1. Executive Summary The purpose of this report is to conduct a case study on the company, OSIM International Ltd. In order to have a better understanding on the company, we have looked into the company, as well as the country, Vietnam. This report will look into various areas such as an internal analysis of OSIM International Ltd, a country analysis of Vietnam, the advantages and disadvantages of the market entry strategy adopted, provide recommendations on the overall business strategy that OSIM International Ltd can adopt and lastly, recommend functional areas such as Marketing and Human Resource practices that OSIM International Pte Ltd can adopt. The method of investigation was conducted based on secondary information obtained from various online resources such as OSIM official webpage (www.osim.com), World bank website (www.worldbank.org) and annual financial reports. 2. Introduction and Background of report Background of OSIM OSIM International Ltd was established in 1980 in Singapore by Ron Sim, founder of OSIM. OSIM has over 25 years of experience in the trade and is now the global leader in health lifestyle products, selling mainly massage chairs. The company has three line of businesses, OSIM, ONI Global (GNC) and TWG tea. As of today, OSIM has expanded over 33 countries across the globe, with more than 600 outlets. With globalisation, it allows businesses like OSIM to penetrate into the global market and enabling them to establish their business into several countries. In 2005, OSIM ventured into Vietnam through franchising, till date it has a total of 3 retail outlets in Vietnam. 3. Internal Analysis (OSIM International Ltd) a) Tangible resources Finance(Refer to Appendix A) OSIM’s financial ratios will be compared to one of their direct competitors which is OTO Body Care. Liquidity In order to access the liquidity of the companies, we need to look at the Current Ratio and Cash Ratio. The current ratio will show the company’s ability to pay off its current liabilities with its current asset. The cash ratio will show the company’s ability to pay off its current liability with cash and cash equivalents. The current ratio for OSIM is 3.72x while OTO is 4.79x. This means that for every $1 of current liability, OSIM has $3.72 of current asset to pay off. Similarly for OTO, it has $4.79 of current asset to pay off for every $1 of current liability. This shows that OSIM had lower ability to pay back both its short term and long term liabilities as compared to OTO. As an overly high current ratio could mean that the company has not efficiently make use of their current assets, we will also need to look at the cash ratio. The cash ratio will better show the company’s ability to pay off debts as it is solely based on cash itself. The cash ratio for OSIM and OTO is 2.70 and 2.74 respectively. This means that for every $1 of current liability, OSIM has $2.70 of cash to pay off. On the other hand, OTO would have $2.74 of cash to pay off every $1 of its current liabilities. From the current ratio and cash ratio, it is evident that OSIM has lesser ability to pay of its current liability as compared to OTO. Hence, we can conclude that in term of liquidity is one of OSIM weakness. Sales Growth Rate The percentage growth for sales dropped from 7.63% in 2013 to 6.72% in 2014. This could be largely due to the closing of 14 OSIM outlets and 6 GNC retail stores. It is evident that the sales growth for OSIM is positive. However, the growth rate has slowed down. This could be due to economic reasons such as declination in economy wealth or due to cyclical patterns of consumer demand. As these are external factors that affects sales, it may not be directly attributed to OSIM’s failure to generate internal funds. Moreover, OSIM is still achieving positive sales revenue. As such, OSIM’s ability to generate internal funds is considered to be their strength. Leverage The debt ratio for OSIM is 42.4% while OTO is 18.95%. This means that for every $1 of asset, OSIM has $0.42 of debt while OTO has $0.19. OSIM has a greater percentage of debt over assets as compared to OTO. It is evident that OSIM bear a larger debt compared to OTO. A ratio above 100% indicates that there is more debt than assets. The debt to equity ratio for OSIM is 0.74x while OTO is 0.23x. This means that for every $1 owned by the shareholders, OSIM owes $0.74 to its creditors while OTO owes $0.23. From the ratios of the two companies, OSIM bear a larger debt compared to OTO. It is evident that OTO will be able to better fulfil its obligations to creditors in an event of liquidation. Thus, as compared to OTO, one of OSIM’s weaknesses is its weak borrowing capacity Facilities OSIM have a total of 14 online sale platform worldwide whereby customers are able to shop online without having to physically visit the retail store. Online shopping makes it more convenient for customers as it is highly accessible through Internet. This greatly increases their reach to target customers and thus, increasing their market potential and reaching out to new customers as well. Moreover, OSIM have a large scale of point-of-sales network widely distributed across the world, with 546 OSIM outlets in 22 countries. Furthermore, OSIM also offered some personalised features with experiential corner such as the Trial Pod, which allow customers to test their product in a relaxed situation. Besides that, certain retail outlets also provide private VIP massage chair rooms that enable customers to indulge in soothing massage. Therefore, since OSIM do provide a wide range of facilities for their customers and with the effective point of sales retail outlet it can be consider as one of OSIM’s strength. Human Resource Training and development and recruitment are some of the key areas that contributed significantly to the success of OSIM. OSIM provide in house training for their employees in Singapore, overseas subsidiaries and franchises. These programs are conducted by their personal in-house trainer to provide consistent training to their sales staffs like product and salesmanship training. Furthermore, OSIM will also send their senior management staffs overseas to attend seminars and exhibition. This way, it will aid in the increase of knowledge and skills to a larger extend like providing quality service and communication skills. In addition, every employee are given equal chances of being promoted. Thus, we can conclude that Human Resource’s training program is one of OSIM’s strengths. Moreover, OSIM have a comprehensive orientation programme involving the CEO and senior management to help newly joined directors to familiarise with the business and governance policies. This orientation program aim to help directors in understanding the company’s businesses to allow them to adapt into their new working environment. Thus, the presence of an effective orientation is one of OSIM’s strengths Organisation OSIM adopted an international organisation structure with functional approach. The company has many departments, such as the finance, accounting and corporate services department, marketing department and many others. The board of directors in OSIM consists of three Independent Non-Executive Directors, one Non-Executive Director and four Executive Directors. They have the ability and knowledge to lead and set directions to increase the longterm value of organisation in the eyes of its shareholders and other stakeholders. Thus, having a functional approach will create a clear line of command which allow employees to know who they should report to and certainly increase the efficiency of productivity. Planning and Control OSIM strives to be the global leader in developing innovative and reliable healthy lifestyle products to satisfy the needs of their customers. To achieve that, OSIM plans and controls the production process from research and development to marketing, sales and after sales support of the production. In this way, they will be able to exercise full total quality control over its products and ensure that its products meet