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SmithSara - IBUS 5701 - Country Assessment Assignment

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Country Market Analysis:
Vietnam
IBUS 5701V – FALL 2022
SARA SMITH 101286816
Executive Summary
CanManu is a leader in the welding and metal fabrication space and has positioned themselves
well for expansion into additional foreign markets. Over the last 40 years, CanManu has gained
clientele in a wide range of industries including those in automotive, mass transit, aerospace,
household appliance, and defence. With the wide range of potential clients, there is ample space
for the company to expand both their offerings as well as their reach into new countries around
the world. Vietnam is a prime candidate for the expansion of the company as it is home to few
trade barriers and a government that actively encourages foreign direct investment. The labour
pool found in Vietnam is deep with low-cost labour, however there is a pattern of significant
migration from the north to the south of the country to escape increasingly intense monsoon
seasons. Generally politically stable, there is limited reason to believe that these favourable
conditions will change drastically in the future as the country has depended on foreign
investment to ensure the overall development of its economy.
The consideration of expansion into Vietnam is a natural extension which, while not without
risks, gives a great deal of opportunity to the company. It is the recommendation of this report
that CanManu develop an additional subsidiary operation in Vietnam which initially targets the
aviation industry with the ability to remain flexible in their operations should capacity and
demand require it. Additionally, CanManu has the option, which would be wise to pursue in the
future, to establish itself as a supplier for the defence industry in Vietnam. The existing policy of
CanManu training and developing the skillsets of their employees ensures that the company is
well suited for this environment as it will allow the company to utilize the same low-cost labour
pool while training individuals who are fluent in the local language and culture to fulfill more
highly skilled roles within the operation.
Macro Environment
Vietnam is home to a wide range of attributes which impact its macro environmental suitability
for investment. As a rapidly developing country they have found success in recent years with
their poverty headcount ratio reducing consistently, a steady increase in their overall GDP, and
overall steady level of foreign direct investment (FDI) (The World Bank, n.d.) Additionally,
trade tariffs have been reduced on many products, with an expectation that all “quantitative and
no-tariff barriers” being removed in the near future for the country (Using Vietnam to Target the
Emerging ASEAN Region, 2013) indicating that there is a stable willingness to encourage FDI
within the country. This does not, however, negate the fact that the procedure for establishing
operations within Vietnam can be complex with multiple licensing stages and a number of
industrial and economic zones which require consideration when determining a location for
operations (Using Vietnam to Target the Emerging ASEAN Region, 2013).
Politically, Vietnam is a socialist republic and is under an authoritarian regime led by the
Communist Party of Vietnam. (The Political System in Vietnam, 2012). As such, there is a
relatively stable political climate, however it is subject to potential swings following a congress
held every 5 years as the direction of the party is decided by thousands of delegates and can be
dictated by the current climate of the country. Further, the country is party to numerous
environmental agreements which may impact the level of development available for industrial
processes within the country. (Michigan State University, n.d.). Vietnamese remains the official
language of the country, however there is growing use of English as a second language which
lowers barriers for international operations within the country.
In recent years, there has been an increase in the development and expansions of industries that
represent key target markets for CanManu, including the aerospace industry where the
maintenance, repair, and overhaul (MRO) services segment of the aviation industry is expected
to grow 10.6% by 2030 (International Trade Administration, 2022) which is inline with a similar
growth predicted in the overall airline fleet growth within the country. Additionally, the defence
market has grown more important given recent world events and Vietnam has continued to place
an emphasis on the procurement of cutting-edge technologies and companies with long-term
stability (International Trade Administration, 2022). The potential for targeting this segment in
Vietnam is tempered somewhat by the requirement that enterprises who may be eligible to do
business in defence are either state-owned under the Ministry of Defense or Ministry of Public
Security, or are private companies who have obtained permits or written approval from these
ministries (International Trade Administration, 2022).
Factor Markets
Vietnam often faces extreme weather patterns, with the north having a significant monsoon
season. (CIA, 2022) Due to deforestation practices within the country, this trend of extreme
weather is likely to continue into the future and shall further impact labour availability in the
northern regions of the country. Vietnam also finds itself as home to a large pool of labour while
foreign investors enjoy low overall labour costs (Michigan State University, n.d.). This
opportunity, however, is tempered by the fact that there is significant migration both within the
country to escape extreme weather as well as a net emigration pattern which has remained a
consistent difficulty for the last several decades (CIA, 2022) however this may be tempered in
the future if there is a focused effort to improve education and other institutional access for
citizens within the country.
Critical Analysis
The last several decades in Vietnam have been characterized by significant change within the
country as it asserts itself as a leader in the region in both economic and political aspects. This
leadership is likely to continue given the dividends that this effort has paid for the country in
terms of consistent GDP growth and the steady improvement of other economic factors.
Additionally, the Vietnamese government has made a concerted effort to reduce trade barriers
both within the region as well as globally through a significant reduction of tariffs on trade and
the growing expectation of the removal of other trade barriers. The stability of the country is
furthered by the consistent and strong presence of the government which has remained in power
for the last several decades creating a relatively predictable atmosphere. The environmental
concerns of Vietnam are high as they stand to have a significant impact both on the movement of
the labour pool as well as the potential for future governmental regulation over the
environmental practices, which could in turn impact the economic outlook and operational
practices of CanManu within the region.
