Since vietwine was the only local supplier at the time, they dictated the wine market, which is a monopoly market
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INTERNATIONAL TRADE
GROUP ASSIGNMENT 1
ECON1296
Class group: HN_G02
Lecture: Phan Minh Hoa
Wordcount:1094
Team: 04
Team members:
Nguyen Ngoc Ha My – s3567911
Nguyen Trong Minh Quang – s3828676
Nguyen Tung Lam – s3821861
Vu Quynh Chi –s3821006
Vu Truong Son –s3743874
Question 1
a.
Since VietWine was the only local supplier at the time, they dictated the wine market, which is a
monopoly market, a market structure in which a single firm sells a single commodity in the mark
et, and faces no competition (Economic Times, 2021), as shown in the graph below.
Figure 1. Monopoly model for Vietnamese wine industry
After 2014, VDC joining has a big impact on the market. With it entering, there will be many
other firms that will join Vietnamese market since Vietnam allowed tariff reduction for Chilean
wine. In the future, many firms will be in the market, the Vietnamese wine market will shift from
a monopoly to a monopolistic competition, which is defined as an industry that has multiple selle
rs and buyers, and each firm provides similar but no homogeneous product (Pettinger, 2019). As
more competitors join the market, each firm has an incentive to lower its price, higher its quality
to attract more customers, indicating a more diverse variety of wine at lower prices, hence, the m
arket demand for wine will increase.
Figure 2. Monopolistic model for Vietnamese wine industry
The demand curve flattens and in the short run, firms can make profit at Q2. But as time pass, the
demand will shift down due to competition and firms will again make zero profit. Consumers are
now more sensitive to the price level of the product, since they now have more options for wine,
leading to a more elastic demand curve that shifts down as in figure 2.
b.
The biggest change expected in the Vietnamese wine market is the shift from a monopoly market
to a monopolistic market. As a monopoly, VietWine had the control on price. However as other p
layers join the market, the price of foreign wine becomes more attractive than Vietnamese wine.
Accordingly, VW will have to adjust prices to compete, and the prices of wine in general is expe
cted to decrease. Indicating that the wine industry will be more competitive as consumers having
more options, more players participating, hence, the market is expected to grow in the future. Fur
thermore, consumer behaviour is also expected to change. Before 2014, due to the limitation of t
he wine options, there was only 1 to 2 customer segmentation. Yet, since more players are enterin
g the market, there will be more segmentation.
In terms of welfare implications, as competition increases, society benefits the most from price re
duction and more product options as well as higher quality.Chile wine producer will also benefit
as it has a bigger customer base while Vietnamese wine producer will have a hard time.
c.
According to our theory, with the free trade agreement entered into force on 04 February 2014, w
e would expect the demand for wine would increase compared to before 2014. Observing histori
cal data, in EVBN 2013’s report, Vietnamese consume about 35 million liters of wine, however,
after the agreement in 2014, this number increased to 70 million liters in 2015, and was forecaste
d to go up to 100 million liters in 2020. This supports our theory, in which the market reacted pos
itively to the reduced tariff with the consumption representing the demand for wine.
Figure 3 . Vietnam’s alcohol volume breakdown, 2013
Generally speaking, Vietnamese does not have a preference brand for wine, therefore, most bran
ds are substitutable. According to Best wine importers (2019), there are several competitors in th
e market, including The Warehouse, T.K. Distribution Corporation, Da Loc Fine Wines & Spirits
or Vinifera. This makes the market become a monopolistic competition, since there are multiple s
ellers, and their products are also varied from each other.
While we cannot find a reliable source for historical data on price, we believe the lower tariff wo
uld help to bring a lower price to consumers. Currently, Vietnamese wine and Chilean price is rea
lly close to each other in terms of price like Chateau Dalat (235.000 VND) compared to Tripantu
Sauvignon Blanc 2019 (250.000 VND). With more and more competitors joining the market, and
the lower tariff, Vietnamese wine cannot hold its ground as the only supplier and be the price ma
ker anymore. It is necessary to reduce Vietnamese wine’s price to be more attractive, their quality
to be higher to satisfy their customers as they could just choose Chilean substitution if the price i
s higher. In the long run, the economic profit would be very small or no profit, depending on the
competitiveness of the market.
Question 2
a.
Vietnam has trading partners worldwide with many free trade agreements such as EVFTA, CP T
PP and RCEP. Trade patterns of Vietnam are illustrated below showing how Vietnam participated
in international trade in 2 globalization waves, with Globalization 3.0 from 1998- 2008 focusing
on worldwide supply chain and Globalization 4.0 from 2008 concentrating on digital goods and s
ervices (Vanham P, 2019).
According to OEC (n.d), in the first period, from 2000- 2008, Vietnam exported mostly crude oil
s, counting for 20.2% in 2000 and 15.1 % in 2008 of the total exports. However, since 2009 onw
ards, the export structure has shifted to technological industries. Particularly, in 2019, Vietnam m
ain’s exports are broadcasting equipment and telephones with percentages of 15.1% and 6.5% res
pectively.