the required standards. Thus, effective planning and substantial control is one of OSIM’s strengths. Intangible Resources Technology OSIM has continuously created and innovated new massage technologies to provide humanised massage feelings to cater to the needs and demand of their customers. According to World Intellectual Property Organization (WIPO), it stated that OSIM currently have 28 patents which consists of the Pneumatic massaging device, head massaging device, eye massaging device and etc. By registering their patents, it would prevent third parties from utilizing the commercial benefits of OSIM new (registered) inventions. (Refer to Appendix B) Moreover, according to World Intellectual Property Organization (WIPO), OSIM also has 243 active trademarks registered internationally. By registering Trademarks, it would allow OSIM to protect its name and logo. At the same time, it would allow OSIM to distinguish itself from their competitors’ goods and services. OSIM’s technology is a strength as it has demonstrated a strong ownership of its technology by protecting it with trademarks and patents . (Refer to Appendix C) OSIM International has made use of digital branding and communication to increase the efficiency of their marketing. This includes the use of digital media and platforms such as mobile and social networking mediums in order to extend their brand influence and presence in the market. Besides the use of technology, OSIM has also engaged in traditional methods of marketing such as celebrity endorsement which they use frequently. The use of digital media helps to significantly broaden OSIM’s reach to a wider group of potential customers. With technology, OSIM will be able to better extend their market potential beyond traditional retailing. In this way, they will be able to continue increasing their brand awareness in the current market and at the same time, reach out to new and untapped markets. Hence, their marketing know-how has become a strength of OSIM. Innovation The OSIM Group is innovation-driven and is an Intellectual Property developer. OSIM continues to strengthen its research and development capabilities in order to come up with products with outstanding designs, technologies and quality. OSIM has a team of Research & Development professionals and engineers and they have innovated more than 1,000 products. This includes one of the world’s first massage innovation, mechanism, rollers, motors and electrical controls. All these contributed to developing new massage capabilities to meet the needs and demands of customers. One of the key personnel in the team is MR Tan Kia Tong who has steered OSIM’s R&D department to greater heights. He was in collaboration with several internationals and led the team to become the world’s first in design and technologies. Thus, having quality of technical employees is one of OSIM’s strengths. (Refer to Appendix D) Reputation According to reviews on www.Amazon.com, there were numerous customers who mentioned that they were satisfied with the quality of the massage equipment, specifically, OSIM uPhoria Foot & Calf Massager. They felt that it was comparable to an actual human massage and they felt addicted towards it. There was another review from www.Brookstone.com, whereby a customer mentioned that the uDivine massage chair offers a good quality massage. The customer was experiencing muscle knots and was feeling unwell and after ten minutes of massage using uDivine, she felt more relieved as compared to before. This has clearly shown that the quality of the product is considered to be good. Moreover, it also serves its function, which is to relieve muscle stress for its users. Thus, customer’s perception of product quality, durability and reliability is one of OSIM’s strengths. (Refer to Appendix E) On the other hand, many feel that OSIM customer service are not up to standard. It was stated that once OSIM sells its product, it does not care about their customers. Based on two reviews on www.Amazon.com and www.trustpilot.com, the customers did not receive the customer support that they expected. Both requested for refunds as the products were causing them discomfort. However, they were either ignored or refused by the customer care officers from OSIM. This shows that there was lack of support received from OSIM. Ultimately, the customers’ perception on the product quality, durability and reliability is considered to be a strength for OSIM as they are managing it well. However, their customer support is a weakness as customers were not given the support they ought to receive. ( Refer to Appendix F) Brand Name With more than 30 years of experience in the business of health and well-being, OSIM has managed to build its brand from the ground up and established a group of loyal customers. Based on an interview conducted by a group name ‘weareosim’. It was mentioned that when a consumer wishes to purchase a massage chair, some respondents did not even consider purchasing from OSIM’s Competitors OGAWA and OTO. Given that the materials for massage chairs are mostly similar, however consumers perceive OSIM to have a differentiated positioning is high. Furthermore, according to http://www.sharesinv.com, it was stated that when the OSIM brand name is mentioned, 80% of the people will think of massage chairs. Thus, the brand name of OSIM is a strength. (Refer to Appendix G) 4. External Analysis - PEST Analysis (Vietnam) Background of Vietnam Vietnam’s economic is growing rapidly and thus it has attracted many foreign investment and their exports had also increased compared with the performance of other neighbouring countries. According to the Prime Minister of Vietnam, the GDP growth for 2015 is anticipated to reach 6.5%, one of its highest since 2007. The estimated growth rate for 2016 – 2020 is expected to be an average of 6.5% to 7.0%. These are attributed to the consolidation of institutions and laws, investment in education and the training and improvement of the country’s infrastructure. Recently, the Vietnamese government has approved a bond issuance plan, worth USD 3 billion, for the first half of 2016. The purpose of the bond is to counter the possible rise in high fiscal deficit and public debt in the first semester of 2016. a) Political factors (Refer to Appendix H) 1. Government and political stability Firstly, for government stability, corruption is mainly due to a low level of transparency, accountability, media freedom, as well as low pay for government officials and inadequate systems for holding officials accountable for their actions. The private sector is also affected by cumbersome legislation, which provides opportunities for corruption. The government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption which is led by the Prime Minister. Despite of the efforts made to tackle corruption, the issue of corruption is still considered widespread throughout the country and Vietnam still lags behind other Asian countries in terms of control for corruption. Hence, this does pose as a threat for foreign companies to set up businesses or made investments in Vietnam as corruption is something that could potentially affect business operations due to the lack of transparency. Secondly, political stability and absence of violence in Vietnam measures perceptions of the likelihood that the government of Vietnam will be destabilized or overthrown by unconstitutional means, including politically-motivated violence and terrorism. In terms of political stability, Vietnam is a very peaceful and safe country. According to World Bank's political stability and absence of violence index, Vietnam ranks considerably better than most Southeast Asian countries, taking second place after Singapore. Moreover, Vietnam faces very little ethnic or religious tensions. The crime rate is among the lowest in Southeast Asia, and violent crimes are extremely rare. Generally, the citizens of Vietnam are law-abiding. With Vietnam having high political stability, it is an opportunity for foreign business investors to venture