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Vietnam Market Entry Decisions

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Does Vietnam represent an attractive investment opportunity?

Absolutely; all of the factors are present to allow Vietnam to emerge as an “Asian Tiger”:

* Economic Growth. Vietnam has been enjoying robust economic growth due to economic reform, a growing GDP, an increase in private Vietnamese-owned organizations, as well as the momentum from the large number of emerging foreign joint ventures.

* Increasing FDI. It is the consensus of many countries that Vietnam is proving to be an increasingly attractive region to do business. Vietnam is widely considered to be one of the most attractive investment opportunities in Asia, second only to China and India.

* The Government. The government’s commitment to economic reform will be the key to opening relationships with foreign firms. The government will have to make improvements across the board in order to ease market entry, but it has been moving in this direction through its entry into the ASEAN and the EU.

* Population. A large (the 12th most populous in the world), youthful (50% 21 or under) population with growing pocketbooks and a taste for Western culture.

* Labor Pool. Generally well-educated, low cost and available workforce.

On the other hand, Vietnam still must overcome some obstacles. First, its transportation infrastructure is still primitive, a result of years of war. Substantial investment in improving roadways and airports is crucial in order to facilitate distribution across the area. Next, the Communist government’s tight controls, despite its recent openness to investment, must be loosened. Likewise, corruption continues to be a major concern for investors. Therefore, although Vietnam is an attractive opportunity, investors must be cautious, but willing to assume some risk at the same time. The potential ROI may be worth the risks inherent in investing in the region.

Is it too late for U.S. companies to enter Vietnam?

No; in fact, many firms have wondered if it is still too early, given the problems with dealing with a communist government, wide-scale corruption, lack of infrastructure and a retail market still in its infancy. However, early entry can be advantageous in that it would enable U.S. firms to gain exposure to the market (via exporting or distribution agreements), and the ability to further research future investment opportunities while at the same time avoiding too much exposure.

What recommendations would you make to each of the three U.S. Multi-National Companies regarding whether to enter Vietnam, mode of entry, and timing?

Chemical Corporation:

It may be a bit early to consider entry into this market, although Chemical Corporation’s preferred mode of distribution seems to be a good fit with the Vietnamese structure of many independent distributors. A major concern is that Chemical Corporation will have an extremely difficult time competing on price and overcoming the lack of the distributor’s interest in “immersing themselves in the technology and the benefits it can deliver to its customers”. The Vietnamese government’s offer to establish an SOE manufacturing joint venture may be the most attractive option, as it will provide an opportunity to save on manufacturing costs without sacrificing the high quality it is known for. In addition, as many new manufacturers continue to saturate the region, Chemical may have an opportunity to lure these potential customers as well.

Sports Corporation:

Sports Corporation has a particularly good opportunity to enter Vietnam, primarily in order to take advantage of the area’s low-cost manufacturing capabilities. In addition, the youthful Vietnamese population will prove itself to be a potentially lucrative market in itself, given its growing incomes and taste for Western fashion. A processing contract will be the most logical, at least in the early stages of entry. It can take advantage of Vietnam’s low-cost manufacturing. First, it allows a low cost alternative to manufacture in order to export. Second it will later lay the groundwork for entering the local distribution market. Sports Corporation should look to enter as soon as possible, particularly since several local distributors are currently pursuing it to enter into ventures, but are also talking to Sports’ competitors.

Children Corporation. As with Sports Corporation, Children Corporation should look into entering Vietnam quickly because of the low cost manufacturing capabilities. However, like Chemical Corporation, it risks being pricier than its lower quality local counterparts. However, since it already has seen its sales increasing in duty free airports and other such retail channels, there may be an opportunity to further develop its relationships with distributors and begin to branch into other channels. Children Corporation should consider processing contracts in Vietnam in order to take advantage of low cost manufacturing. At the same time, with a developing retail market in Vietnam itself, Children will be able to keep its eye out for opportunities in this market as well.

What factors will determine the success of MNCs in Vietnam?

* Distribution Factors – distribution in Vietnam is very fragmented – large scale distribution of products; product inputs, etc. will prove to be difficult, given the complex and entrenched system of distribution.

* Vietnamese Government – the economy is in a state of transition; however it appears to be moving toward more openness. It will also be necessary for the Communist government to make it easier for foreign companies to enter the market. Laws and regulation will need to be streamlined, as well as relaxed in order to facilitate ease of entry into the market.

* Infrastructure – hopefully, as more FDI enters Vietnam, the infrastructure will improve over time. The costs of transportation, communication are expected to decline, while their qualities will undoubtedly improve over time. In fact, development of roads and means of transportation may prove to be a lucrative emerging market for foreign firms.

* Workforce. Vietnam’s young and educated workforce will be an important factor in any MNC’s success in Vietnam. MNC’s must not only have workers for its factories and retail venues, but it will also have to have a local pool of management and leadership to maintain a strong position in the area.

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