Business Environment

INTRODUCTION
Today, economic globalization and international economic integration is typical and common development trend of the world economy, regardless of the economy's scale and its level of development, as well as the political regimes and social in which it belongs to
On the basis of presentation and systematic overview of different market structures and market forces as well as the global factors affect to economy and shape national business activities, I strive to indicate an insight about the behavior of organizations in their market environment and how the global factors serious impact on production and business activities.
In this report, I decided to choose two organizations—including EVN (Vietnam Electricity) and VINAMILK (Vietnam Dairy Products Joint Stock Company) as well as Vietnam market, in which these two organizations operate for my further analysis to clarify these learning outcomes that mentioned above.

A. MARKET STRUCTURE
When considering behavior of market, economists have identified four types of competition in a free market system as follows—perfect competition, monopolistic competition, oligopoly, and monopoly. When classifying market, economists use these following basic criteria:
The numbers of sellers and buyers: This is a very important criteria for determining market structure. For example, in perfect competition and monopolistic competition, there are many sellers and buyers. Each of them only buy or sell a very small part in quantity supplied of market.
Type of product: In perfect competition and monopoly, products are standardized while in monopolistic competition, products are differentiated. In oligopoly, products can be standardized or just a little different, and products are very unique in monopoly.
Market power of suppliers and buyers: For instance, in perfect competition, suppliers and buyers do not have impact on market price of product, it means they do not have market power. In monopoly, because there is only one supplier in market, it has a very large impact on market price of product while in oligopoly, both suppliers and buyers may affect market price of product in a certain extent.
The barriers to entry market: In perfect competition, barriers to entry market are very low. It is very easy for enterprises to enter and get out of market. In contrast, it is extremely hard for those businesses who want to enter monopoly.
Forms of price competition: In perfect competition, it is no non-price competition. In contrast, in monopolistic competition and also oligopoly, manufactures use various forms of non-price competition—such as advertising or product differentiation. Advertising is also used in monopoly to attract more customers.

I. Perfect competition
1. Definition
Perfect competition is a competition in the economic model that has been described as a form of ideal market economy, in which there is no producer, supplier or consumer that has the right or ability to control market as well as affect to price. Perfect competition is expected to lead to higher economic efficiency. The study of perfect competition provides the basic for the theory of supply and demand and a number of other economic issues.
2. Characteristics of perfect competition
There are so many suppliers and buyers in market, primarily small firms.
Standardized products.
All sellers and buyers are fully knowledgeable about information related to exchange.
There are no barriers for businesses to entry or withdraw from market.
Non-price competition is impossible.

3. Characteristics of firms in perfect competition
Businesses in perfect competition can sell all their products at prevailing market prices. In case price of enterprises is higher than market price, the enterprise does not sell any products because consumers will purchase from the other ones. In this sense, in perfect competition, firms do not have any market power, it means there is no ability to control market price for their sold products. The output of enterprise is also small compared to supplier in market so that the business do not have a significant impact on total output or market price.
The marginal revenue curve is completely elastic, or it is a horizontal line parallel to diaphragm axis.
The demand curve of businesses is completely elastic. Firms in perfect competition stand before a horizontal demand curve for its output while the market demand curve is always a downward sloping (See in Figure 1)

4. Selecting output in short-term
4.1. The principle of maximizing profit
To maximize profits, firms in perfect competition should identify the optimal output level—it means marginal revenue should equal marginal cost
MR = MC
We can also prove this rule by Algebraic as follows
 = TR – TC
Profit () will be maximized at the point in which when one unit of output rise would makes profit not change, ie  / Q = 0 However TR / Q = MR x TC / Q = MC
Thus, we conclude that profit is maximized when: MR = MC
In addition, in perfect competition, businesses have a horizontal demand curve, so that marginal revenue curve coincides with the demand curve. In other words, marginal revenue is constant and equal with selling price. MR = P
Therefore, in perfect competition firms will choose the optimal output level to maximize profits which should satisfy the following condition: selling price equal marginal cost. P = MC
Figure 2 as below shows that firm in perfect competition produce output at a selling price that equal marginal cost, the optimal output is Q0. At this output level, profit of business is maximized, which represented by a crossed rectangular area.

