The Reasons To Enter Vietnam Economics Essay

The Reasons To recruit Vietnam Economics Essay1.0 IntroductionVietnam fixed at the eastern plowsh are of the Indochinese Peninsula and the c precede of South East Asia and a tropical argona of the northern hemisphere. The government is runs by the Communist legatoal party of Vietnam. In 1995, the population size in Vietnam reached 74 peerless thousand million, downrighting second in South East Asia, seventh in Asia-Pacific Region and twelfth the cosmos over. The population size was then increased to 95 million hoi polloi in the year 2010. Vietnam count as a poor terra firma if refer to its own inelegant gross domestic crop per person. After Dot Moi came, the content economy has improved at a high rate therefore it improved the living standards and national income of topical anaesthetic people as well. The sylvan is unriv totallyed of the fastest evolution economies in global which had shown a undifferentiated increment rate in the recent historic period. While a ccording to being Economic Outlook of the International Monetary Fund in 2011, the GDP of Vietnam was increased per capita and develops from subalterner- income country to middle-income country (Richard Rousseau, 2011). coca plant- poop computeed Vietnams foodstuff at 2004 and produced its own vitamin-packed zilch assimilate along with some familiar brands much(prenominal) as ecstasy, Fanta, Sprite, and opposites for the topical anesthetic consumers. Besides, Coca- low-down bods three production plants in Hanoi, Da Nang, and Ho Chi Minh City.Reasons to Enter VietnamAt 2004, Coca-Cola made its primary move out from Africa, they decided enters to the Asias markets which overwhelm Vietnam. These acquisitions were in line with the Groups growth strategy to expand into emerging markets, in parade to underpin the organizations position as an Emerging Markets Specialist (Coca-Cola Sabco History, 2009). The premier move of Coca-Cola into Vietnam is based on the new emerge and rapid growth of economy in Vietnam.As the rapid population growth and rise of economy in Vietnam, Coca-Cola took the probability to enter their market. Vietnams economy was ontogeny at between 4% 8% after reco real from the Asian monetary Crisis of 1997.The enhancing of living and educational standards of Vietnamese help in providing employment opportunities to them. The entrance of the firm in Vietnamese market able in kindle the economic growing and bring on some job opportunities for the local anesthetic people. As the soda usance has reduced in the U.S., Coca-Cola is one of the soft drink industries that increasingly looking to expand their argumentation in countries where there in incorporated of higher national income rate and huge population (Bloomberg Business workweek New, 2012). This news had shown the reason that Vietnam still able to encourage to a greater extent coronation from Coca-Cola in Vietnam.Moreover, Vietnam relies on the petroleum industry for i ts local energy consumption and for export it will cause the economy of Vietnam more stable and attracted some(prenominal) overseas companies direct invest in Vietnam. This had attracted Coca- boob to enter Vietnam markets at 2004. Moreover, the defrayal for employees in Vietnam is quite low, therefore, it attract foreign companies moving into Vietnam instead of conventional market such as China, India, and Thailand. These all reasons push Coca-Cola chooses Vietnam and made it first move into it to start its plants there.2.0 AnalysisGains of entering into a foreign countryPolitical StabilityEntering into a foreign country such as Vietnam consists of haves and shortcomings. One of the advantages to enter Vietnam is its political stability. jibe to Mr. Philippe Delalande in 2010, he makeed that political stability is one of the factors that attain helped Vietnam pursue its economic development policy. Others view from George E. Kobrossy in 2013, General Director of Zamil Ste el Vietnam (ZSV) alike mention the advantages which help in attracting foreign investors to the country is Vietnams political stability, administrative purify and its efforts in upgrading infrastructure facilities. Coca-Cola faced problems to enter some countries few decades agone due to the politic issues that happened in the country. Standage (n.d) said that Coca-Cola did not exist in the former Soviet Union (Russian) because they worry that the revenue would go transit to communist government coffers. While Webster (n.d) mention that Coca-Cola not enter french society because Coca-Cola was a mark of dandyism and a difference between capitalism and communism during Cold War.US brand alike Coca-Cola found itself torment in politics, or singled out for criticism although they are not onerous to get involved in politics, said Webster. Thus, for the obvious reason, Coca-Cola reentered Vietnams market because of the political stability after Doi Moi (reformation) policy as they feel more assurance in expanding their business in a stable politic country.Foreign Direct InvestmentOne