into Vietnam, as they can operate their business in a safe and sound environment without having to worry much of social unrest that will affect their business operations. Henceforth, Vietnam being politically stable with the existence of corrupted government, it can serve as an opportunity yet a threat at the same time. 2. Attitude towards foreign businesses and investments Vietnam government place great importance in attracting foreign investment, especially in sectors that will bring advanced technology and improve Vietnam’s labour productivity. Vietnam’s attractiveness as a Foreign Direct Investment destination (FDI) has grown as the country has made key legal reforms related to the business climate. Foreign invested companies continue to play an important role in the economy. The FDI sector contributed 62 percent of total exports in 2014, up from 47 percent in 2000, and foreign invested enterprises’ contribution to GDP increased to 18 percent from 13 percent over the same period. Vietnam has maintained registered FDI levels of around USD 17 billion per year over the last five years. The government also aimed that by the end of 2015 to fully integrate into the ASEAN Economic Community (AEC), which likely will increase foreign investment from their ASEAN neighbours. Hence, this shows that the government is putting in effort in moving towards a stronger economic growth by attracting more foreign investments and business. Thus, maintaining this attitude means giving foreign business a greater opportunity to do business in Vietnam. 3. Red Tape Red tape is an idiom that refers to the excessive regulation or conformity of rules that are considered as redundant and hinders or prevents action or decision-making. This would mean a threat to Vietnam as it may deter foreign investors or businesses to invest on the country due to the complicated but redundant process. An example would be, investors have to spend as many as 160 days just to complete the required procedures for their realty investment application. Even after 160 days, investors still do not know whether or not they are allowed to implement the project. Another example is the application of work passes, it could take as long as 4 months for a foreigner to get a work permit, while some foreign experts only need that pass to go for a short business trips for a day or two. With the existence of red tape in Vietnam, it poses as a threat for foreign investors or companies who wants to venture their business into Vietnam. 4. Intellectual Property Law Intellectual property law refers to the law that deals with the rules for securing and enforcing legal rights to inventions, designs and artistic works. As seen in the Copyright Office of Vietnam, the laws stated in it protects anyone’s property rights, regardless of one being a Vietnamese or not. The laws from various articles of The National Assembly of The Socialist Republic of Vietnam Legislature XI, Session 8 - Intellectual Property Law, it interpretes terminologies, explains application, its restrictions, the protected works and many more. As such, the existence of such law in Vietnam can be seen as an opportunity for foreign businesses when they enter the Vietnam market. Economic 1. GDP & Trends The Gross Domestic Product (GDP) in Vietnam was worth 186.20 billion US dollars in 2014, which is a 6% growth in GDP. The GDP value of Vietnam represents 0.30 percent of the world economy. Vietnam constantly enjoys a stable economic growth of over 5% over the last 5 years. Vietnam's economy is growing solidly and consistently with 5 - 6 percent per year and even during the Asian crisis (1997) as well as the global recession in recent years the increasing trend has not changed. The average GDP per capita in Ho Chi Minh City lies at around 4500-5100 US Dollar per annum. The young population – 65 percent of Vietnamese are under the age of 40 - asks in particular for foreign brands. This shows that it is an opportunity for OSIM to venture their business into Vietnam since the country is doing well economically with constant annual growth in their GDP. It means that more people are earning a higher income and therefore have a higher purchasing power. Moreover, more than half of the young population under the age of 40 demands for foreign brands, this shows that it is a good opportunity for foreign business and investment to enter into the Vietnam market. Agriculture's share of economic output has shrunk from about 25% in 2000 to 18% in 2014, while industry's share increased from 36% to 38% in the same period. State-owned enterprises now account for only about 40% of GDP. This shows that Vietnam has move towards a modernization country as well as economy as it can be seen that more people in Vietnam has shifted from agricultural activities to manufacturing sector. State – owned enterprise has also decreased over the years which means that more overseas business entity are venturing into Vietnam, hence it is a good opportunity for foreign business and investment to enter the Vietnam market. 3. Inflation In addition, to its extremely strong economic growth, Vietnam is considered a stable macro-economy despite a slightly volatile inflation rate. According to Victoria Kwakwa, World Bank Country Director of Vietnam reported that Vietnam has done well in ensuring macroeconomic stability over the past year, which has been underpinned by moderating inflation. Inflation has seen a strong downwards trend over the last year, falling to its lowest level since 2001 in January 2015. It averaged at 4.1 percent in 2014. Since Vietnam has a slightly high inflation rate it possess as a threat for foreign business to venture into the Vietnam market as the high inflation means each unit of dong can buy fewer goods and services,. Business are forced to raise their prices on products and services. High inflation rate will also encourage people to spend more money before it loses value, which will be an opportunity for businesses. With a stabilised inflation trends, it will be an opportunity for foreign business as the chances of changes in the purchasing power is minimised. 4. Stability of currency and exchange rate Between 2008 and 2011, Vietnam's currency, the dong, was devalued in excess of 20%, but its value has remained relatively stable since then. The central bank devalued the Viet Nam dong against the US dollar three times in the first 8 months, in 2015, by 1% each time, to support the competitiveness of exports. The government has pushed to lower the value of the Dong in the hopes of pushing up exports and fostering export oriented economic growth. This is a threat to foreign business because the unstable currency and exchange rate in Vietnam may lead to inconsistent changes in cost and profit margins. Also, a weaker dong would magnify export earnings and a weaker currency would decrease demand for costlier foreign goods, boosting net exports, which is a threat for doing business in Vietnam. 4. Remittance and repatriation rules In order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements. The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out. Companies can expect it to be between the middle to the end of April before they are able to remit their profits out of the country. However, profit repatriation will not be allowed if the financial statements of the company show an accumulated loss. Upon terminating their investment activities in Vietnam, foreign investors can remit both capital and profits abroad after fulfilling financial obligations to the State of Vietnam and submitting tax settlement reports to the tax offices. Despite ongoing reform efforts, the regulatory framework lacks efficiency. No minimum capital is required to start a business, but the process still takes over a month, and licensing requirements remain time-consuming. Thus this can be a threat to foreign business in venturing the business into Vietnam market as the procedure of repatriating and remitting profits can be troublesome and slow. Social-cultural 1. Business Practices The business practices of Vietnam is more of a social relationship than a formal business relationship. Business meetings may result more in building relationship with others, sharing their political views etc. By having good friendship with vietnamese is a reassurance on closing the deal. This could be an opportunity for OSIM as they make use of this business practices to strengthen positive relationship with the local companies in Vietnam. Thus, this would aid in OSIM in getting more deals. 