Section 1: Country Overview

Section 1: Country Overview The United States is a country in the Western Hemisphere. It consists of fortyeight contiguous states in North America, Alaska, a peninsula which forms the northwestern most part of North America, and Hawaii, an archipelago in the Pacific Ocean. There are several United States territories in the Pacific and Caribbean. The term "United States", when used in the geographical sense, means the continental United States, Alaska, Hawaii, Puerto Rico, Guam, and the Virgin Islands of the United States. The country shares land borders with Canada and Mexico and maritime (water) borders with Russia, Cuba, and The Bahamas. The United States has total resident population of 310 715 000 as of 2010. In terms of natural resources, the United States has potential and diversified natural resources such as coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, timber. Therefore, petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, creative industries, electronics, food processing, lumber, mining and defense are main industries within the United States.

Section 2: Political and Legal Analysis 1. Political system The official name of America is the United States. Firstly, the United States is a Federal constitutional republic, in which the President, Congress, and Judiciary share power reserved to the national government, and the Federal Government share sovereignty with the State Governments. Since American Civil war, two parties, the Democratic Party and Republican Party have dominated American politics. Nowadays, after two presidencies of Gorges W. Bush and the dominance of Republican Party with aggressive policies, Barack Obama is the incumbent President and Democratic Party is the dominant Party of the United

States. He and his Government have executed more moderate policies than Bush’s Government. Secondly, the United States is the Democratic Government with wide participation. Therefore, it makes and maintains stable business environments for both domestic and foreign enterprise that want to do business in this market. This is one of advantageous opportunities for our company to do business in American market. 2. Political risk Table 1: The United States’ political risk rating over the period from 2/2009 to 1/2010 Yea

2/0

3/0

4/0

5/0

6/0

7/0

8/0

9/0

10/0

11/0

12/0

1/1

r Rat

9 83.

9 83.

9 84

9 84.

9 85

9 84.

9 84.

9 84.

9 84.5

9 83.5

9 83

0 82.

e

5

5

5

5

5

5

5

Unit: % (Source: An Extract from International Country risk guide, Copyright, 1984Present, the PRS Group, Inc.) The table above indicates the changes in the political risk rating of the United States from February 2009 to January 2010. Through one- year period, the United States experienced a stable trend in political risk rating, which fluctuated between 82.5% and 85%. Overall, the political risk of the USA as of January 2010 was over 80%, thus the United States is evaluated as one of the lowest political risk countries. This proportion shows a stable business environment which facilitates to any businessmen conducting business in the United States. Although there is low political risk for enterprises, many foreign companies still face with many problems from internal conflict and socioeconomic conditions in American market. These are two main sources of political risk in the United States. As An Extract from International Country risk guide, copyright, 1984Present, the PRS Group, Inc., the United States witnessed 2.5 point in terrorism

and violence, and 2.0 point in unemployment, two relatively high figures of political risk. These risks bring some negative effects on international business conducting in the United States. First of all, terrorism and violence threaten both physical asset and the lives of employees. Many foreign companies have to face with fire, strike, terrorism and violence, which can causes the destruction of their offices, buildings, factories or production equipment. Therefore, it is difficult for them to operate in this market. In addition, this creates unsafe environment for all employees working in this country, they could be kidnapped or killed surprisingly. These negatively affect not only foreign enterprises but also the whole society in general. Secondly, high rate of unemployment in the United States leads to decrease turnover and revenue of international companies indirectly. After great crisis in 2009, the unemployment rate of the United States is very high (2009: 10%, 2010: 9.6%). This affects Government’s policies such as taxes, subsidies, demand stimulus and the like, which causes Budget deficit. Therefore, the Government will apply many policies to reduce Budget deficit by increasing import tariff, import licenses, and quotas and the like to import activities. Moreover, this affects consumption of individuals and organizations. As a result, there are negative impacts on our turnover and revenue. However, foreign enterprises could deal with these problems by doing some solutions. Firstly, they should do business in some areas, which are safe and suitable with their business and activities to avoid terrorism and violence. Secondly, they should cooperate with local partners to extend market and become more and more active in selling goods, produce mass (high quality, competitive price). Furthermore, by partnering, foreign investors and local companies will share the risk of loss. Thirdly, insurance or so-called risk transferring is one of the most popular and effective ways to manage risk. It can be defined as the reduction of risk exposure by sharing the risk with a third party. Using this strategy, the physical property is retained but the “financial part” of the risk is transferred.