Target markets within Vietnam appear to be on the rise. The aviation industry in Vietnam is
strong and has been minimally impacted by the COVID-19 pandemic due to the tactical nature of
the country’s reopening plans. As a result, the aviation industry in Vietnam is predicted to
continue on a fairly rapid growth rate into 2030 and beyond. This growth is an attractive feature
of the region for CanManu as it opens up opportunities to not only produce and export product
from the region but also sell to the MRO companies located within the country. If positioned
carefully, CanManu may be able to gain significant market share with this industry in Vietnam.
Additionally, due in part to an increase in global stability with the recent war in Ukraine,
Vietnam has continued to place emphasis on defence spending within the country and, should
CanManu be able to receive the correct permits from the Vietnamese government, CanManu
may be able to leverage their corporate longevity and stability into government defence
contracts.
Conclusion and Recommendations
CanManu, having established itself in several foreign markets already, has a proven ability to
enter new markets and succeed. Their entry into Vietnam, while not without risk, is a logical
continuation of their current business. Due to the large labour pool which is continually
migrating to urban centres, CanManu should look to setup their own operations within an urban
centre towards the south of the country. This location would allow CanManu to both benefit
from the continual migration of individuals to this region as well as avoid the reason that so
many are migrating to this area, the extreme monsoon season which impacts the north of the
country disproportionately. In doing so, CanManu will be able to access a widely available and
suitable labour pool to establish operations while ensuring that overall labour costs remain low.
Additionally, CanManu’s policy of developing and enhancing employee skillsets positions them
well to not only take advantage of the lower costing labour in Vietnam but to train their
employees in the region to fulfill more advanced roles, further lessening the requirement for
advanced roles to be centralized in other locations. The ability to train labour in the region also
allows management to be more effective leaders as it is possible for CanManu to train and
promote individuals who are familiar with the local culture and able to speak the local language
without issue.
In addition to utilizing the local labour market, CanManu should ensure they are utilizing experts
in the area to ensure that they are selecting the correct location for their operations. For this, it
would be wise for CanManu management to hire a local expert to guide their decision-making
and present them with the information required for the investment that CanManu is looking to
make. In this regard, there may need to be further research and vetting of candidates as there are
limited intermediaries in the country to facilitate this stage developmental step.
CanManu should also look to set up a subsidiary in Vietnam rather than looking to establish a
partnership with an established company in the region as there are very few trade barriers in the
country and an active encouragement of foreign direct investment within the country. This tactic
also will allow CanManu to capitalize on its long history of success by utilizing its existing
name. Additionally, this will ensure that any proprietary technology and processes remain secure
within the country preventing the potential for easy duplication which would significantly impact
their ability to remain competitive.
Additionally, CanManu should look to capitalize on the increasing development of the aviation
industry and begin their operations with a specialization in aerospace parts manufacturing, while
keeping the option open to utilize the flexibility of their existing equipment to be able to export
additional product lines should demand require it and capacity allow. In doing so, CanManu may
be able to divert production during high demand times to service other global customers and take
advantage of relatively low trade barriers by exporting products as needed. Additionally, once
established, CanManu should focus on attempting to receive the government approvals required
to step into the local defence industry, which would potentially give the company a significant
advantage in the country as it would allow the government to source reliable and high quality
equipment from a more local source.
The development of an operation in Vietnam is not without risks, however, and management
should ensure they are remaining apprised of local conditions taking proactive steps to mitigate
the impact of risks prior to them materializing. These risks include the potential changing of
government priorities every 5 years due to the congress wherein delegates vote for the direction
of the country, and the extreme weather which plagues the country’s northern regions. These
risks should be carefully monitored and contingency plans put into place. Additonally, due to the
environmental agreements that Vietnam has become party to, CanManu will need to ensure that
any operations that are set up are done so with the future standards in mind to lessen the impact
of impending deadlines on these agreements.
Works Cited
CIA. (2022, November 15). Explore All Countries - Vietnam. Retrieved from The World Factbook:
https://www.cia.gov/the-world-factbook/countries/vietnam/#people-and-society
International Trade Administration. (2022, 12 15). Aviation. Retrieved from Vietnam - Country
Commercial Guide: https://www.trade.gov/country-commercial-guides/vietnamaviation
International Trade Administration. (2022, 12 15). Defense and Security Sector. Retrieved from
Vietnam - Country Guide: https://www.trade.gov/country-commercial-guides/vietnamdefense-and-security-sector
Michigan State University. (n.d.). Vietnam: Government. Retrieved from gobalEDGE:
https://globaledge.msu.edu/countries/vietnam/government
Michigan State University. (n.d.). Vietnam: Risk Assessment. Retrieved from globalEDGE:
https://globaledge.msu.edu/countries/vietnam/risk
The Political System in Vietnam. (2012). The Vietnamese Health Care System in Change: A Policy
Network Analysis of a Southeast Asian Welfare Regime, 259-264.
The World Bank. (n.d.). The World Bank Data. Retrieved from Vietnam:
https://data.worldbank.org/country/vietnam?view=chart
Using Vietnam to Target the Emerging ASEAN Region. (2013). Vietnam Briefing (Asia Briefing
Ltd.), 15, 4-6.
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