead to passive in production, and reduce business efficiency. With the increasing demand for quality and development of the fisheries sector, the involvement of a number of financial institutions and fish quality inspection agencies has made the fisheries sector’s activities more relevant among the subjects in the industry increasingly tight.
Figure 2. The value chain in aquaculture industry
Source: VASEP, 2016
Vietnam’s seafood production and export activities are scattered throughout the country with diversified fisheries, but can be divided into five major export regions, including: The Northern Central, The Southern Central Coast, The South East, The Mekong Delta and other provinces such as Hanoi, Binh Duong, Can Tho, Hau Giang, Dong Thap… The Mekong Delta, with its favourable conditions, has an intricate canal system and many bordering areas, has become the main aquaculture and export area of Vietnam. According to statistics in 2011, there are 37 provinces having seafood exporters, of which the largest exporters is Ca Mau (mainly thanks to Minh Phu, Quoc Viet), Ho Chi Minh City, Can Tho, Dong Thap, Khanh Hoa, Soc Trang…
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2. Porter’s Five Forces Analysis
• Threats of New Entrants:
New entrants are companies that are not present in the industry but may affect the industry in the future. The more or less potential opponents, their pressure on the strong or weak will depend on the industry attractiveness and barriers to enter in the industry (Porter, 2008)
For the aquaculture industry, with the advantaged conditions of sea coasts in Vietnam, it is undeniable about the industry attractive with investors. Currently, the total number of vessels is 123,125 with the total capacity of about 10 million CV, contributing to the current annual production of 2.5-2.7 million tonnes of marine products. Accordingly, the number of domestic seafood processing firms has increased rapidly and the structure between traditional processing and frozen has also changed to accommodate the changing demand of domestic market. However, there are some barriers for new entrants to enter the industry, such as high investment and operation cost, the fluctuation in prices of products, the increase in prices of the seeds, foods, safety rules…Therefore, in general, threats of new entrants in aquaculture industry is moderate.
• Threats of Substitute Products:
Substitute products are products and services that can satisfy the demand equivalent to the products and services in the industry. The main competitive pressure of alternative products is the ability to meet the demand in comparison with the other products in the industry. In case of Vietnam aquaculture industry, instead of purchasing seafood, the customers can buy other foods such as chicken meat, beef meat, pork…in their meals, with cheaper prices and the same nutrition. Moreover, the number of substitute products available in the market are great. Therefore, the buyers’ switching cost is very low, so threats of substitute products are high.
• Bargaining powers of suppliers:
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. For the aquaculture industry, the sources of seeds plays a very important role, which is the first step in the value chain of the fisheries sector, which is likely to affect the rest of the production chain. However, the quality of aquaculture seeds in Vietnam is relatively low and depend on a few of companies. Currently, there are two suppliers of aquaculture seeds which are dominators in Vietnam market: CP Vietnam and Uni-President Vietnam. About the foods for aquaculture, 100% of market share are foreign companies, not domestic firms. So the bargaining powers of suppliers for the industry is strong.
• Bargaining powers of buyers:
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. In present, Vietnamese seafood is now sold in more than 160 markets. Consumption markets are increasingly expanding and increasingly prominent in important markets. The United States, Japan and the EU are the three biggest markets, accounting for 50-60% of Vietnam’s export value. Vietnamese seafood products are not branded in the world market, especially in the retail segment for consumers. Normally, Vietnamese seafood is only exported directly to importers, then labeled, branded by importers or distributors and then delivered to consumers. Therefore, the value of earned products is not high. Thus, the bargaining powers of buyers are strong.
• Rivalry among existing competitors:
For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. In Vietnam aquaculture industry, the current amount of firms in this sector includes 18 enterprises, with big firms which dominates the market such as Ben Tre Aquaculture Corporation, Vinh Hoan, Navico, Minh Phu…The rest is small scale firms, no close cooperation between producers and enterprises, which causes the difficulties for the consumption of products of farmers. Hence, the rivalry among existing competitors is small. 
3. Conclusion about the industry attractiveness and situation
From the above analysis, it can be concluded that the attractiveness of Vietnam aquaculture industry is relatively high. Currently, the number of firms in this industry is still modest, whereas its potential revenue and profit is significant high. Due to the bargaining powers from both buyers and suppliers, it is undeniable that the attractiveness of Vietnam aquaculture industry is the opportunity for new entrants. According to the data of General Department of Vietnam Customs, despite the barriers in the market, seafood export turnover in the first four months of 2017 still reached $ 2.2 billion, up 9.5% over the same period last year. The United States, Japan, China and South Korea are still the top four markets for seafood consumption in Vietnam in the first four months, accounting for 53.5% of total seafood export turnover of the country. In particular, there are some markets that turnover is not large, but it increased sharply over the same period last year. Israel (up 132% to $ 24.9 million); Denmark (up 90%, reaching $ 14.6 million); Brazil (up 73% to $ 46.8 million) and Indonesia (+ 62% to $ 3.1 million). According to VASEP, the total seafood export turnover of the country in 2017 is expected to reach $ 7.5 billion, up 5% over 2016. In the context of difficulties in seafood export, the results also proves the potential of Vietnam aquaculture industry.