3. Legal system Before starting any business with a foreign nation, a company must be wellprepared in case disputes happen. To make preparation, the first thing they should do is to study the legal system of the target country, which is the United States in this case, to find out if there are any differences between the two legal systems and how to survive in the new environment. The law of the United States consists of many levels of codified and uncodified forms of law, of which the most important is the United States Constitution. Thus, a special feature in the legal system in the US is the combination of common law and civil law. Generally, Vietnamese people do not care too much about legal systems and only few of them know about the existence of different types of legal systems, so careful research on legal systems is even more important to Vietnamese companies before entering a new market. Moreover, because the civil law in the US is applied mainly in the scope of federal government while in states, courts’ decisions are mainly based on precedents, which is a strange notion to most Vietnamese people, it becomes more vital to learn more about the differences between the two systems, then to find ways to adapt to it. Basically, there are 3 main differences between the two systems. Firstly, common law is the law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes as in civil law. Therefore, it can be said that the two systems display two different approaches to one issue. In civil law, the collection of the law applied to citizens and followed by judges is written and can be accessed by anyone, while in common law, the law is precedents, which originate from real courts, not any written thing. Thus, it results in the differences in the responsibilities of judges. In civil law, they interpret the law but in common law, they themselves create the law.

Secondly, there is an effective binding among precedents and later courts in common law, which does not exist in civil law. It means that in common law, a court’s decision is relevant to not only parties but also to previous or later tribunals. If a case is proved similar to a precedent, then the decision of the precedent must be applied to the case. If the court finds that the current dispute is fundamentally distinct from all previous cases, judges have the authority and duty to make law by creating precedent. Thereafter, the new decision becomes precedent and binds future courts. In contrast, in civil law, similar cases may have different results depending on the way judges interpret the legal code. The third basic difference is the source for people to study law. In common law, it is precedents but in civil law, it is the legal code. With the three basic differences, to survive in the US market, Vietnamese companies must make some adaptations. Firstly, people doing business should study cases relating to importing, exporting and the industry they are working in to avoid possible disadvantaged situations. Secondly, a company had better hire a professional lawyer to take care of its legal issues. Because learning various precedents and locating relevant statutes and cases are not easy to a normal person, this also explains why America is one of the countries with the highest proportion of lawyers among citizens. Thirdly, because the US also apply civil law and written rules and regulations, Vietnamese companies must pay close attention to changes in it trade laws, especially requirements to imported goods, which is becoming stricter and stricter. In conclusion, despite those political risks and differences in legal systems, a Vietnamese company is still able to survive and prosper in the US market if they can make suitable adaptations.

4. International relations

The US is the largest economy and among the freest market in the world, so almost all countries want to maintain a good relationship and do business with the nation. However, due to the Chinese policies on exchange rate, there is a conflict between America and China. It is also a good chance for Vietnamese exporters, especially in textile industry because China is the largest exporters of the products to the US. If Vietnamese companies can seize the chance, they can build a good base for future development. Since 1995, when the formal normalization of diplomatic relations between Vietnam and America was announced, the relations of the two countries have become deeper and more diverse in many aspects including business. As diplomatic ties between the nations grew, the United States opened a consulate general in Ho Chi Minh City and Vietnam opened a consulate in San Francisco. In July 2000, they signed a Bilateral Trade Agreement, which went into force in December 2001. In 2003, the two countries signed a Civil Aviation Agreement and a textile agreement, which brings many advantages for Vietnamese exporters especially those of textile industries. In January 2007, the US Congress approved Permanent Normal Trade Relations (PNTR) for Vietnam. With those progresses of two nations, we have reasons to believe that the access for Vietnamese exporters to the US market is becoming wider and the economic relations between Vietnam and America will become better and better in future.