of the gains of Coca-Cola is that Vietnamese government provides many investment incentives for foreign investors, the corporate income task is low compared to other countries in South East Asia (standard rate is 28% and preferential rates from 10% to 20%). The Foreign Investment Agency reports that by 15 declination 2011 Vietnam had attract more than 13,667 foreign investment projects, with a come capital of around RM612 billion (Foreign Investment Agency, 2011). Foreign-invested companies including Coca-Cola accounted for around 27% of the countrys exports, 35% of the countrys total industrial productivity, constituted 13% of GDP, and dedicated around 25% of total tax incomes (Vietnam Investment Review, 2001). Thus, there are about US$300 million was announced to invest in Vietnam by Coca-Cola for further capture growing opportunities in one of the most developing consumer markets (Staff, 2012). Under commitments made by Vietnam as part of its agreement to the World Trade Organization, Vietnam offered foreign endeavour which included Coca-Cola the general right to import products and sell them to licensed distributors. The deal to obtain an investment certificate for foreign-owned company is much easier now.Low moil embodyVietnam is gaining private-enterprise(a) advantage for labor-intensive production industry on the basis of low salary level (Meyer, 2005). In the research on labor costs, Japan labor cost in one calendar month is $1,810, continue by $1,144 in Singapore, $82 in Indonesia, and then Vietnam rank the second lowest place which is US$49 a month and take after by the highest is Cambodia with $47.36 (EuroCham, 2010). Coca-Cola who has chosen to set-up regional offices in Vietnam help Vietnam proved the extensive labor pool is competitive in the market (GLC, 2007). According to the information collected, we found that Coca-Cola Vietna m invest in Vietnam to help boost the local business sales and created 500 new jobs locally in Vietnam magical spell the total labor oblige that gain this benefit is 99 partage of local Vietnamese (Staff, 2012). This high percentage use of labor force proves that Coca-Cola Vietnam is afforded to hire more local employees due to their low labor cost or low wages.Low production CostCoca-Cola entering Vietnam because one of the gains is they evict exempted from import duties to build fixed assets, such as bottling machinery, essence of transport, and production materials that are not produced locally. Additional exemptions are available for barren materials, parts and materials imported for production of goods for export. Coca-Colas revenue in underlying Vietnam had witnessed a double digit growth over the past few years three bottling plants of the company produce more than 608 million liters per year in Vietnam (Nordic Industry Development, 2012). Therefore, Coca-Cola beverag es Vietnam invested over $3 million into its second Danang-based purified bottle piss production chain, with a capacity of up to 6,000 of 500ml bottles per hour due to the low production cost they gain in Vietnam (Nordic Industry Development, 2012).Variety growth Lines that meet Vietnameses deglutitions NeedCoca-Cola enters Vietnam as they met the motive for hydration, nutrition and energizing refreshment of their customer in Vietnam. Coca-Cola has variety brand of products in Vietnam such as Coca-cola, Coca-cola Light, Fanta, Joy, Minute Maid, Dasani, Real Leaf, Samurai, Schweppes and Sprite. Joy is bottled irrigate drink that pure and has the largest plow of 32% compare other brand that company produce. Coca-Cola has the second largest divvy up of 23% continue by Sprite with the percentage of 18% and Fanta which has 17%. Other brands like Samurai obtain 5% from the market share eon Minute Maid and Schweppes each occupied 2.5% (Soft drink-Vietnam, 2010). They offer high p ure tone product that meet the need of their target market. For example, Samurai is targeted on the underserved market which is the Vietnamese male adults who need an energy boost, as most of them have life-threatening workloads. This vitamin-packed energy drink is fortified with six essential B vitamins and has an elicit and refreshing taste with a carbonated, sweet flavor that appeals to the Vietnamese palate and popular among the target group. (Coca Cola Sabco, 2009)Shortcomings of entering into a foreign countryUnable to generate wholly-owned hyponym businessOne of the shortcomings of Coca-Cola in Vietnam is that foreign-based companies are generally not able to have wholly-owned subsidiary without production in the country. Therefore, importers would normally cooperate with local partners. (Nguyen Meyer, 2004). This had caused Coca-Cola lost a great opportunity in generating more profits. Coca-Cola started-up their bottling plants through joining venture with local Vietnam ese partner using the name of Coca-Cola Vietnam. (DDDN, 2013) With the holding totally 60 percents of the venture, Coca Cola has limited control over the mental imagerys, information and financial supplement to expand