2. Consumerism The consumerism in Vietnam will be an opportunity for OSIM as there is a growing middle class who demands and prefers foreign goods and services and also an increase in consumer brand awareness. There is also a growing young workforce, 60% of the population are under the age of 35 years old. Vietnam key cities are seeing a rapid growth in disposable incomes and greater connectivity. This shows that they have a high purchasing power and they are able to afford foreign goods and services of better quality and expensive goods and services. Since most of their population are youngsters, they may show more interest in foreign goods and services as they are literate and also technological, they may research online for better products. This may be an opportunity for OSIM. 3. Shift in preferences regarding product and service characteristics Young and increasingly sophisticated consumers prefer foreign brands goods and services, this show that there is a shift in preferences regarding product and service characteristics. This may be due to their parents not being able to afford such goods and services in the past. This may be an opportunity for OSIM. 4. Level of education The literacy rate of 93.4% is also an opportunity for OSIM. This also shows that they may demand for better quality things, as the higher the literacy rate. They generally are more educated and hence, are employed at higher paying jobs. As such, they have higher disposable income and spending power. This may be an opportunity for OSIM. Technology 1. Technological advances It refers to the improvement in technology overtime. Vietnam has improved its technology through the years and this is evident from the advancement in Information Communication Technology (ICT) and also an increase in the number of e-commerce in Vietnam. ICT refers to any communication device or application, covering radio, television, cellular phones, computer and network hardware and software as well as various services and applications associated with them. Research also states that Vietnam e-commerce showed rapid growth in 2015 in all business sectors, supported greatly by information technology and telecommunication. With the advancement of ICT in Vietnam, it encourages the growth of e-commerce within the country as there is a direct relationship between them. Thus, it is an opportunity for OSIM. 2. Product innovations As defined by Wikipedia, product innovation refers to the creation and subsequent introduction of a good or service that is either new, or an improved version of previous goods or services. As such, in order for a country to have new product innovations, we will look into the area of innovations of the country. In terms of innovations, Vietnam have achieved the Innovation Efficacy Index of 39.5 per 100 inhabitants in 2011, which is much higher than in thailand (26.5) and Indonesia (15.4) - both having significantly higher GDP per capita than Vietnam. On top of that, WorldBank also states that in terms of Entrepreneurship and industrial development, there are about 540,000 private firms that have registered for such developments in 2012. However, due to the mismatch between education and labor market, which eventually led to the lack of skilled labor in Vietnam. Hence, this proves that despite Vietnam having the upper hand of having continuous innovations within the country, the lack of advanced factor endowment (i.e. the skilled labor), to carry out and bring the innovations further. Thus it is a threat to OSIM. Hence, with the PEST analysis conducted. 5. Market Entry Strategy / Mode Adopted by OSIM International Ltd The market entry strategy adopted by OSIM International Ltd to gain entry into the Vietnam market is franchising. Franchising is a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business. With OSIM being the franchisor, they will take control of the type and quality of promotion and marketing that the franchisees will take. Franchisees of OSIM are usually required to set aside at least 4% of their sales for advertising and promotion activities every year. There are three ways in which OSIM earns from their franchisees. The first way is a franchise fee whereby franchise fees will start from USD 100,000 and depending on the country's’ market conditions and ease or difficulty of market penetration, OSIM may waive or suspend the franchisee’s fee. The second way is royalties, OSIM may take 3% to 5% of the sales depending on the size of the potential market in which the franchisee is operating in. The last way is through the sale of products in which OSIM sells their products to the franchisees at the original cost with a markup, payment is then usually pre-paid or received upon delivery of the products. As seen in Appendix (Print Appendix), according to the news release published on 20 October 2005, OSIM International Ltd announced the signing of Master Franchise Agreements for two new countries, Vietnam and Pakistan. For OSIM Vietnam, the Master Franchise Agreement were signed between OSIM and Representations International Pte. Ltd (RIPL) so as to allow RIPL to operate OSIM franchise business in Vietnam. OSIM Vietnam and OSIM Pakistan are OSIM International Ltd.’s 25 th and 26th markets among the other franchise markets such as Australia, Canada, India and many more. Advantages There are several advantages to the use of franchising for OSIM. The first advantage is that OSIM does not have to bear the development costs and risks associated with entering a foreign market, in this case, RIPL has to bear the development costs and risk as they are a franchisee that is representing OSIM in Vietnam. The second advantage is that with RIPL being a franchisee of OSIM, OSIM is able to build up a global presence and penetrate the Vietnamese market at a relatively low cost and risk. Thus, through franchising, OSIM is able to expand at a faster rate which allows them to build up their global presence and increase their brand recognition around the world. The third advantage is that with franchising, OSIM would not have to be involved in the recruitment process for the franchisee, hence OSIM would not have to spend time and effort of continually recruiting and re-recruiting managers for its overseas outlets as the responsibility of recruitment would lie with the franchisee and not the franchisor – OSIM International Ltd. Hence, OSIM would be able to put their focus and improve on more important areas such as compensation and training for their own employees. The fourth advantage is that franchising is attractive and beneficial to a firm if the firm is unwilling to commit substantial financial resources to an unfamiliar or politically volatile foreign market. In this case, OSIM International Ltd would not have to invest money in operating the outlets in Vietnam as with RIPL being their franchisee, they will pay a percentage of their revenue to OSIM, thus the cost of setting up the franchise, training and developing the employees and the launching of the outlets would be covered by RIPL. In addition, once the outlets are operating, the franchisee would be paying OSIM a monthly income, hence OSIM would not have to commit financial resources to penetrate into the Vietnamese market. As a result, OSIM is able to use the income to continue advertising and marketing their brand, and improve and produce more products. Disadvantages There are several disadvantages to the use of franchising for OSIM. Firstly, with OSIM International Ltd franchising out to RIPL, it inhibits OSIM’s ability to take profits out of one country to support