Section 3: Economic Analysis The United States has the largest, most technologically-advanced, and diverse economy in the world. While the United States accounts for only about 4 percent of the world's population, its GDP is 26 percent of the world's total economic output. After the slight recession in the recent years, the US is now reverting to its potion as the leading economy in the world; it still remains the richest nation on the planet in terms of GDP with the gross domestic products of

$14.003 trillion in 2009. People in US, therefore, enjoy a high quality of life with a per capita GDP of $46,900. However, services dominate in the American economic activity. Financial services, health care, and information technology are among the fastest growing areas of the service sector. Services account for approximately 80 percent of the country's GDP while manufacturing accounts for only 18 percent, and agriculture accounts for 2 percent. Subsequently, the American is in need of a large amount of consumer goods such as foods, drinks, clothing, etc. Our company, hence, chooses to export high-grade silk products including scarf, shoes, wallet, purse and quilts to this developed market. The American economy is a free-market, there’s only limited government intervention in areas such as health care, transportation, and retirement. Prices of goods in the market are determined by the interplay of two forces, supply and demand. That is to say, this is a fairly healthy competitive environment for all suppliers regardless of which nation they come from. Moreover, the United States’ economy freedom score is 78.0 making its economy the 8th freest in the 2010 index and at the 2nd place in the North America region. That means the possibility of penetrating into this leading import market is highly likely feasible. Firstly, in terms of trade freedom, the America scores 86, 9 point, which reflecting a high openness of this economy to imports of goods and services from around the world because the barriers with foreign product importing into the US have somehow eliminated as much as possible. United States import quotas may be divided into two types: absolute and tariff rate. Absolute quotas strictly limit the quantity of goods that may enter the commerce of the United States for a specific period. Tariff rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of duty during the quota period. Once the tariff-rate quota limit is reached, goods may still be entered, but at a higher rate of duty. Currently there are no commodities subject to absolute quotas and/or

associated visa requirements. Tariff-Rate Quotas is levied on the following listed commodities:  Brooms (9603)  Whiskbrooms (9603.10.05)  Other Brooms (9603.10.40)  Ethyl Alcohol (9901.00.50)  Milk and Cream (0404.20.20)  Olives  Satsuma (Mandarins) (2008.30.42)  Tuna (1604.14.22)  Upland Cotton (9903.52) Our company exporting products are not suffered from quotas from the US’s legislation, which can be considered a slight advantage to improve our competition. Moreover, trade relation between Viet Nam and the United States is improving much in the past 20 years. The two countries have worked a lot to promote economic and political normalization since 1989. On July 13, 2000, U.S. and Vietnamese negotiators signed a sweeping bilateral trade agreement (BTA). The BTA entered in into force on December 10, 2001, when the two countries formally exchanged letters implementing the agreement. Under the deal, the U.S. extended temporary most-favored nation (MFN, also known as normal trade relations [NTR] status) status to Vietnam, a step that will significantly reduce U.S. tariffs on most imports from Vietnam. Accordingly, Vietnam’s exports to the U.S. rose to $1.3 billion – 60% higher than 2000 levels – in the first year of MFN status, as U.S. tariff rates on Vietnamese exports fall from their non-MFN average of 40% to less than 3%. Besides there’s an agency called “Trade Council’s affiliate” which provides technical assistance to Vietnamese exporters on issues related to the BTA, WTO, and international integration.

Secondly, monetary freedom index is also at high level of 78.1. Monetary freedom is reflected in a stable currency and marketed-determined prices. American inflation has been relatively low, averaging 3.5 percent between 2006 and 2008 potentially ensures exporters a stable USD to rely on.

