suppliers link with the organization and its customers (Figure 1.10). Typically, vertical integration helps businesses enhance their product research and innovation capabilities and save on production costs.
Meanwhile, horizontal linkage is the linkage of enterprises or organizations that have the same position in the supply chain. For example, the linkage of garment material suppliers with each other, the linkage of garment exporting enterprises with each other, or the linkage of garment distribution enterprises in foreign markets. The purpose of horizontal linkage is often to seek cooperation between organizations with the same function to enhance research and development of products or services or to carry out activities to enhance the sales capacity of enterprises. The mixed form of linkage means a combination of vertical and horizontal linkage of the subjects. In general, enterprises, whether implementing vertical or horizontal linkage, aim for the common goal of higher operational efficiency.
Figure 1.10 illustrates vertical and horizontal linkages of firms. The vertical linkages illustrated in the horizontal ellipse include the supplier-organization-customer chain. Similarly, there can be many vertical linkages as long as they involve organizations that are oriented toward the completion of a product or service. The horizontal linkages illustrated in the vertical ellipse include organizations that are co-located in the value chain, such as suppliers, organizations, or customers.
Based on the number of entities participating in the association, it can be divided into bilateral and multilateral associations. Bilateral associations are associations between two enterprises to create higher operational efficiency. When the number of entities participating in this study is more than 2 enterprises, there is a multilateral association.
It is also possible to classify economic links of enterprises based on the form of association organization. That is, consider what is created after the association. Accordingly, it is possible to divide into many forms of economic links as follows:
- Association (also known as federation, general association, federation, association, club ): businesses and individuals in the same profession, same interests, same gender, with the common purpose of gathering, uniting members, operating regularly, not for profit to protect the rights and legitimate interests of members; supporting each other to operate effectively, contributing to the socio-economic development of the country.
- Group (product, satellite, ...): a number of businesses combine into a group of businesses.
- Industry council (production, consumption, ...): businesses in the industry combine to form an industry council.
- Regional council (production, consumption, ...): businesses in the same geographical area join together to form a regional council.
- Cluster (production, trade,...): businesses in the same geographical area or the same geographical region combine to form a cluster.
The main management mechanism of economic association is regulated depending on the law of a country. In Vietnam, the main management mechanism for organizations born from economic association is specifically regulated in a number of documents such as the Government's Decree on Regulations on organization, operation and management of Associations dated April 21, 2010, on supporting the development of small and medium enterprises (Decree 56/ND-CP issued on June 30, 2009) and recently Decision 22/NQ-CP dated May 5, 2010 of the Government on the implementation of Decree 56/2009/ND-CP, focusing on many measures to support small and medium enterprises in Vietnam, including the development of small and medium enterprise clusters.
1.3.4. Benefits of economic linkages between enterprises
Overcoming Disadvantages of Scale
The form of economic association to overcome the disadvantages of scale in English is expressed through the term outsourcing. This is a very popular form of association, especially in the current globalization period. In production and business activities, each enterprise has one or several
The main field of activity is specific and specialized. The enterprise must also perform many secondary activities to contribute to creating the main product, such as producing details or performing services in the business process. However, due to limited resources, the enterprise cannot perform all of these indispensable activities. Therefore, the best way is for the enterprise to outsource those products or services.
In the process of business operations, there are many work opportunities that exceed the capacity of enterprises. If enterprises give up the opportunity, it will be a waste, but if they want to take advantage of the opportunity, their capacity does not allow it. Through economic cooperation, enterprises can participate in projects together, each enterprise takes on a part of the work, thereby completing the work well with a greater capacity. That is also another aspect of the benefits of economic cooperation that helps enterprises overcome the disadvantage of scale.
For example, an export garment company cannot perform all of its own processes/stages. Therefore, after the shirt body is cut, they use some outside organizations, which can be a company, a center or a small production facility to do the work of attaching beads to the shirt body. After the beads are attached to the shirt body, the product is returned to the garment company to perform the next tasks. Similarly, tasks such as embroidery, crocheting, etc. can be performed by other organizations. In other cases, there are also times when an export garment order requires a delivery time and quantity that exceeds the capacity of one business. In this case, two or more businesses can also combine to fulfill the order.