Refined petroleum was the most imported product in 2008, accounting for 14% of the total impor
ts. However, as the country has become more involved in the technological industries, integrated
circuits have replaced to make up 10.3% of the total imports
In terms of service trade, Vietnam’s service imports and exports are primarily sea transporting an
d traveling respectively throughout the studied years, with total service trading in 2019 was $34.
7 US billion.
As we can see, exports of Vietnam had increase quickly after second globalization wave, and this
is reasonable as technological products are worth more.
Figure 4. Vietnam exports from 2000 - 2020
Source: Trading Economics.
Besides that, the country’s balance of trade is positive now, as illustrated by the figure.
Figure5. Vietnam balance of trade from 2000 - 2020
Source: Trading Economics.
This is an indication for economic growth, but also signifies that Vietnam is becoming more relia
nt on the international trade.
b.
Thailand plays a prominent role as a bilateral trading partner with Vietnam. Being a country
abundant in natural resources, oil is a big export Thailand made to Vietnam. Thailand also
exported a huge number of machinery, nuclear reactors, boilers to Vietnam, being the second
highest export to Vietnam in 2019 with value of 1.46B USD (Trading Economics, 2020).
Vietnam’s biggest export is electronics and Thailand is also one of our customers as their biggest
import from Vietnam is electronics.
For Malaysia, Vietnam's import products also have the same trend as that of Thailand, with a larg
e number of mineral fuels and oil coming in from 2016 and hitting its peak in 2018 with around
2,25B$. Footwear and electronics was exported in large quantity by Vietnam to Malaysia. While
Vietnam exports to them are rather moderate, the country’s imports from both Thailand and Mala
ysia were at an all-time high in 2018.
Despite losing capital when trading with Thailand and Malaysia, Vietnam still maintains a positi
ve TOT in general along with Thailand, while Malaysia is struggling to raise above the 100% ma
rk (refer to fig 3, 4, 5).
c.
The biggest Vietnamese export to both countries was electronics devices. Electronic sector is one
of Vietnam’s biggest and fastest growing sectors, being the 12th largest exporter of electronics in
2019 (Nguyen, 2020). Vietnam largest export is electronics shows that Vietnam can produce elec
tronics at a lower opportunity cost and therefore have a comparative advantage over both Malays
ia and Thailand. Because the electronics industry enjoys customers from both inside and outside t
he country, this sector has grown continuously, at an average rate of 14% per year (InsightAlpha,
2020). From the graph we can see that this sector had grew quickly over the years.
Figure 6:Vietnam’s export value of electronics products
Another product Vietnam has a comparative advantage is footwear as shown through our high ex
ports of footwear to Malaysia and Thailand. Similar to electronics this sector experience constant
growth.
Figure 7:Vietnam footwear production
Both countries largest export to Vietnam were oil. While we do have these resources in our count
ry, we are not very efficient in extracting and refining them. Therefore, Vietnam has a comparativ
e disadvantage in producing oil and petroleum compared to Malaysia and Thailand, and import o
il and petroleum from them.
Figure 8: Vietnam oil production
As we can see, oil production in the country had been decreasing in recent years. This is because
the opportunity cost for producing oil is high and we would benefit more from importing. Becaus
e of the high import in oil, Vietnam’s oil industry had suffered due to the competition.
Another big import of Vietnam from Malaysia and Thailand is steel. We have a comparative disa
dvantage in producing steel and therefore it is cheaper to import steel. The industry have taken a
toll due to trade and growth rate had continuously decrease over the past 5 years.
Figure 9: Construction industry and domestic steel consumption growth
Overall, for industries that we have a comparative advantage in, the industries all thrive and grew
quickly thanks to enjoying a larger body of customers. But industries that have a comparative dis
advantage suffer from the competition from outside the country that have cheaper costs.
Appendix
Fig. 1 (Extracted from (Thailand exports of machinery, nuclear reactors, boilers to Vietnam - 19
89-2019 Data | 2021 Forecast, no date))
Fig. 2 (Extracted from (Thailand exports of vehicles other than railway, tramway to Vietnam - 19
89-2019 Data | 2021 Forecast, no date))
Vietnam Imports from Thailand
Vietnam Export to Thailand
Vietnam Import from Malaysia
Vietnam Export to Malaysia
Fig. 3 Vietnam TOT ( Extracted from (Vietnam Terms of Trade | 1991-2019 Data | 2020-2021 Fo
recast | Historical | Chart, no date))
Fig. 4 Malaysia TOT (Extracted from (Malaysia Terms of Trade | 2008-2021 Data | 2022-2023 F
orecast | Historical | Chart, no date))
Fig 5. Thailand TOT (Extracted from (Thailand Terms of Trade | 2000-2021 Data | 2022-2023 F
orecast | Historical | Chart, no date))
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