In addition, although there are some price controls to some regulates monopolies like for agricultural sectors, dairy products, and some forms of transportation and government interventions in housing, automotive, and financial, clothing business line will not have direct badly effects of price distortion from US government. However, there is a slight difficulty in exporting into the United States, because this nation’s about to apply a currency control. These mechanisms can control the inflows of money into a country or money leaving the nation. As of

2013, foreign banks will be required to withhold 30% of any withdrawals from an American’s account, effectively turning bank employees into US tax agents. Privacy is totally gone, as financial institutions will be compelled to report detailed information about all American account holders. If foreign institutions do not wish to comply, or cannot because of national law, they will be required to close the account. The exemptions to this rule are holding a combined overseas balance of less than US$50,000, or being an individual that the Secretary of the Treasury deems a low risk for tax evasion - a clause that is ripe for abuse. The law also makes foreign life insurance policies or annuities reportable for the 2010 tax year. This means a little inconvenience in transiting benefits from US to our country for reproduction and investment.

Section 4: Market Potential 1. Identify basic appeal The US market is one of the world’s largest importers of garments, interior decoration fabrics and accessories, so it proves to be an appealing market for Vietnam. Thus, we do the market potential analysis to assess our potential for exporting silk to the US. USA is a big country, which varies tremendously in climate conditions. Generally, the Western and Southern of this nation has an overall warmer weather, as compared to the Eastern and Northern with heavy snowfall, and has pleasant summers. Therefore, it may be a potential market for silk products. Fortunately, our silk products fully meet the demand of such a climatevaried market. Firstly, we have quilts for winter. Mulberry silk, which contains about 38% “twinning interspaced of silk”, can keep the temperature of the quilt as high as that of the body in a long time. They are the best choices for the winter. Secondly, we supply silk products for mild climate. By using the high quality of tie-dyed fabric, the mulberry silk quilts can be more comfortable. Moreover, other

products such as scarf, shoes and wallet are also suitable for this mild climate because of its convenient use. Finally, we also offer silk product for summer, which contains a substance, named “hydrophilic side-chain amino acid”. That special silk helps absorb and pump the excessive moisture out the quilt, while supply the skin with water from the moisture in the quilt when the body skin is dry because of the high temperature in summer. 2. Measure market potential 2.1. USA market potential Recently, ties of bilateral trade in goods between Vietnam and United States increasingly developed, especially since 2007, when Vietnam became an official member of the World Trade Organization (WTO). Customs Statistics Vietnam’s total commodity export

2006 7.83

2007 10

2008 14.5

2009 11.36

turnover of to the U.S (USD billion) (Source: http://www.customs.gov.vn) Customs Statistics showed that, if in 2005 and 2006, the total commodity export turnover of Vietnam to the U.S. market reached 5.91 billion USD respectively and then to 7.83 million USD, in 2007, the total value of goods that Vietnam exported to the United States exceeded 10 million USD. In 2008, despite being heavily influenced by the economic recession started in the United States in 12/2007 and followed by the global economic crisis since mid 2008, trade relations between the two countries still have positive signs. Total turnover of the two-way merchandise trade in 2008 reached 14.5 billion USD, rose 23% compared to 2007. In 2009, despite continuing difficulties caused by economic slowdown, the total export turnover of Vietnam to the largest market of consumption achieved 11.36 billion USD, decreased slightly 4.3% compared to

the results of implementation a year earlier. The U.S. market continues to be among the main destinations of Vietnam’s exports. 2.2. Silk product market potential Textile is one of the Vietnam’s principal exports, which brings the secondlargest export turnover to our nation. This is also the group constituting the largest proportion of the total export value of Vietnam to the United States (about 43% in the period 2005-2009). Moreover, Vietnam earned $8 billion export revenue from textile and apparel in the first nine months of this year 2010, increasing 20% on year, according to http://tuoitre.com.vn reported on September 30, citing the Vietnam Textile and Apparel Association (VITAS). Vietnam could earn more export revenue from textile and apparel because the world textile and apparel will continue to recover in the year-end of 2010, local senior economists forecast. Silk product is concluded in textile. They are increasingly attracting the attention of US importers. International Trade Commission United States (USITC) assumed that Vietnam is one of the leading countries in Asia that has ability to compete with China in the silk sector. The US Association of Textile Imports also said that Vietnam is the second choice of U.S importers to China when searching for supplies of goods from Asia. Besides, research showed a noteworthy in this category is the proportion of highly processed goods, like embroidered quilts, scarves and wallets from silk, accounting for over half of the total value of this group that Vietnam exports to the US. 3. Select the market 3.1. Competitor analysis In USA, silk processing capacity is virtually nonexistent. Imports of silk goods of the US were valued at about US$ 2 billion in 1997; 10% was for home furnishing. So, there is a great potential for exporting silk to the US. However, to promote our export of silk products to the US market, we have to face many other