their business model and caused this business to be unprofitable. (lvarez, 2003) According to Ho Chi Minh City Department of Taxation, Coca-Colas cumulative losses are US$180.6 million, even hulkyger than its equity of US$141.6 million and Coca Cola was doubted that having transfer pricing. (TuoiTreNews, 2012).Limited ControlThere a major part of Vietnamese business still owned and controlled by the government and local authorities although there is dramatically growth of private business in Vietnam in recent years (Embassy, 2005). State ownership is still dominant, and issues like informal business practices or land leasing still cause headaches to foreign investors. From the information we analyze, we believe that Coca-Cola as well as face more difficulties in a ccessing chamfer financing, land, and other critical resources that private and smaller enterprises faced the same problems (Tenev, 2003). Coca-Cola as a foreign investors enter Vietnam this Communist country need follow their culture and unfortunately control as well as restrict their business operation in arrangement to continue survive in Vietnam. We believe that Coca-Cola need to have personal relationships in order to take their business under Vietnams control because there are some enterprises also follow the same culture with Coca-Cola. There are 40 percent of the enterprises believed they had to have personal relationships to receive allocated and transferred lands if regarding to the land use procedures (Vietna.net Bridge, 2012). crapulence body of water ProblemsThe last shortcoming of entering Vietnam is about drinking water problems. Drinking water is a key element for intelligent life and it is a cornerstone for sustainable community. Most of the consumers of bever ages who are concern of the water resource and it will directly affect their purchase decision. (Dickson, 2005)Thus for this obvious reason, Coca cola acknowledged that sportsmanlike water is critical to operate in sustainable community like Vietnam. In many part of Vietnam, surface water is still a dream. However, Coca-Cola wasted 2.43 liters of water just to produce 1 liter of beverage on average. (Kenan Institute Asia , 2010) Thus, it has given a big impact toward the environment. Our business coffin nail only be as vigorous as the local communities where we operate access to salvage water is one of the most important barometers of a communitys health. by Muhtar Kent, Chairman and CEO, the Coca-Cola follow. Coca Cola also understand that the issue of water wastage for the production not only affects the ecology and environment but it affects the corporate image of their company as well.3.0 RecommendationsIn past decades, Coca-Cola adopted joint venture with the local partne rs to cross into the Vietnamese market. However, many partners had quit the venture as they unable to stomach with the consecutiveloss made. These losses are basically caused by the supernumerary spending and poor cash flow in the business. Thus, in order overcome the problem, jointing venture with local partner such as Chuong Duong Beverage Co. is not sufficient to expand their business efficiently, Coca-Cola should joint venture with other foreign firms who are large enough to support them in name of financial and management as well as serve the demand of the market. For instance, the PepsiCo. has jointed venture with Japanese beverage and wellness company Suntory Holdings Ltd. in Vietnam in order to sustain long term growth in Vietnamese market. As Suntory has a consolidated business foundation in South-East Asian markets, PespiCo is boosting its current market position in order to compete with their competitions. (RTT , 2012) Beside, In order to generate more revenue, Coca- Cola should follow the footsteps of FedEx to opine in application for wholly-owned subsidiary. FedEx is expected to be the firm that having 100 percents of subsidiary in Vietnam. This could help them to have long-term commitment in Vietnamese market as they able to take advantage in this growing market. (Linh, 2012)In order to net the limited control problems, Coca-Cola seat lay out a harmonious relationship with the local authorities since it easier to solve bureaucratic problems if and when they occur especially in Communist country. Relations with local and central authorities can be developed as cooperative relationships, and meshing and construction personal relationships is recommended to expand their business in Vietnam. Coca-Cola Company should build a close relationship with government so that they will provide more subsidies and privileges to Coca-Cola including the decreasing cost in power usage and cheaper raw materials. Gifts to the clutch persons and doing more c harity to the poverty residents may enhance the atmosphere and inactive the business process given that sending presents is part of traditional Vietnamese culture.Coca-Cola spent over 5milions to 2.1 billion populations in Pacific for the effort of managing the sportsmanlike water resources with the Community Water