Figure : Selecting the optimal output level of firms under perfect competition
Total Revenue: TR = P x Q The rectangular area OQ0BP0
Total cost: TC = ATC x Q The rectangular area OQ0CD
Total profit:  = TR – TC The rectangular area P0DCB
Average profit: /Q = [(P – ATC) x Q] / Q = P – ATC

4.2. The profitability of business under perfect competition in short-term

Case 1: P > ATC
The enterprise will choose the optimal output level that satisfy P0 = MC
Profit maximizing

Case 2: P = ATC
The enterprise will choose the optimal output level that satisfy P0 = MC
The enterprise will break even  MC = ATC

Case 3: AVC 0), the short-term supply curve of business is now a part of marginal cost curve that crosses average variable cost curve at the point in which average variable cost should be minimal, thus the supply curve of perfectly competitive firm will be marginal cost curve that above the minimum point of average variable cost.

Figure : The short-term supply curve of perfectly competitive firm

5. Selecting output in long-term
5.1. The principle of profit maximizing
As well as in short-term, the perfectly competitive firm stand before a horizontal demand curve, so the long-term marginal revenue equal selling price: LMR = P. Therefore, the optimal output of perfectly competitive firm in the long run is determined on the following principles: P = LMC — price equal long-term marginal cost.
In the long run, perfectly competitive firm will adjust the business scale so as for: SMC = LMC = P
5.2. The profitability in long-term
The same as in short-term, there are three cases that can occur with business in the long run.
P > LACmin : Profit maximizing
P = LACmin : Break-even point
P < LACmin : Capital losses  Risk of withdrawing from market.

Competitive equilibrium in long-term
In the long run, the economic profit that perfectly competitive firms obtained is only Zero.
Perfect competition will achieve equilibrium in long-term when:
P = LACmin = LMC = ATCmin = SMC
5.3. The long-term supply curve of perfectly competitive firms
In the long run the number of firms is not fixed anymore, so the shape of long-term supply curve depends on market that has constant cost or increasing cost.
Constant cost: In this market, the entry of firms will not affect to input costs of businesses in market— it means cost will remain as original.
Increasing cost: When new entrants enter market, production cost increases, enterprises increase  price of some input factors increases.

II. MONOPOLY MARKET
1. Definition
Monopoly, in economics, is one of the market structures with only one supplier and its products have no substitute goods.
2. Characteristics
On the market just have one supplier.
Products are unique.
It is difficult to entry market. firms demand curve is market demand curve.
Non-price competitive is not essential  business in monopoly market is complete “Price Maker”.
Have high power on the market.
High long-run economic profit

3. Cause of monopoly formation
Ownership of raw materials — control of scarce resources
Due to the provisions of law (Legal Monopoly)
Due to economies of scale (Nature Monopoly)
Due to ownership of patents and inventions

4. Short-term balance of monopoly market
To maximize profits: MR = MC
To maximize revenue: MR = 0
In accordance with the general conditions, to maximize profits, the monopolists will choose output on the principle: marginal cost equals marginal revenue (MC = MR).
Output that maximizes profits is output Q which determined corresponding to the intersection E between MC and MR. The typical price P which is set by business will be the extent that consumers are willing to pay when the output is Q.  P > MC

5. Society loss
In perfect competition, firms set P = MC to ensure the optimal output for society. However in monopoly, firms set price higher than marginal cost P > MC so that the optimal output is not optimized for society. Thus, the monopoly power resulted in the selling price is higher than marginal cost and the output is lower than optimized output for society. Thereby causing the society loss.

Two part pricing regulation
Price ceiling is set at PC
Monopoly firms will incur a loss PAPCEB

Allow monopolist to charge a fixed fee so that the loss will be recovered.

III. OLIGOPOLY & MONOPOLISTIC COMPETITION
Oligopoly and monopolistic competition have much in common, but among them there are some important differences. Both are examples of imperfect competition in market structure, however, while oligopoly includes a small number of relatively large companies with significant barriers to entry, monopolistic competition consists of a large number of small companies with ties to penetrate market or retreat freely.

