Vietnam: market entry decisions

Answer the following questions:

1. Does Vietnam represent an attractive investment opportunity?

Vietnam is 12th nation in the world with more population and its economic growth is expected to keep increasing in the following years. Thanks to the Doi Moi economic reforms since 1994 the country’s GDP is the third in growth rate in Asia, the inflation has decreased from 775% to 14% and the FDI is everyday more important. Moreover, the population of the country is young (the 50% has 21 years or less) well educated and hard-working and accept low wages. Investing in Vietnam in this moment may be key to be positioned as one of the most important companies when the economy becomes stronger.

On the other hand, there are still some obstacles that the companies must face. Firstly, poverty is one of the main problems of the country. The GDP per capita is only 235$ compared to 2000$ in Thailand and a 80% of the population is still rural. Furthermore, Vietnam is governed by the only communist party.

Even though the measures taken over the last years point to the direction of opening the economy of the country, the political stability is not assured. The government is highly corrupted and it is not consistent with its regulations (high tariffs and new laws could be adopted at any time). Finally, the infrastructures in the country are still underdeveloped, partially caused by the armed conflicts suffered by Vietnam over the last decade. Power, water and telecommunications services are not reliable and the banking system is inefficient.

2. Is it too late for US companies to enter Vietnam?

No, the Vietnamese market is still developing and there are plenty of opportunities for new investors. The government is trying to attract new sources of foreign direct investment and this is a key moment to enter in the market while it is still developing. Moreover, the repatriated Vietnamese who know U.S. brands are already demanding American products. On the other hand, some Asian and European countries have been quicker investing in Vietnam and U.S. MNCs are still trying to catch-up. As Vietnam is the last “Asian dragon” the market is relatively crowed.

3. What recommendations would you make to each of the three US MNC’s regarding whether to enter Vietnam, mode of entry, and timing?

Chemical Company:

As their traditional selling approach is based on individual and highly motivated distributors who have a detailed knowledge of the products and are capable to recommend it to the potential sellers, I would advise the company to use a similar strategy in Vietnam. Since the demand is not existent and the companies need to be convinced to buy the product, it is better to use private distributors than the national ones, and to provide free training for them. That would benefit the company by obtaining their knowledge of the market and saving the high investment costs in infrastructures and supply chains.

It would be also important that the corporation made a strong investment in marketing to become a known brand in the country and that the net of distributors reached all the area. The best way to provide support and focus on marketing opportunities is to set up a Representative office (FDI, horizontal entry) in the country. This will look for suppliers who want licenses to distribute for Chemical Corporation in all the territory with the option to export.

If the company achieves to get established in Vietnam at this moment when the competition is low, it could have a first-mover advantage with respect to the future competitors.

Sports company:

First of all, it is advisable for this company to produce their products directly in Vietnam. All the labor intensive processes would be much cheaper and help to build good relationships with the local government. Moreover, it would stimulate the demand inside the nation, that will be added to the Vietnamese emigrants returning to the country (Viet Kieu) that already know the brand.

Concerning the distribution, I would recommend to use independent distributors. Following their strategy in other countries, the company should contract entrepreneurs highly motivated and give them exclusivity in their area and autonomy.

Children company:

The toys produced by the company (much more expensive than the local ones) would probably be profitable only in big cities and 80% of the population is still rural.

Moreover, even though producing in Vietnam would suppose a strong saving in cost in the labor-intensive processes, the risk of mold duplications and counterfeits is high. The imitation of the company’s products would eliminate the differentiation that allows them to charge a much higher price than the local manufacturers (15$ compared to 3$). Also, the company lacks of experience establishing a wholly owned subsidiary in a new country.

That makes advisable to wait to enter in Vietnam until the society and the retail sector are more developed.

4. What factors will determine the success of MNCs in Vietnam?

When a company decides to enter in Vietnam has to take into account diverse factors. First of all, the mode of entry ( with an import agent, a representative office, a business cooperation contract, a process contract or a joint venture) with its advantages and disadvantages and, in case of needing a partner, making the right choice.

It is also important to consider the relations of the company with the government, that can make easier or more difficult the entry and the continuation of the activity of the company in Vietnam. Moreover, the labor force will play an essential role, so choosing a country general manager with experience and a good management of the human resources may lead to success or failure. And finally, as stated before, the distribution channels are also a factor to consider when starting a business, especially in Vietnam where the retailers net is still developing.