competitive attacks in another. The second disadvantage is the lack of quality control. The foundation of franchising arrangements is that the firm’s brand name (OSIM International Ltd) conveys a message to their customers about the quality of their products and service. This serves as a problem for many foreign franchisees as they may not be as concerned about quality as they are supposed to be and the result of poor quality can actually result in a decrease in sales or a loss in the firm’s worldwide reputation. For OSIM International Ltd, as their products are manufactured and then shipped to the various outlets, they do not have to worry about the product quality being inconsistent. However, OSIM International Ltd would not be able to keep track of the quality of service that the employees of the franchise outlets provide to their customers. Hence, if the quality of service is poor, it may negatively impact their sales and reputation of their brand name. Thus, the geographic distance of the firm from franchisees pose a difficulty for OSIM to detect poor quality as OSIM will lack control of the franchisee's’ outlet and would have to depend on the franchisee’s commitment and performance to maintain the quality of service to their customers. The third disadvantage is that OSIM would have to put in considerable time and effort in order to develop an appropriate training and development manual for the franchisees local employees, which must be altered and adapted according to the cultural differences of each country. 6. An Overall Business Strategy The overall business strategy that we will be recommending for OSIM International Ltd to adopt is the Global Standardization Strategy. The reason why we recommend Global Standardization Strategy is because OSIM International Ltd faces strong pressures for cost reductions and minimal demands for local responsiveness. Many international businesses faces pressure for cost reduction, hence in order to respond to pressures for cost reduction, firms are attempting to lower the costs of value creation by massproducing a standardized product at the optimal location in the world so as to realize economies of scale, learning effects and location economies. Another way a firm could attempt to reduce cost is to outsource certain functions to low-cost foreign suppliers. According to an initiation report on OSIM International Ltd, majority of OSIM products are contracted out to their contract manufacturers for production while OSIM places their attention on their product development, brand marketing and retailing. OSIM has always wanted to lower their overall purchasing costs, hence OSIM shifted their supplier base from Japan to its 30% associate, DTOSIM Healthcare Appliances Co Ltd. In addition, with the quality of production improving in China, OSIM had shifted their manufacturing of its high-end massage chairs from Japan to China in 2010 to improve its margins. Hence, it can be seen that OSIM International Ltd is trying to find and attempt different ways in order to help reduce their overall production costs and increase their profit margin. OSIM had successfully manage to reduce their overall production costs by realizing location economies which are the economies that arise from performing a value creation activity in the optimal location for that activity. By doing so, it can lower the costs of value creation and help OSIM achieve a low-cost position. In the case for OSIM International Ltd, they realize location economies by choosing to shift their manufacturing process to countries that have a comparative advantage in the production of certain products, thus helping them to reduce the cost of value creation. Furthermore, OSIM International Ltd produce products that tend to serve universal needs – taste and preference of the customers in different nations are similar if not identical. For OSIM, their products are considered to serve the universal needs as the customers who purchased and utilize their products are all seeking the same purpose. Hence, there is pressure for cost reduction as OSIM International Ltd produces products that caters to the universal needs. One of the reason why OSIM International Ltd would want to reduce costs could be due to the unstable currency of Vietnam as it was mentioned earlier that the Dong was devalued so as to push up exports, hence the exchange rates in Vietnam may lead to inconsistent changes in cost and profit margin. Hence, in order for OSIM to maximize their profit margin, they would have to reduce costs in the manufacturing of their products. As a result, there is a strong pressure for cost reductions. Pressures to be locally responsive refers to the firm requiring to adapt its product to meet local demands in each market which is a strategy that raises costs. Pressures for local responsiveness arises from national differences in consumer tastes and preferences, infrastructure, accepted business practices, distribution channels and host government demands. In this case we identify that OSIM International Ltd faces minimal demand for local responsiveness due to little differences in customer taste and preferences. Since OSIM offers a wide range of health products mainly massagers ranging from eye massagers, massage chair, foot massage, handheld massagers, shoulder and neck massagers and back massagers etc. This wide range of product lines are first established in the domestic country, which is Singapore before being introduced in other countries. With a wide range of products being offered, OSIM do not have to specially customize their product to appeal to the local customers in Vietnam as it already has a wide range of products offering for the customers to choose from. This is because health product is considered as a universal need and consumer’s taste and preferences does not differ much from countries to countries. OSIM’s target market are those people that are in the age group of 25-35 and 50yrs old onwards with mid to high income earners. Based on the research on economic factors of Vietnam, the Gross Domestic Product (GDP) in Vietnam was worth 186.20 billion US dollars in 2014, which is a 6% growth in GDP. With the strong GDP growth, it means that people will be able to afford to buy OSIM’s products due to the higher purchasing power. Next, differences in traditional practices and infrastructure between Singapore and Vietnam is also low as there is not much key differences that will require OSIM to specially customize their products. Based on the research on social factors such as consumerism in Vietnam, it shows that there is a growing middle class who demands and prefers foreign goods and services and also an increase in consumer brand awareness. There is also a growing young workforce, 60% of the population are under the age of 35 years old. Since OSIM is a foreign product and with it being the number one most preferred Massage chair brand in Asia, it will be likely welcomed by the people in Vietnam. In addition, with the growing young workforce, it means that there will be more target market in Vietnam since OSIM’s are targeting at people in the age group of 25-35 years old. Their products focus on providing a relaxing experience as well as a stress remover which young working adults are facing in the fast paced lifestyle which is in line with the needs of these group of target market. Due to the strong pressures for cost reductions and minimal demands for local responsiveness as mentioned above, we recommend OSIM International Ltd to adopt the global standardization strategy. Firms that pursue a global standardization strategy put their attention on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects and location economies which as described above, is what OSIM had done. In addition, firms that pursue a global standardization strategy would choose not to modify their product offering and marketing strategy to local conditions as it would involve shorter production runs and the repetition of functions, which would increase the overall expenses. In the case of OSIM International Ltd, they did not customize their product offering, instead they offer the same product range for all their outlets. Hence, with the standard product offering, they are able to obtain the maximum benefits from economies of scale and learning effects. Thus, we recommend OSIM International Ltd to adopt the global standardization strategy. 