This form of economic linkage can also be better understood if we consider a motorbike manufacturing and assembling enterprise. A motorbike manufacturing and assembling enterprise only focuses on manufacturing and assembling the main parts of a motorbike, which are the frame and engine. Other details such as the fairing, tail, front, kickstand, rims, spokes, seat cushions, interior accessories, etc. can be outsourced to other organizations. Thus, instead of importing the entire machine,
machinery to produce these parts, they make bulk purchases in the hope of saving costs and thereby seeking higher profits.
This form can be easily seen in many places around the world as well as in Vietnam. For example, the American Ford company buys components to produce and assemble cars from Chinese enterprises. Japanese electronics manufacturing and assembling enterprises buy components from component manufacturing enterprises in China, India, Singapore, Malaysia, etc.
Help businesses respond quickly to market changes
As mentioned above, besides the fact that economic linkage helps businesses overcome limitations in scale, in another aspect, economic linkage also helps businesses respond quickly to market changes. This is shown in the following contents:
- Due to economic linkages, businesses have faster access to information about customer needs, and the combination of businesses also creates better capacity in implementing new production plans to meet customer requirements. Because demand is always changing, increasing the capacity in grasping and meeting demand is a huge advantage for businesses. For example, a business specializing in manufacturing fashion garments, when a new trend appears, the business wants to deploy production according to this model. Although the main raw material is still fabric, the new product requires the use of many new types of accessories such as ribbons, beads, etc. To deploy production, the business must link with other establishments to obtain these accessories.
- Economic linkage helps businesses consume their products faster. This is clearly demonstrated through the linkage of manufacturers and commercial organizations through the form of agents and product introduction stores. Through these organizations, the products of the business are brought to the market more quickly. This form of linkage can be clearly seen in the textile industry. Almost all garment companies, including export garment companies, have sales agents (with many levels) and have product introduction stores.
Product introduction.
- Economic linkage helps businesses quickly access new technologies and techniques. A form of linkage that is very popular in the world as well as in Vietnam today is the linkage between businesses and universities and research institutes. Businesses are responsible for funding research on certain products such as machinery, equipment, plant varieties, new working methods, etc., while universities or research institutes are responsible for creating those products or proposing new working methods. Through this linkage, businesses will access new technologies faster, thereby contributing to improving the efficiency of the production process.
Economic linkage helps businesses minimize risks in business
Economic association, in essence, is the combination of two or more enterprises to perform a certain task, in order to increase the efficiency of these enterprises. Thus, each enterprise participating in economic association performs a certain part of the work within the binding regulations on benefits as well as responsibilities such as through economic contracts, economic agreements, cooperation commitments, etc. Viewed from this perspective, economic association is to help enterprises achieve greater capacity and share risks.
Economic linkage also helps businesses reduce risks by combining with businesses that are competitors. This linkage helps businesses compromise, divide the market, etc., thus not only helping businesses increase their operational capacity but also reducing risks in competition.
CONCLUSION OF CHAPTER 1
The value chain is a concept initiated by Michael Porter in the mid-1990s of the 20th century. According to the view of the value chain, businesses from many countries around the world will become important links and can dominate the development of a product or an industry. Analyzing the business activities of an enterprise from the perspective of the value chain is a
effective method to best assess the competitiveness of a business, of an industry, as well as assess the role and scope of influence of a country in the global value chain. Chapter 1 of the thesis clarified the following issues:
The first is the analysis of the concept of value chain and global value chain. The characteristics of two types of global value chains, namely buyer-driven value chain and producer-driven value chain, are also presented and analyzed.
