The Reasons To Enter Vietnam Economics Essay

The Reasons To Enter Vietnam Economics Essay1.0 IntroductionVietnam located at the eastern lift off of the Indochinese Peninsula and the c enrol of atomic number 16 East Asia and a tropical untaught of the northern hemisphere. The government is runs by the Communist Party of Vietnam. In 1995, the population size in Vietnam reached 74 million, ranking second in South East Asia, seventh in Asia-Pacific Region and twelfth the world over. The population size was then increased to 95 million people in the form 2010. Vietnam count as a poor country if refer to its own country GDP per person. After Dot Moi came, the national economy has improved at a high footstep thus it improved the living standards and national income of local people as well. The country is wholeness of the fastest growing economies in global which had shown a consistent growth rate in the recent years. While according to World Economic Outlook of the International M anetary inventory in 2011, the GDP of Vietnam w as increased per capita and originates from lower- income country to middle-income country (Richard Rousseau, 2011). Coca-Cola encrypted Vietnams merchandise settle at 2004 and produced its own vitamin-packed efficacy inebriety along with round familiar checks such as Joy, Fanta, Sprite, and others for the local consumers. Besides, Coca-Cola builds three production plants in Hanoi, Da Nang, and Ho Chi Minh City.Reasons to Enter VietnamAt 2004, Coca-Cola made its first transmit out from Africa, they decided enters to the Asias markets which take Vietnam. These acquisitions were in line with the Groups growth strategy to expand into emerging markets, in baseball club to underpin the organizations position as an Emerging Markets Specialist (Coca-Cola Sabco History, 2009). The first 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 improvement of economy in Vietnam, Coca-Cola took the opportunit y to enter their market. Vietnams economy was growing at between 4% 8% after recovery from the Asian Financial Crisis of 1997.The enhancing of living and educational standards of Vietnamese help in providing employment opportunities to them. The entry of the firm in Vietnamese market fit in enhance the economic development and create some job opportunities for the local people. As the soda consumption has reduced in the U.S., Coca-Cola is one of the soft drink industries that increasingly looking to expand their business in countries where there consist of higher national income rate and huge population (Bloomberg Business week New, 2012). This news had shown the reason that Vietnam still able to encourage more(prenominal) enthronisation from Coca-Cola in Vietnam.Moreover, Vietnam relies on the petroleum industry for its local energy consumption and for export it will cause the economy of Vietnam more stable and attracted more contrary companies direct invest in Vietnam. This had attracted Coca-cola to enter Vietnam markets at 2004. Moreover, the payment for employees in Vietnam is quite low, therefore, it attract foreign companies moving into Vietnam instead of traditional market such as China, India, and Thailand. These all reasons push Coca-Cola chooses Vietnam and made it first move into it to operate its plants there.2.0 AnalysisGains of entering into a foreign countryPolitical stablenessEntering into a foreign country such as Vietnam consists of gains and shortcomings. One of the advantages to enter Vietnam is its political constancy. According to Mr. Philippe Delalande in 2010, he mentioned that political stability is one of the factors that have helped Vietnam pursue its economic development policy. Others view from George E. Kobrossy in 2013, General beamor of Zamil Steel Vietnam (ZSV) also mention the advantages which help in attracting foreign investors to the country is Vietnams political stability, administrative reform and its efforts in upgrading infrastructure facilities. Coca-Cola faced problems to enter some countries few decades ago due to the politic issues that happened in the country. Standage (n.d) said that Coca-Cola did non exist in the former Soviet Union (Russian) because they worry that the revenue would go transfer to communist government coffers. While Webster (n.d) mention that Coca-Cola not enter French society because Coca-Cola was a mark of capitalism and a difference between capitalism and communism during Cold War.US brand equivalent Coca-Cola found itself bedevil in politics, or singled out for criticism although they ar not trying 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 i nvestment incentives for foreign investors, the corporate income tax is low comp ard 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 December 2011 Vietnam had attract more than 13,667 foreign investment projects, with a total capital of around RM612 gazillion (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 contributed 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 overtake growing opportunities in one of the most developing consumer markets (Staff, 2012). Under loyaltys made by Vietnam as part of its agreement to the World Trade Organization, Vietnam offered foreign endeavour which included Coca-Cola th e general right to import products and sell them to licensed distributors. The process to obtain an investment certificate for foreign-owned society is much easier now.Low mash appealVietnam is gaining agonistic advantage for labor-intensive production industry on the basis of low salary level (Meyer, 2005). In the research on labor costs, lacquer labor cost in one 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 follow by the highest is Cambodia with $47.36 (EuroCham, 2010). Coca-Cola who has chosen to set-up regional offices in Vietnam help Vietnam proven the extensive labor pool is competitive in the market (GLC, 2007). According to the tuition collected, we found that Coca-Cola Vietnam invest in Vietnam to help boost the local business sales and created 500 new jobs topically in Vietnam while the total labor force that gain this benefit is 99 percent 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 grass exempted from import duties to build fixed assets, such as bottling machinery, means of transport, and production materials that are not produced locally. Additional exemptions are available for raw materials, separate and materials imported for production of trade goods for export. Coca-Colas revenue in interchange 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 swallows Vietnam invested over $3 