7. Two Functional Areas i) Human Resource Human Resource Management (HRM) refers to the activities an organization carries out to utilize its human resources effectively. When planning for managing human resource internationally, OSIM will have to look at the staffing, performance evaluation, management development, compensation and even labor relations. Staffing policy Staffing refers to the policies for the selection of employees who have the skills required to perform a particular job. It can be a tool for developing and promoting the firm’s corporate culture (i.e. an organization’s norms and value system). With a strong corporate culture, it enables the firm to implement its business strategy, and in this case it will be the Global Standardization Strategy. In order to apply to OSIM, a suitable approach to use will be the geocentric staffing policy approach. Such policy seeks the best people for key jobs throughout the organization, regardless of nationality. For example, when venturing into Vietnam with the Global Standardization Strategy, using the geocentric approach, OSIM will have to select/hire the most suitable employee, to work in Vietnam as an expatriate manager, regardless of nationality, as long as one is able to fulfil the key role. This approach brings along various advantages such as 1) enables the firm to make the best use of its human resources; 2) helps the firm to build strong culture and informal management networks; 3) create value from the pursuit of experience curve and location economies from the multi-directional transfer of core competencies than firm pursuing other staffing policies. [shift appendix] ● Expatriate- A citizen of the company’s home country working in foreign country ● host-country national (i.e. inpatriate)- an employee hired by a foreign company to work in her own country ● third-country national - an employee that is a citizen of one country, but is working in another country for a company that is headquartered in a third country. Training and Management Development When looking into the training and management development of the organisation, there will be two forms of training OSIM can adopt, namely company-wide training, and individual trainings. Company-wide training refers to trainings that are suitable for all employees, across the organisation, while individual trainings will look into individual needs, and cater specially for them. With that being said, OSIM should launch series of training that will be able to suit all employees, and at the same time some of which will be catered to suit their individual needs. Firstly, the company-wide training we recommend OSIM to implement a more practical technical training (i.e. product knowledge training), as well as Customer Relations Training for their sales staffs and customer relations staffs across the firm for all employees. (i.e. to help combat the issue identified in Appendix F). These will be beneficial to all staff from having the knowledge on providing better service to the customers, aligning with OSIM’s goal and training direction. These trainings can be done via in-house, where the trainers and training materials will come from and prepared within the company, as OSIM themselves will have a better knowledge on the products, as well as the kind of service principles they wish to uphold for their business. Secondly, as for the individual trainings, OSIM should look into specific trainings (i.e. cultural and language training) for the international employees. In order to combat the issue of expatriate failures, OSIM should implement trainings to tackle any possible failure by providing the managers a skill set and reinforces organizational culture. Cultural training fosters an appreciation for the host country’s culture. The understanding of a host country’s culture will help the employees empathise with the culture, which will enhance one’s effectiveness in dealing with host-country nationals. Language training allows one to build rapport with his or her local employees, improving the manager’s effectiveness, even if one is far from fluent. Hence we will recommend OSIM to offer training to international employees via outsourcing to Inlingua - Cross language barriers. OSIM can sign up for the corporate training programmes which can accommodate 4 to 12 participants and courses can be fully customize the training to the needs of the company. We recommend Business Language Training, Crosscultural Awareness Training and also the Global Leadership Training for OSIM. This training can be conducted in the convenience of OSIM’s employees (i.e. within the office compound). For example, these trainings can be held beforehand in the local headquarters (i.e. in Singapore), before they are being sent to Vietnam as an international employee. Performance Appraisal Performance appraisal systems are used to evaluate the performance of managers against some criteria that the firm judges to be important for the implementation strategy and the attainment of a competitive advantage. We recommend OSIM to adopt semi-annual performance appraisal exercise (in the month of June and December) and also an open appraisal for the employees. For general employees, the appraisal should be conducted by both the manager and also a self-appraisal for the employee himself. A self-appraisal allows employees to evaluate themselves, so that the result is not solely based on the appraiser’s evaluation, making the exercise more fair for employees, also while doing the exercise, employees will know what they are being appraised for and also reflect on their performance. An open appraisal allows feedback to be communicated to the employee, allowing necessary corrective actions to be taken. For an expatriate, inpatriate and also a third-country national, an additional step is to involve a former employee (from the same national) who has served in the same location in the process, also whenever possible, involve the home country manager in for this process. This is so, to reduce biasness, home and host country’s managers should consult each other before completing the appraisal. Home country manager should receive input from the host country’s manager, while host country manager should consult the home country manager about the actions of the employee. This gives the home country manager an opportunity to balance what could be a very hostile evaluation based on cultural misunderstanding. Compensation Compensation is the total of all rewards provided to employee in return for their services. It can exist in the form of financial and non-financial compensation. Financial compensation consist of direct and indirect financial compensation. Direct financial compensation recommended includes merit pay, piecework plan and sales commission. Firstly merit pay, employees who show merit can have a sum of money added to the base salary and this is given based on their deserving performance. For instance, those who perform better would naturally be given more merit pay. Secondly, for employees working in the manufacturing department, under the piecework plan, they are typically guaranteed a minimal hourly rate for meeting some re-established standard output. Thirdly, employees who are working in the service line can also be given sales commission where they get an amount that represents a percentage of the sales price added to their lower base wages. The balance sheet approach would be recommended for international employees to allow them to have the same standard of living in the host country as they have at home. A compensation package with five main components is recommended; base salary, foreign service premium, various allowances, tax differentials and