Doing Business with Ukraine: Needing Effective Goods Distribution Channel

Ukraine and Vietnam are mutual traditional markets for years. Since their diplomatic relations establishment in 1992, the two nations have signed more than 20 agreements on cooperation of many important fields like economy and commerce, under which they mutually granted most favoured nation status, gave favourable treatments to shipping, airborne transport, culture, education and science, encouraged and protected investment and avoided double taxation. However, to further boost effective commercial and economic relations, Vietnamese enterprises need to study and establish more effective distribution channels.

According to the Vietnam Chamber of Commerce and Industry (VCCI), the two-way trade revenue remains very small. In recent years, the trade ties were strongly developed but Ukraine always enjoyed trade surplus. In 2003, Vietnam spent US$224.1 million to import Ukrainian goods and earned US$26.4 million from exports to Ukraine. In 2004, Vietnam exported US$39.1 million worth of goods to Ukraine, higher than the amount in 2004 (US$33.4 million) and imported U$191.5 million worth of goods from Ukraine, a decrease of US$49 million over 2004 (US$240.5 million).

 

Vietnam’s key exports to Ukraine include rice, natural rubber, apparel, footwear, medicinal herbs while its major imports from the European nation are steel, fertilizer, machinery, equipment and chemicals.

 

Regarding economic cooperation, Ukraine now has five licensed projects with a combined registered capital of US$30 million in Vietnam, ranking 34^th out of 60 countries and territories with investment in Vietnam. Vietnamese people also invested around US$30 million in Ukraine, with the largest being Technocom.

 

Remarkably, Vietnam and Ukraine have had effective energy ties, reflected by success in giant hydropower projects like Hoa Binh, Thac Mo, Yaly and 500-KV country-cross electric lines. At present, Ukraine is taking part in Can Don and Xe-xan 3 hydropower plants. The advantage of this field cooperation is payment method under which Vietnam pays 65 per cent of equipment value by commodities and 35 per cent in foreign currencies.

 

According to VCCI, Vietnamese enterprises should expand export of goods with comparative advantages in labour cost (light industrial products), geographic location, climate and weather (tropical agricultural products, seafood) while importing machinery, equipment and commodities for the sake of the industrialisation and modernisation.

 

Over the past 10 years, Vietnamese goods exported to the Commonwealth of Independent States (CIS) in general and Ukraine in particular are mainly imported the Vietnamese business community in Russia, Ukraine or other CIS countries. This young force understands the languages, traditions, routines and markets and has business networks in major cities in these countries. This force plays an important role in bringing Vietnamese goods into Russia. Thus, VCCI recommended that governments of all tiers need to introduce business incentive policies like providing preference credits and designating sole distributors for domestic companies.

 

Besides, Vietnamese companies should focus on investing in trade promotion, establishing representative offices, attending trade fairs and exhibitions, advertising their products, building up trademarks and reducing the reliance on foreign brands.

 

VCCI added that companies in CIS countries and Ukraine doing business with Vietnam usually lack capital while requirements in Russian banks are very strict. L/C payment is not allowed for trading between Vietnam and Ukraine. Thus, Ukrainian enterprises usually ask Vietnamese partners to sell on credit and deferred payments.

 

Therefore, according to VCCI, Vietnamese enterprises need to seek out big distributors in their target markets, including foreign companies and multinational corporations, to boost their exports. Currently, a bonded warehouse for agricultural products like rubber, rice and coffee was set up in Odessa, Ukraine.

 

Besides, Vietnamese companies need to be more active in setting up commercial centres in major cities to scale up their sales, introduce imported and exported goods, seek legal consultancy and introduce potential cooperative partners. At the same time, they also need to coordinate with the Vietnamese communities to form agricultural product processing factories sourced raw materials from Vietnam. Such factories help boost sales of Vietnamese goods like vegetable oil in CIS countries.

On the other hand, Vietnamese firms also need to boost partnerships with companies in Baltic and Balkan countries. These markets notwithstanding small scales have favourable geographic locations for transiting goods into the regions.

 

Vietnamese need to strengthen direct relations to avoid trading through third parties, to take more initiative in import-export activities and to reduce product prices.