4. The potential strategic issues
For a new company which would like to participate in this industry, it may face with some potential strategic issues.
• The lack of materials: 
As mentioned in the previous part, the bargaining power of suppliers in Vietnam aquaculture industry is relative strong due to the small number of them. Although the production quantity in the first five months of this year has increased over the same period last year, the processing and export of fisheries has not yet escaped from the shortage of raw materials, which is more and more increasing like previous years. In addition, it is also the challenges for firms to buy materials from farmers whereas the capital turnover is low due to financial difficulties.
• The lack of capital: 
With the high interest rates in the present, it is one of the barriers for new entrants to maintain production and processing when other input costs are rising sharply. For the seafood exporters, they have to cope with the pressure of input costs for production, such as fuel, electricity, water, labor, packaging, transport costs, etc. In addition, Charges, taxes, such as environmental protection taxes for PE packaging for packaging, quality control of seafood exports, veterinary quarantine fee increased 300% % … also contributes to increasing costs and affecting the competitiveness of Vietnamese seafood, especially in the context of global economic decline, competition market share is quite fierce.
• The crisis of markets:
As stated in the above analysis, the bargaining powers of buyers in Vietnam aquaculture industry is strong. Currently, the European market is down due to public debt crisis is also a great difficulty for export seafood Vietnam. As the largest market of 129 seafood markets in Vietnam, in the first quarter of this year, exports to the EU decreased 7.9% compared to the same period last year, due to the public debt crisis in the region. This makes the financial situation difficult, the demand for import is not stable and the ability to pay late. The share of the EU market is reduced by almost 5% (from 24.2% to 19.7%). Exports of two main products, shrimp and pangasius, declined sharply (down from 21.8% and 12.4% respectively). However, exports of tuna, squid and octopus to this market remained positive (tuna increased 29%, squid, octopus rose over 10.7%) (VASEP, 2016). In addition, barriers to trade increased in the context of the global economic downturn, importing countries increased protection of domestic industry. Hence, promoting and branding Vietnamese seafood in the world markets with a professional and effective manner in the current tight financial conditions is extremely difficult.
5. Recommendations to the new entrants
Based on these strategic issues, this part will provide some recommendations for new entrants in Vietnam aquaculture industry. 
First of all, it is necessary for firms to carry out the knowledge dissemination and training on proper cultivation and treatment of high quality disease-free seed sources for the suppliers to enhance the quality of products. It is assessed not only to increase the competitiveness and turnover of commodities through which the prestige of Vietnam seafood is also confirmed in the international arena. In addition, they also need focus on the development of stable aquatic raw material production areas to meet the demand of supplying raw materials for export processing and export.
Second, the enlargement of export markets is also a solution for Vietnamese seafood exporters to diversify their risks, avoiding large-scale export to a country as this can create the barriers. For the countries initiating the lawsuit dumping (typically the case of dumping catfish before the US catfish). As a result, firms need to maintain relationships with existing customers in the recovery and development of the Asian market, focusing on major markets (China, Japan). Along with familiar customers, it is necessary to reach out to customers, penetrate and occupy new markets (North America, Australia, South Korea, Middle East, North Africa, South Africa, UAE, Egypt …). In addition, it is necessary to enhance the exploitation of the domestic market – a potential market.
Third, the Government should also adopt appropriate policies to encourage enterprises to expand their farming, production and business. Furthermore, enhance possible access to loans from banks and preferential loans for them to solve the difficulties in capital, create favourable conditions for new entrants to maintain their operation.
CONCLUSION
Along with the process of expanding trade relations and integrating deeply into the regional and world economy, Vietnam has become a world-class country with a number of major agricultural commodities. Resources such as seafood, rice, coffee, pepper, rubber, cashew … Particularly, Vietnam aquaculture products are always surplus and increasing, reaching nearly 30 billion USD. This is one of the attractive and potential sectors for new entrants. However, they also face with a lot of barriers and challenges when entering the market such as the lack of materials, capitals and the crisis of market. In order to overcome these challenges, new entrants should focus on enhancing the knowledge dissemination and training on proper cultivation and treatment for suppliers; enlarging the export markets and branding their products in these markets…Besides, the Government also need to have appropriate policies and supports to encourage the development of enterprises and attract the investment from new entrants. 
REFERENCES
Directorate of Fisheries (2016). The industry report of 2016. 
VASEP (2016). Tổng quan ngành thủy sản Việt Nam.
Ireland, R. D., Hoskisson, R., & Hitt, M. (2008). Understanding business strategy: Concepts and cases. Cengage Learning.
Kotler P. (1997), Marketing Management, Prentice-Hall, Inc.
Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy. Harvard Business Review.
Bien, Tran Duy (2013). Phân tích chuỗi giá trị ngành thủy sản Việt Nam. Retrieved from: https://tepbac.com/tin-tuc/full/Phan-tich-chuoi-gia-tri-nganh-thuy-san-Viet-Nam-4941.html
(2017). Báo cáo triển vọng ngành thủy sản Việt Nam. Retrieved from: https://dautuphaisinh.com/bao-cao-trien-vong-nganh-thuy-san-viet-nam/
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