Country Market Analysis: Vietnam 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 notariff 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: h ps://www.cia.gov/the-world-factbook/countries/vietnam/#people-and-society Interna onal Trade Administra on. (2022, 12 15). Avia on. Retrieved from Vietnam - Country Commercial Guide: h ps://www.trade.gov/country-commercial-guides/vietnam-avia on Interna onal Trade Administra on. (2022, 12 15). Defense and Security Sector. Retrieved from Vietnam - Country Guide: h ps://www.trade.gov/country-commercial-guides/vietnamdefense-and-security-sector Michigan State University. (n.d.). Vietnam: Government. Retrieved from gobalEDGE: h ps:// globaledge.msu.edu/countries/vietnam/government Michigan State University. (n.d.). Vietnam: Risk Assessment. Retrieved from globalEDGE: h ps:// globaledge.msu.edu/countries/vietnam/risk The Poli cal 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: h ps:// data.worldbank.org/country/vietnam?view=chart Using Vietnam to Target the Emerging ASEAN Region. (2013). Vietnam Brie ng (Asia Brie ng tt fi ti tt fi tt ti ti ti tt tt ti ti ti tt Ltd.), 15, 4-6.