million into its second Danang-based purified bottle water production chain, with a capacity of up to 6,000 of 500ml bottles per hour due to the low production cost they gain in Vi etnam (Nordic Industry Development, 2012).Variety Product Lines that meet Vietnameses Beverages NeedCoca-Cola enters Vietnam as they met the petition 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 water drink that pure and has the largest share of 32% compare other brand that company produce. Coca-Cola has the second largest share 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 while Minute Maid and Schweppes each occupied 2.5% (Soft drink-Vietnam, 2010). They offer high bore product that meet the need of their fundament 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 heavy workloads. This vitamin-packed energy drink is fortified with six essential B vitamins and has an exciting 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 give in wholly-owned subsidiary 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 peril with local Vietnamese partner using the name of Coca-Cola Vietnam. (DDDN, 2013) With the holding only 60 percents of the venture, Coca Cola has limited control over the resources, information and financial leverage to expand their business model a nd 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 bigger 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 gestate that Coca-Cola also face more difficulties in accessing bank 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 co ntrol as well as restricted their business operation in fellowship to continue survive in Vietnam. We believe that Coca-Cola need to have personal relationships in request to sustain 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). imbibition Water ProblemsThe last shortcoming of entering Vietnam is about drinking water problems. Drinking water is a key element for healthy life and it is a cornerstone for sustainable community. Most of the consumers of beverages who are concern of the water resource and it will directly affect their purchase decision. (Dickson, 2005)Thus for this obvious reason, Coca cola adjudge that innocuous water is critical to operate in sustainable community like Vietnam. In many part of Vietn am, clear 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 muckle only be as healthy as the local communities where we operate access to clean water is one of the most important barometers of a communitys health. by Muhtar Kent, Chairman and CEO, the Coca-Cola keep company. 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 run across of their company as well.3.0 RecommendationsIn past decades, Coca-Cola adopted joint venture with the local partners to penetrate into the Vietnamese market. However, many partners had quit the venture as they inefficient to bear with the consecutiveloss made. These losses are basically caused by the unnecessary 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 term 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 competitors. (RTT , 2012) Beside, In order to generate more revenue, Coca-Cola should follow the footsteps of FedEx to consider 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 a dvantage in this growing market. (Linh, 2012)In order to solve the limited control problems, Coca-Cola tail end establish a harmonious relationship with the local authorities since it easier to solve bureaucratic problems if and when they occur curiously in Communist country. Relations with local and central authorities can be developed as cooperative relationships, and networking and building personal relationships is recommended to expand their business in Vietnam. Coca-Cola Company should build a pen up 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 appropriate persons and doing more sympathy to the poverty residents may enhance the atmosphere and smooth 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 c lean water resources with the Community Water Partnership (CWP) program .For example, in Vietnam, Coca-Cola enhances their corporate image and improving the water superior through the Plain of Reeds Wetland Restoration 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 evidentiary improvement to clean water issue. Thus, in order to achieve efficiency and effectiveness for the business and production operation, Coca-Cola needs to have advance water recovery system besides their CWP program. Water resources always is the global challenges for the beverages company especially 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 operational water needs but it also improves water use efficiency by up to 35percents. (The Coca Cola company, 2012). Ho wever, we believe that this technology can be improved by learning from competitors innovation such as PepsiCo. With the helping of sec Industry Automation Division PepsiCo has installed an integrated reuse solution at Santiagos snack plantation. It helps the manufacturing facility in increasing its wastewater treatment capacity by 20percents and it is a beneficial technology that incorporating environmental. Besides, the system 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 retain their uniqueness is their innovation and technology. Therefore, if these two companies could alliance themselves in term of manduction 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 espe cially 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 sugariness 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 California and Maryland at full capacity. (Pellicelli, 2003)Besides, further improvement in competitive ad vantages 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 snack 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 effectively and efficiently implement because snack food is commonly consumed by Vietnamese families but Vietnamese will consume snack food that import from United State due to its lower price (What We Eat to Help Us Grow, 2010). Coca-Cola Company can produce healthy snack food with lower price to attract Vietnamese who focus in health such as Frito Lay which their tasting chips are low fat and ingredient all are natural which contain no artificial colors, flavors or preservatives (Pepsico, 2012).4.0 ConclusionCoca-cola as a global leader in beverages industry offer hundreds of brand over the world 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, develop 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-Col a needs to adopt immediate solution and effective strategies in order to strengthen their market position in Vietnam.