IV. COMPARATION BETWEEN MONOPOLY MARKET AND PERFECT COMPETITION
Perfect competition
Monopoly market
 Businesses are price takers.
 P = MR
 The supply curve is also the marginal cost curve.
 Very easy to entry and exit.
 None market power
 None long-run economic profit
 Businesses are price makers.
 P > MR = MC
 No supply curve  Difficult to entry market
 High market power
 High long-run economic profit

V. VIETNAM ELECTRICITY (EVN)
Nowadays the participants in the electricity market are almost state-owned companies—i.e. EVN, PVN, VINACOMIN and other independent power producers (IPPs). Among them, EVN is the largest and monopoly Power Company, in Vietnam EVN’s monopoly is a form of nature monopoly with holding more than 64% of total electricity production, holding the entire stage of transmission, power system operation, distribution and electricity retailing.
The only buyers and electricity distribution
Monopoly in the electricity sector.

Electricity is a special commodity which has a large impact on life and economy, but the power industry is always slow to overcome the shortcomings. It’s worth mentioning that due to poor management causing losses in power supply, but EVN charged this losses amount to expense
Increase price to offset those costs.
Households and businesses are forced to buy electricity with the price set by EVN while the quality of service and the supply are very low and inadequacy. EVN's monopoly made disadvantages always belong to consumers.
Capital investment for power is still lack  Power supply is not enough to serve the demands, causing electricity shortages, rolling blackouts that have a huge impact on the lives and national economic activities.
Electricity prices have increased, but never decreased.
Weaknesses in the ability of power supply, EVN poured burden on consumers.
The monopoly made power sector develop slowly which greatly affects to economic growth.

VI. BUSINESS ENVIRONMENT
1. Political
Politics in Vietnam remains stable and create confidence among domestic and foreign firms to invest in peace of mind, production and business operations.
Stable politics  Attracting a large number of foreign investors in Vietnam power industry. However, the EVN’s monopoly still cannot be broken.
2. Economics
The economic growth in Vietnam is pretty high in recent years (See Figure 6)

Figure . GDP growth of Vietnam has been being in the long-lasting decline phase

In 2013, the national competitiveness index of Vietnam in the rankings of World Economic Forum (WEF) increased 5 levels. It is a good sign for prosperity of Vietnam economy in 2014.
However, due to the increasing inflation  input cost
Affect to business activities of EVN, because electricity demand increases while supply cannot meet.

3. Social — Cultural
Vietnam is still a developing country, thus the necessary consumer demand for life still makes up a very high proportion in consumption structure—approximately 50%, and it will remain for many more years when people's lives are improved. In Vietnam today, the growth rate in electricity demand is always higher two times than the growth rate of GDP. However while electricity demand increases, supply of EVN cannot respond.
Besides, Vietnam has a young population with rising household incomes  Favorable for EVN to become price maker in market  Profit maximizing but also cause society loss.
4. Technology
Strong investment into infrastructure has been combined with tax cuts, reduce land lease and service prices, as well as electricity for both domestic and foreign investors—according to Lehmann (2010).
Environmental technologies increasingly modern and accessible has helped businesses solve environmental problems in the best way. The only downside is that these technologies are often quite expensive. In addition, equipment and technologies are more modern help EVN improve capacity and increase productivity that create competitiveness for EVN.
Strong impact on the production and business of EVN—create favorable conditions for EVN in producing, concentrating, transmitting and distributing electricity to households and residents in Vietnam. 5. Legal
The legal system is increasingly complete construction that creates a legal framework for economic activities, forcing enterprises to accept state regulation of the economy in Vietnam market today. Besides, the legal system also simultaneously maintain political stability and create confidence among investors as well as business activities of enterprises.
6. Environmental
The climate of Vietnam is tropical monsoon which is characterized by monsoon rains and flooding.
Besides, we also frequent experience extreme natural disasters such as tropical storms, drought or up to four typhoons each year.
Affect greatly to production and business activities of EVN.

B. THE SIGNIFICANCE OF GLOBAL FACTORS THAT SHAPE BUSINESS ACTIVITIES
I. The significance of international trade
1. General impacts of international trade
International trade is the expansion in the exchange of capital, goods and services beyond national borders. Besides, when the world economy grow rapidly as today, the concept of international trade has been expanded, including import and export goods, capital and labor.

Development opportunities in integration process after Vietnam joined WTO in 2007
Expand the export market
Attract capital invested development from both domestic and foreign.
Favorable conditions for improving quality of human resources.
Comprehensive renovation of Vietnam economy
Contribute to narrow the development gap between Vietnam with other countries in the region and the world.