competitors such as China, France, Italia, etc. The United States has been a pioneer market for imported Chinese knitted silk products, initially mainly thermal underwear, and now elegant casuals in the form of T-shirts, polo neck sweaters, etc, representing over 40% market share. Easy care is a “must” in the United States, so it is important to develop fabrics with easy-care properties to compete with other fibers. In the period from January to July / 2009, silk clothing exports to the U.S. China reached 22.05 million units, down 34.45%. Export turnover to U.S reached 286 million, down 30.44%, by year, the average unit price of $ 12.95, up 6.12% year on year). Moreover, Italy is also well-known in the US market for highly developed skills in silk processing (finishing, dyeing and printing silk fabrics). Exports of silk scarves to US rose by about 15% between from 1996 to 1997, to 586 tons. Exports of silk neckties reached 1230 tons the same year. Another bid competitor to Vietnam is France. France is another country with a considerable silk processing industry with 10% market shares of imports silk products in USA. For centuries, Lyon has produced silk fabrics of the highest quality for domestic consumption and for export. More than 70% of silk fabrics in the French market have been traditionally used for clothing. There are signs that silk may have a growing market also for interior decoration use as curtains, wall covers, bedspreads and upholstery. France exports top quality silk fabrics to the US market, with unit prices reaching 30 USD per m2. Although there are many competitors in the silk market of the US, Vietnam still has many advantages over other competitors such as cheap labor, diversification in colors, weave, and quality. It helps highlight a distinctive feature of Vietnamese culture. Mr. Diep Thanh Kiet, Deputy President of the Vietnam Leather and Footwear Association, forecast at the 29th International Footwear Conference (IFC) that with cheap labor costs, Vietnam would be able to take over a large volume of orders in silk products. 3.2. Substitute products

Currently, artificial fibers are revolutionizing the market for their versatility, strength, lightness and durability. They look and feel like silk, but are easier to care for. Viscose and polyester have also taken some of silk’s market share. Indeed, dress made by Synthetic Fibers is cheaper, warmer, and more resistant against fiber-stress. The synthetic fibers "revolution" took place over several decades and involved many people, not only scientists, engineers, and technicians, but also consumers. However, the disadvantage of synthetic fibers is they do not allow the skin to "breath", especially the ones made from plastics (polyester), so it makes customers feel like wearing a garbage bag. Not only is it uncomfortable but it also can have negative health effects such as skin allergies, skin cancer, or regulation of skin disorders, etc. Consumers nowadays really care about their health so they focus on using natural fabrics than artificial fibers. Thus, those substitute fibers does not affect our products much.

Section 5: Bibliography http://www.usvtc.org/trade/bta/text/full_text.htm http://vietnam.usembassy.gov/sum-textileagr.html Trade Relations, Vietnam U.S. Textile Agreement Summary http://www.indiaagronet.com/indiaagronet/sericulture/contents/sericulturenews.ht m http://www.customs.gov.vn/Lists/TinHoatDong/ViewDetails.aspx?ID=17644 http://invention.smithsonian.org/centerpieces/whole_cloth/u7sf/u7materials/sfTess ay.html http://www.theodora.com/wfbcurrent/united_states/united_states_economy.html http://hdrstats.undp.org/en/countries/country_fact_sheets/cty_fs_USA.html http://fellowshipofminds.wordpress.com/2010/03/31/obama-quietly-imposescurrency-controls/

International Country risk guide, copyright, 1984-Present, the PRS Group, Inc.