benefits. Firstly, a based salary can be given to the employee for a similar position in the home country. Secondly, foreign service premium is an extra pay the employee receives for working outside his country and/or region, it is an incentive offered to the employee to accept the foreign assignments. Thirdly, various allowances such as hardship allowance, housing allowance, cost-of living allowance and education allowance. Fourthly taxation, the employee may have to pay income tax for both the home and host country government, unless the host country has a reciprocal tax treaty with the employee’s home country. OSIM can help the employee to pay the necessary income taxes in the host country. Lastly benefit, OSIM can provide the same level of medical and pension benefits abroad that employees receive at home. (ii) Marketing The current target market of OSIM is primarily the older generation. OSIM has developed and introduced products that are significantly more appealing to the older generation as compared to the younger generation. Example of such product is the uSoffa family set whereby users can carry out various household activities such as watching television, working on the computer and even doing makeup while using the product. The younger generation will not find any use of such products. OSIM can probably develop products that would appeal to the younger generation. In this way, they will be able to target the younger generation as well. The younger generation are probably the Generation Y, aging from 18 to 34 years old. They occupy the largest proportion of the population. They generally are more educated and hence, are employed at higher paying jobs. As such, they have higher disposable income and spending power. As the baby boomer are getting older, the spending power of economy will face a huge shift to the next generation. Hence, OSIM may choose to shift its target to the Generation Y which is the next potential pool of customers. Product Attributes ** The products OSIM offer are mainly full and partial body massager relaxation seekers, slimming belts for fitness enthusiast, blood pressure monitor machines for the healthconscious, and even air humidifier for those who look out for “cleanliness”. With that being said, the main attributes of OSIM’s products are quality, the up close personal selling service the retail outlet provides, as well as the innovation in products that are able to satisfy the various needs of the customers (i.e. relaxation seekers, fitness enthusiast, health-conscious and “cleanliness” seekers). Culture refers to the tradition, social structure, religion and education, varying from country to country, where the tradition and social values may differ. Thus, OSIM will need to include products with different attributes to cater to the differences in culture when marketing. For instance, say when OSIM ventures into the Vietnam market, with a large population of the young adults, with the increasing trend of being health-conscious, OSIM will have to market their product attributes differently from how they do it in other countries (i.e. Hong Kong), whereby the market strategy will be focusing on the “shape + tone” products, with different celebrity endorsement, that could reflect a healthier and younger look (i.e. famous Vietnamese celebrity, Le Quyen). Distribution Strategy OSIM mainly uses a concentrated retail system, where there are only a few retailers supplying to the market. With Singapore being a developed country, it results in the main retail concentration being located in various shopping malls for convenience. Hence, when venturing into the global market, OSIM continues using the concentrated retail system, by acquiring retailers in different countries, thus increasing OSIM’s retail concentration. To add on to the adoption of a concentrated retail strategy, OSIM can consider to revamp retail concept of their outlets (i.e. globally), to enhance the shopping experience of its customers. To add-on from the point mentioned above, of attracting the younger generation, OSIM has to ensure that they are able to provide a distinctive and enjoyable shopping experience to them. This can be done by making their retail store cozy and comfortable, in which customers can try the massage chairs in a relaxed atmosphere. In this way, the younger generation will be more compelled into entering the store. Communication Strategy ● Push or Pull strategy OSIM currently is adopting a combination of both strategies. OSIM push customer’s demand through constantly developing new products and offering them in stores; and pull customers towards these products through advertising and promotion. We would recommend OSIM to focus its resources more to the Pull factors. This is so as, OSIM has already created numerous product targeting at different types of customers. However, without the consumer realising that there is a need for OSIM product, the communication strategy will still not be as successful. We will recommend Customer Relationship Management, which refers to the practices, principles, and guidelines that an organization follows when interacting with customer. With that being said, when OSIM’s customers have any queries, whether is it pre or post-service, OSIM can have prompt answers to all of their queries on various social media platforms (i.e. Facebook, Instagram and Twitter), so as to combat the issue identified in Appendix F (i.e. unresponsive service). [Refer to Appendix _ for detailed explanation] Since OSIM’s goal is to improve business relationships with customers, yet assisting in customer retention and driving sales growth, OSIM can first start by improving their customer services on their social media sites. For instance, when a visitor visits OSIM Instagram or Facebook page and leaves a comment on a post, regardless of negative or positive, OSIM should deliver a thoughtful response in a timely manner. If OSIM does not respond, the relationship between OSIM and the customer is lost and the customer may turn to OSIM’s competitor to seek for answers instead. With a thoughtful response, customer will feel that their views and opinions are taken seriously, providing a platform to make customers feel welcomed, and have the opinion that “if I have any enquiries about a product, I can just communicate with the customer service online”, it also brings OSIM closer to customers. With better customer relationships, OSIM can pull customers’ demand, as the customer service is able to communicate with the customers, making them realising the need for this product. ● Promotion mix We recommend OSIM to use public relations to target the young adults. Public relation activities enable an organization to influence a target audience. OSIM can engage bloggers to help in promoting OSIM’s brand. For example, engaging bloggers like Naomi Neo and Tan Jian Hao to promote the young adults product such as the Slim Belt and the Innovative Fitness (uShape Music). These young bloggers would be able to influence the young adults. This also help change OSIM image that many people may have of “brand that appeals to the older generation only”. OSIM can also improve its advertising via social media sites like Instagram and Facebook, by focusing on the country’s social media sites preferences. For example, in Singapore if OSIM wants to target the young adults and teenagers, advertising can be done through Twitter and Instagram. For adults to middle age group, Facebook would be suitable. In China, Weibo and WeChat could be used. In order for advertising to remain competitive and retain the attention of who OSIM aims to attract, advertising should be done in a platform where most of the target market are present, helping us to reach out to the right people. However, a product for our primary target market example a massage chair, can also be advertise in all social media but OSIM can use a different approach in each social media platform. For example on special occasions like Mother’s Day or Father’s Day, in Instagram and Twitter, OSIM can advertise it and have