Challenges for development process
Increasing competitive pressure
Poor infrastructure.
Low quality of human resources
Gap between the rich and the poor increases  Destabilizing society.
After Vietnam joined WTO in 2007, production and consumption of economy expanded and had positive impacts on GDP. In terms of production, the growth rate of GDP increased. Because when Vietnam took part in WTO, protection barriers were cut, Vietnamese enterprises then faced with stiff competition pressures not only from domestic but also from foreign enterprises. Thus, resources were mobilized and used more efficient by reducing protectionism and increasing competition in market.
Net-profit ratio / capital and real exchange rate increase. Impacts on budget and terms of trade (TOT): Reduced tariff barriers under WTO’s commitments made Government’s total collect import tax fell and also decrease the TOT, due to export goods of Vietnam were cheaper because of the low input costs, especially after the elimination of quotas.
Impacts on export and import structure: Due to Vietnam currently joined AFTA-China, AFTA-EU under which the tariff reduction commitments is stronger than the tariff reduction commitments upon WTO accession. Moreover, Vietnam also signed Bilateral Trade Agreement between Vietnam and United States, but this agreement was mainly meaningful on opening services market and just mentioned a little about tariff lines. Therefore, exports to American market increased rapidly, but there's just a small impact on increasing exports to the Chinese market as well as ASEAN countries and EU 25.

Target
Term 2 – July 2014
(billion dollars)
+/- Previous period (%)
Accumulated
(billion dollars)
+/- Same period (%)
Exports
7,09
21,7
83,98
14,7
Imports
6,81
12,0
82,39
11,6
Import and Export
13,90
16,7
166,37
13,2
Balance of Trade
0,23
-
1,60
-
Figure : The situation of import and export in Vietnam
(Source: Vietnam Customs)
Furthermore, reduced import tariffs under WTO accession commitments will expand Vietnam market for many exporters other than ASEAN, EU and even China which is benefiting from Situation of Reference from multilateral FTAs.
Namely, after six years joining, growth of export is pretty high with the average rate of 19.5% per year. Export continued to increase over GDP, from 65.2% to 79%. In parallel with the growth rate of export, the flow of goods imported into Vietnam also increased rapidly with the average growth rate of 18.9%. Figure 7 above indicates the latest statistics about the situation of import and export in Vietnam during term 2 of July.
Besides, Vietnam currently has focused on specialization producing goods that we have comparative advantage that lead to increasing the total social products.
On the other hand, when Vietnam open economy, competition pressures from international organizations would lead to the risk of bankruptcy of enterprises and losing the domestic market to foreign competitors and resource degradation due to low competitiveness of the country. Therefore, to maximize opportunities and minimize the undesirable effects of the international economic integration, Vietnam government should have policies of protectionism to protect domestic firms from international competitive pressures.
2. Impacts of international trade on VINAMILK
The integration process of international economic has brought positive results and deep impacts on the economy and society of Vietnam. However, everything has both main and effect sides. And I chose VINAMILK for my further analysis about the impacts of international trade on Vietnamese organizations.
Opportunities
Challenges
- Help VINAMILK approach international market—European, New Zealand, America and China easier to import raw materials.
- International trade contributes to help Vietnam economy develop  GDP  demand for drinking milk increase  Benefit
- High import costs  Negatively affect to production and profitability of VINAMILK.
- Consumption market subjects to competition from imported products with well-known international brands, such as Abbott, Mead Johnson, and Frisco.

II. GLOBAL FACTORS
1. Exchange rate
Exchange rate is the comparative relationship of purchasing power between currencies together. It is a conversion price per unit of domestic currency into currency units of other countries.
The nature of exchange rate is a price of specific good—that is currency.

2. Economic significance of the exchange rate
2.1 Comparison between the purchasing power of currencies
Exchange rate reflects the relative value between two currencies, through which compare price in domestic and international market, thereby assess the productivity and price of domestic products to other countries.
2.2 Stimulating and regulating import and export
In Vietnam, exchange rate is formed based on the supply and demand of foreign currency which are regulated by the state. Exchange rate not only affects import, export, balance of trade, national debt and direct investment but also affect significantly to public trust. Recently, the overall balance of payment in Vietnam is relatively balance—export surplus and import surplus are negligible, thus import surplus is not a big pressure.
If national inflation is lower than in the world  Goods become more expensive  Increased demand for imported goods and reduce the demand for domestic goods  Increased demand and reduced supply of foreign currency  Exchange rate increase  depreciated domestic currency  Export will inevitably increase. And vice versa.
Domestic short-term deposit interest rates is higher than short-term deposit rates from other countries  Foreign currency supply increases  Exchange rate decreases  Opportunities to import at cheaper prices due to the price reduction.
The exchange rate of Vietnam is tend to depreciated, as mentioned above, it means export will increase, facilitate for VINAMILK to export milk products into foreign countries, namely USA, Australia, Canada, Russia, Korea, Middle Eastern countries and so on.