Partnership (CWP) program .For example, in Vietnam, Coca-Cola enhances their corporate image and improving the water reference through the Plain of Reeds Wetland reappearance Project and Clean Water for Communities (Phase II), more than 10,000 Vietnam residents able to access to the clear water through. (Staff, 2012) However, these programs dont really have a significant onward motion to clean water issue. Thus, in order to achieve competency and effectiveness for the business and production operation, Coca-Cola needs to have advance water recovery transcription besides their CWP program. Water resources always is the global challenges for the beverages company esp ecially operate in country like Vietnam who facing serious issue of clean water. Indeed, Coca-Cola claimed that the technology that they developed not only can reduce practicable water needs but it also improves water use efficiency by up to 35percents. (The Coca Cola company, 2012). However, we believe that this technology can be improved by learning from competitors foot such as PepsiCo. With the helping of Siemens Industry Automation Division PepsiCo has installed an integrated utilise termination at Santiagos sharpness plantation. It helps the manufacturing facility in increasing its sewer water treatment capacity by 20percents and it is a beneficial technology that incorporating environmental. Besides, the trunk will reduce 70 percents of fresh water consumption. (Warrendale, 2012)Nonetheless, as we all know these two giant beverage companies were competed aggressively in the industry over a century. Additional, one of the competitive advantages of these companies to ret ain their uniqueness is their innovation and technology. Therefore, if these two companies could alliance themselves in term of sharing their technology among themselves to solve the water wastage issue it could bring a better water quality to Vietnamese as well as enhances their production especially the bottling process. Since they have the same interest, they can cooperate under the strategic alliance basis. Strategic alliances are agreements between companies that remain independent and are often in competition. (R.J., 1999). Many alliances are designed in order to seek for improvement in volume, divide fixed costs of production and distribution. A very good example Coca-Cola can refer is the alliance of Nestl and Haagen-Dazs. We believe we can grow better together than separately said a Diageo spokesperson. Nestl would contribute its frozen dessert technology, while Haagen Dazs would contribute to distribution through the network of points of sale with its name. (E, 1999). The alliance of these two companies for production and marketing has allowed Nestl sought to build critical mass in the ice cream sector and a way to reduce costs by operating its plants in calcium and Maryland at full capacity. (Pellicelli, 2003)Besides, further improvement in competitive advantages can be done through improving Coca-Colas variety product lines. As we know few of the Coca-Cola product lines like Samurai, Coke Light, and Joy win a competitive advantage in Vietnams market. If compare to Coca-Cola biggest competitor markets strategy, PepsiCo had entered the food market and earn over $13 million to their business. Besides, PepsiCo also engaged in nosh food which brand under Frito-Lay to gain more markets share. Thus, we suggest that Coca-Cola Company also can increase their market share by extends their product brand in snack as what PepsiCo done. Coca-Cola Company can invest in a new snack brand to attract more consumers in the Vietnam food market. This strategy can be e ffectively and efficiently implement because snack food is usually consumed by Vietnamese families but Vietnamese will consume snack food that import from United State due to its lower footing (What We Eat to Help Us Grow, 2010). Coca-Cola Company can produce healthy snack food with lower price to attract Vietnamese who cogitate in health such as Frito Lay which their tasting chips are low fat and ingredient all are natural which lease no artificial colors, flavors or preservatives (Pepsico, 2012).4.0 ConclusionCoca-cola as a global cartroader in beverages industry offer hundreds of brand over the adult male had entered Vietnam market by offer quality product that can be trust and fulfill the need of Vietnamese. Coca-Cola Company help people lead to an active and healthy lifestyle by provide the information of the beverages. Coca-Cola Company announcement an investment plan of invest $300 million in Vietnam over the next three years to build new infrastructure, create jobs, de velop strong partnerships and build its brands in the country.In the research, we found that enter to Vietnam market have it advantages and disadvantages. After we analyze, we realize that the gains of Coca-Cola is more than shortcomings after enter Vietnam. In order to overcome the shortcomings, Coca-Cola needs to adopt immediate solution and effective strategies in order to strengthen their market position in Vietnam.