a marketing campaign that will target the “filial piety”. While on Facebook, OSIM can just be advertising the massage chair with the celebrity endorsement. Thus, this shows how OSIM can fully utilize social media as an effective platform. ● Global Advertising We recommend OSIM to use the dealing with country differences approach. OSIM can use the same marketing message to include in all advertising campaigns and localize other features. This approach enables OSIM to advertise marketing in each country differently to reach out to the locals and capture their interests. OSIM currently have differently celebrity endorsements for different country, such as Andy Lau for Hong Kong, Lee Min Ho for Korea and Xu Bin for Singapore. OSIM can localise the advertisement by featuring the different culture, lifestyles and needs of the individual from the use of different celebrities. For example, instead of using the current celebrities like Andy Lau as their spokesperson, they can choose a celebrity that appeals to each country they expand into. For example for their Vietnam expansion, they can use a Vietnamese celebrity like Ho Ngoc Ha who is a famous Vietnamese model, pop singer, actress and entertainer. She will be a suitable spokesperson for OSIM as she has a fit figure and also won the supermodel contest in Vietnam, who will be able to attract the attention of the public customers. She can portray the lifestyle in Vietnam, and in the advertisement associate the need of using OSIM products. Thus, when the audience view the advertisement, they are more able to relate as it depicts the environment that they are in. Pricing Strategy We recommend that OSIM can use Multi-point pricing strategy so as to compete with its global competitors, namely OTO Bodycare and OGAWA in two or more national markets. Multi point pricing refers to the impact a firm’s pricing strategy in one market may have on its rival’s pricing strategy in another market. OSIM should maintain competitive prices with its competitors in order to maintain their market share. If competitors decide to compete aggressively on prices of a particular product line in one market, for example selling Foot massager that OGAWA sells in Hong Kong is cheaper than foot massager sold by OSIM in Hong Kong, then OSIM should aggressively cut prices OGAWA’s largest market, Malaysia so as to retain their market share in all other markets, as their OGAWA have strong global presence as well. If OSIM does not respond to the aggressive pricing, profits and revenue will decline as more customers will choose to buy from the competitors due to the lower prices. On the other hand, a second aspect of multipoint pricing arises when two or more global companies focus on particular national markets and launch vigorous price wars in those markets in an attempt to gain market dominance. Even though multipoint pricing may lead to a price war, OSIM will be able afford to engage in such behaviour, even though it reduces their profitability in that particular national market, as they have profitable operations in other national markets, moreover with OSIM being the number one most preferred healthy lifestyle brand in Asia give it greater stand as compared to its competitors eg. OGAWA and OTO Bodycare. Conclusion In conclusion, the internal analysis that we have conducted on OSIM International Ltd on their tangible and intangible resources shows the various strengths and weakness of the company, in this case, OSIM International Ltd has more strengths compared to weakness in areas such as their facilities, Human Resource, Organisation, Technology, Innovation, Reputation and Brand name. Thus, showing that OSIM International Ltd has the necessary resources to succeed. The external analysis that we have conducted on Vietnam on the various PEST (Political, Economic, Socio-cultural and Technological) factors shows that Vietnam does have the required opportunities for OSIM International Ltd to conduct their business in Vietnam. Next, we have identified that the market entry strategy that OSIM International Ltd had utilize to penetrate Vietnam is Franchising, and there are various advantages and disadvantages to the use of franchising. Following that, the overall business strategy that we have recommended for OSIM International Ltd is Global Standardization as the group faces strong pressures for cost reductions and minimal demands for local responsiveness. Lastly, with Human Resource Management and Marketing as the two functional areas, we have come up with the various practices that OSIM International Ltd can adopt to further improve on their various functional areas. Political Political Stability Rank 2nd behind Opportunity Singapore, in terms of political stability Existence of corruption despites of effort put in Threat by government to reduce corruption Attitude towards foreign business and Government is looking at ways to Opportunity investment attract foreign business and FDI Plan to fully integrate into ASEAN Economic Community Red tape Excessive regulation Threat or conformity of rules Intellectual property laws Law states that protects anyone’s property rights, regardless of Opportunity one being a Vietnamese or not Economic Size of GNP & Trends The Gross Domestic Product (GDP) Opportunity in Vietnam was worth 186.20 billion US dollars in 2014. GDP value of vietnam represents 0.3% of the world’s economy. Average GDP growth rate is 6.15% yearly. Inflation HIgh inflation 4.1% (2014); Falling interest rate Opportunity Stability of currency & exchange rates Overall stable Dong Opportunity value Devaluation of Dong Remittance & repatriation rules in 2015 Threat Process takes over a Threat month, and licensing requirements remain time-consuming Social Business practices More of social r/s Threat instead of business. The more you share your personal life, the better the business r/s will be. The better your social r/s is with the party, the more likely you will get the business deal. Seniority is important in vietnam Consumerism Growing middle class with preference Opportunity for luxury goods; Products & services Preference of foreign characteristics goods and services is Opportunity concentrated in the city Education Literacy rate 93.4% Opportunity Technology Application of knowledge Product innovation References: Bloomberg.com,. (2014). Vietnam Falling Short in Tackling Corruption, Says Party Chief. 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Retrieved February 14, 2016, from https://www.aabacosmallbusiness.com/advisor/millennials-changing-face-retailshopping-025220847.html Appendix A: Financial Ratios OSIM OTO BodyCare $ ‘ 000 HK $’ 000 Current Ratio = 588,455 / 158,101 302,245 / 63,106 Current Asset / = 3.72 times = 4.79 times Debt to Equity Ratio = 362,089 / 491,940 63,269 / 270,574 Total Liabilities / = 0.74 = 0.23 (362,089 / 854,029) X100% 63,269 / 333,843 Current Liability Total Equity Debt Ratio = Total Liabilities / = 42.40% = 18.95% 427,566 / 158,101 = 2.70 172,675 / 63,106 Total Assets Cash Ratio = (Cash + Cash Equivalents) / = 2.74 (Total Current Liabilities) Sales Growth Rate = 2014 and 2013: [(Current year’s revenue – (691,130 - 647,616) / Previous year’s revenue)]/ (647,616) X 100% Previous year’s revenue) x = 6.72 100 2013 and 2012: (647,616 - 601,684) / 601,684 x 100 = 7.63 Appendix H: PEST Table Analysis (Political) Political Description Opportunity/Threat Political Stability Rank 2nd behind Singapore, in terms of Opportunity political stability Existence of corruption despites of effort put in Threat by government to reduce corruption Attitude towards foreign Government is looking at ways to attract Opportunity business and investment foreign business and FDI Plan to fully integrate into ASEAN Economic Community Red tape Excessive regulation or conformity of rules Threat Intellectual property laws Law states that protects anyone’s property Opportunity rights, regardless of one being a Vietnamese or not http://www.ukessays.com/dissertation/examples/business/about-osim.php http://www.indexmundi.com/g/g.aspx?c=vm&v=67