3. Labor movement
For developing countries like Vietnam, the economic structure is still very backward with most of the working population in the field of agriculture while industry and services is on the rise, thus there is a need for receiving the low level of technology to involve in the world market step by step. The encounter between supply and demand for low-level technologies that accelerate the process of technology transfer and direct investment in developing countries—which make economic structural changes in Vietnam today. Economic structural changes lead to structural changes, significant impact on the quantity and quality of labor, because labor is considered as an important resource for economic development.
For developing countries in transformation process, economic structures have always been modified to suit the development of the world. Markets are frequent fluctuate, labor market is constantly fluctuating in respond to the demand of the economy. Component of private economies increased, attracting qualified workers that solve the employment needs of the economy. On the other hand, public economies as well as economic sectors with foreign investment also require a high level employees with technical expertise and management skills so as to respond integration requirements—that create pressures on labor market and may cause employment.
The economic structure change leads to the changes in labor demand. Meanwhile, the supply of labor increases constantly creating enormous pressure for labor demand. Thus, economic development also means with increased demand for labor, focusing on those industries that can attract more workers and create more jobs for the economy, and also consistent with the industrialization and modernization of Vietnam today.

III. VIETNAM TRADE UNIONS POLICIES Over 80 years was born, developed and grown, the Vietnam Trade Union always side by side with the working class and all the people of Vietnam.
In essence, the function of trade union is objective, it does not depend on external imposition or the willing and aspiration of each unionists, and it is determined by the nature, the position and the role of Vietnam Trade Union.
The function of the Vietnam Trade Union in building socialism is qualitatively different with the addition of several new functions. The difference is due to the working class and the trade union organization is located, play an important role in the new historical circumstances. The main functions are:
1) Participate in management functions—show the rights of trade union and workers in terms of government belongs to the working class people. Simultaneously, it is also to protect the immediate interests and long-term interests of workers, collective and state radically from the origin and bring into play the participation in the management role of trade unions.
In VINAMILK, to implement well management functions under Vietnam Trade Union policies, VINAMILK trade union promoted these activities as follows:
Organizing good labor emulation movement for workers and employees.
Involved in materials management, engineering, finance to reduce consumption per unit of product.
Participating in the development and implementation of regulations and policies related to employees.
Organizing conferences of civil servants, workers and employees congress and annual labor.

2) Education function: make employees fully aware of their personal benefits should associated with the production and business results of enterprises and the common interests of the council. Thereby strengthen labor discipline, building a sense of voluntary, self-discipline in labor and work.

3) Function to protect the interests of workers: In open conditions, integration and development of socialist oriented market economy, all enterprises are encouraged, the number of workers outside state tends to increase  Relations between owners and workers, the situation of rob and constrain employees have been happening daily, weekly and tend to develop.

In that situation, VINAMILK trade union always strive to perform well this function—protect the interests of workers, employees and union workers by these following actions:
VINAMILK trade union associated with party organizations, government and businesses to find jobs and create working conditions for employees and workers.
Representing workers and employees, VINAMILK trade union signs a collective bargaining agreement.
Participating in negotiation and settlement of labor disputes.
Organizing strike under the Labor Code.
Manage and use of collective welfare, social insurance, health insurance and labor protection.
Settlement of complaints and denunciations of workers and employees.
Development of cultural activities—such as arts, physical training and sports, travel and relaxation.
CONCLUSION
Through this report about market structures and market forces, as well as the significance of the global factors that shape national business activities, we have a deep insight about each type of market structures and its characteristics as well. In addition, we have more knowledge about how the international trade affect greatly to Vietnam economy and some important global factors such as the exchange rate and labor movement that serous impact on organization through the analysis about VINAMILK Company.