The second is to present and analyze the contents related to value chain analysis. To be able to analyze the value chain, it is necessary to carry out the following steps: determining the value chain to be analyzed, determining the objectives of value chain analysis, creating a value chain diagram, using important criteria such as costs, revenue, profit, technology, etc. to analyze the value chain. The last part of this content presents the benefits of value chain analysis for research subjects.
Third is to present the contents related to the issue of organizing economic linkages between enterprises. After presenting the concept of economic linkages and the forms of economic linkages. The thesis focuses on analyzing the benefits that economic linkages between enterprises bring.
With the above contents, the thesis has systematized theoretical issues on value chain analysis and organization of economic linkages of enterprises.
CHAPTER 2: CURRENT STATUS OF GLOBAL VALUE CHAIN AND ECONOMIC LINKAGES OF GARMENT EXPORT ENTERPRISES IN VIETNAM
2.1. Current status of Vietnam's garment export industry
2.1.1. Products and market
About product types and quality
In recent years, the Vietnamese garment industry has achieved some encouraging results. The industry's products are quite diverse, including many different types of men's and women's shirts, jackets, men's and women's coats, jeans, men's and women's clothing sets, etc. (Table 2.1). Many new products have been launched, especially some high-quality products with international standards such as high-end shirts, jackets, jeans, suits, etc. These products have affirmed their position in many demanding markets such as Paris, London, Amsterdam, Berlin, Tokyo, New York, etc.
Although the product range is diverse, due to limited technical and technological conditions, many products of the industry are in the average product group (although there are also some high-quality items). Garment enterprises have met the requirements for garments such as designs, lines, materials, colors, etc. of the export market, but not at an excellent level. Because the industry's products have many unique characteristics such as fashion elements, customer tastes change rapidly depending on the season, fashion production technology is often quite simple, so fashion models are easily imitated, etc. Therefore, although fashion design in Vietnam has made significant progress in recent times, the industry still mostly uses fashion models from the ordering unit.
Also because the main production method of the export garment industry is direct processing, which means the method in which foreign customers provide designs, raw materials, and even accessories for garment enterprises to produce, and then the products are returned to customers, the profits that Vietnamese enterprises earn are very modest. Besides, Vietnamese enterprises are also passive in organizing production.
Table 2.1 - Some types of export garments of export garment enterprises
TT
Product name | TT | Product name | |
1 | Baby clothes | 16 | Boys and girls veston |
2 | Men's and women's shirts for children | 17 | Children's underwear |
3 | Children's sportswear | 18 | Children's sleepwear |
4 | Children's uniforms | 19 | Girls' short and long dresses |
5 | Men's and women's shirts for adults | 20 | Pillowcase |
6 | Men's and women's children's jackets | 21 | Blanket |
7 | Boys and girls veston | 22 | Book bag |
8 | Children's underwear | 23 | Wool garments |
9 | Children's sleepwear | 24 | Silk and vegetable fiber weaving |
10 | Girls' short and long dresses | 25 | Cotton and non-cotton garments |
11 | Men's and women's shirts for children | 26 | Hat |
12 | Children's sportswear | 27 | Swimwear of all kinds |
13 | Children's uniforms | 28 | Glove |
14 | Men's and women's shirts for adults | 29 | Mosquito curtains |
15 | Men's and women's children's jackets | 30 | Protective clothing |
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Export Turnover of Vietnamese Textiles and Garments to the US Market. -
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Current situation and solutions to improve accounting work of textile and garment export enterprises and general services - 2 -
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Source: Information compiled from garment export companies in 2009
Thus, although the quality and product structure of the industry are more diverse and abundant than before, there are still many gaps that have not been met compared to the needs and tastes of customers, especially for the markets of developed countries. The industry's export garments in general do not have their own commercial labels. This is also the reason for reducing the competitiveness of garment products in the export market.
About product price
The garment industry is characterized by high labor content, not requiring too modern technology, product quality depends a lot on the skills of the workers. This characteristic makes the industry considered suitable for the current level of economic development in Vietnam. Vietnam has an abundant, hard-working, creative labor force and especially lower labor costs than other countries in the region.