International Business Term4

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Executive Summary

This report will examine the challenges and opportunities in relations to the four major

functions of an organisation, that is: Marketing, Operations, Human Resources and FinancialManagement. Specifically, the benefits associated with the opportunities identified and the

Operating in Vietnam Markets as anAustralian Business



costs associated with the challenges identified will be evaluated.

Vietnam is one of the fastest growing beer markets in the world. According to Vietnam Net,the industry plans to produce 4.7 billion litres of beer and 540 million litres of spirits in2015. As expected, the numbers are estimated to increase up to 6.5 million litres of beers by 2020. The accounting firm’s inaugural report, the EM20 Index A- Balancing

Risk and Reward ranked 20 keys emerging markets and found that for manufacturingcompanies looking to invest overseas, Vietnam is the most attractive destination.(David, 2007) In terms of looking at sites for locating a new factory in Vietnam, thoseareas around Ho Chi Minh City such as Dong Nai and Binh Duong attract the mostmanufacturing companies. It often gives high levels of infrastructure, more reasonablypriced land, better availability of labour and lower operating costs with little or nodecreased in customer service or long term support than the joint venture parks.(Christopher, 2006) Moreover, raw material for manufacturing in Vietnam is alsorelatively cheap, compares to other regions in Asia.

According to WTO, during this integration process, the banking system in Vietnam will beheavily influenced by the international financial market in terms of exchange rates, interestrates and foreign currency reserves, while they must simultaneously carry out internationalobligations and commitments. (WTO, 2010) With the continue growth of exchange rate, theAustralian dollar owes its strength in large part to the resources boom.

For the benefits, with strong economic growth, demand for beer has increased rapidly, aswell as the potential for future growth of the beer industry in Vietnam seems to be verystrong. Vietnam has been considered an alternative place for low-cost manufacturingin recent years and attracted many international manufacturers. The main reason thatVietnam has been received an increased notice by many foreign companies is thatVietnam offers reasonable costs for most items with the exception of land; highproductivity and an increasingly strong levels of infrastructure. (Business in Asia,2010) During the long period of high-growth, Vietnam’s workforce has expanded very

quickly. Furthermore, the workforce around the major cities in Vietnam is highlyeducated and underutilised, with well-trained engineer eager for high-tech jobs.(Ames, 2002) More importantly, Vietnam places an enormous value in education,especially higher education, with many Vietnamese aspiring to learn English and earnqualifications from a foreign, English-language institution.

As the beer industry is the biggest sector of the Alcoholic Beverage industry, and withcontinuing growth and significant opportunities, companies that operate in the beer sector face considerable competitive pressure. Market trends for Vietnam’s beer industry can becharacterised by five fundamental themes, which are considered as challenges for newcompanies to enter into the market. In human resource management, even though

Vietnam’s workforce expanded very quickly, a wide gap remains between the demandfor and supply of skilled labours.

The financial costs that are associated will mainly include the cost for advertising, land andbuilding, machinery, taxes, labours, company registration, factory licensing and utilities.Moreover, the cost for training the local employees as well as language translator will alsoincluded. Lastly, in order to succeed in the Vietnamese beer industry, the business mustconsider the market trends, which will likely shape the industry over the next few years. Thiswill help to understand the challenges that are encountered and also transform thesechallenges into opportunities for process improvement, as well as enhanced flexibility and,greater profitability.



1.0 Introduction

Nowadays, Vietnam has continued to attract the attention of multinational investors, with the

fledgling beer industry is one of the main beneficiaries this quarter. As the matter of fact,

Vietnam is considered as a potential marketplace for beer consumption. With continuing

growth and significant opportunities, OZ Spirit™ is seeking for long-term sales opportunities

to break into the Vietnamese beer industry market. This report will examine the challenges

and opportunities in relations to the four major functions of an organisation, that is:

Marketing, Operations, Human Resources and Financial Management. Specifically, the

benefits associated with the opportunities identified and the costs associated with the

challenges identified will be evaluated.

2.0 Opportunities

2.1 Marketing

Over the last few decades, despite of the world recession, alcohol and beer industry in

Vietnam still have strongly developed. Vietnam is one of the fastest growing beer markets in

the world. According to Vietnam Net, the industry plans to produce 4.7 billion litres of beer

and 540 million litres of spirits in 2015. As expected, the numbers are estimated to increase

up to 6.5 million litres of beers by 2020. (Vietnam Net, 2010) Lastly, OZ Spirit™ has

identified many opportunities in:

- Having a good understanding in a consumer. It means that OZ spirit™ need to

identify the fast moving changes in consumer requirements and expectation. Moreover,

environment may require different approaches in different religion in Vietnam.

- Providing an effective innovation and new product introduction, this will make a

profitable growth through agile alignment with consumer’s tastes and preferences.

- Last but not least, OZ spirit™ should provide a profile of key external factors thatinfluence a company’s ability to complete.





3.0 Benefits

3.1 Marketing

With strong economic growth, demand for beer has increased rapidly, as well as the

potential for future growth of the beer industry in Vietnam seems to be very strong. The

Government approved a new Masterplan for the Beer industry in 2009 (refers to appendix

1). Income growth has led to consumers demanding more mid and high range beer, and has

thus resulted in more differentiation of customers, which has further segmented the beer

market in terms of quality and price.

3.2 Operation Management

Vietnam has been considered an alternative place for low-cost manufacturing in recent

years and attracted many international manufacturers. The main reason that Vietnam

has been received an increased notice by many foreign companies is that Vietnam

offers reasonable costs for most items with the exception of land; high productivity and

an increasingly strong levels of infrastructure. (Business in Asia, 2010)

Moreover, foreign manufacturer can be exempted from import duties to create fixed assets,

such as machinery, means of transport, and construction materials that are not produced

locally. Further exemptions are available for raw materials, spare parts, parts and materialsimported for production of goods for export. (Meyer, Tran & Nguyen, 2005)

3.3 Human Resource Management

During the long period of high-growth, Vietnam’s workforce has expanded very quickly.

Vietnam has a labor pool estimated to be nearly 40 million workers, with an additional 1.5

million workers joining the work force each year. The Vietnamese workers earn on average

between US$50–100 per month, about half of what is earned in other regions (Peter, 2008).

This large, inexpensive, and relatively well-educated labor pool has been a major attraction

to foreign investors. Furthermore, the workforce around the major cities in Vietnam is highly

educated and underutilised, with well-trained engineer eager for high-tech jobs. (Ames,

2002)

More importantly, Vietnam places an enormous value in education, especially higher

education, with many Vietnamese aspiring to learn English and earn qualifications from a

foreign, English-language institution. (Austrade, 2010) Therefore, it will be easy for the

business to interact with local employees in an English-speaking environment.



3.4 Financial Management

With a strong Australian dollar, it can help the business to reduce the cost of capital

expenditures and machinery with the least currency dislocation in Vietnam. Moreover, the

banking and finance sector now has more participants, is more diversified and offers an

expanded menu of financing activities. Furthermore, corporate income tax is low compared

to other countries in the region. Since January 2004, the standard rate is 28 % and

preferential rates range from 10% to 20%. There is a benefit from a quality low-wage

workforce, which attracts foreign companies. Moreover, the inflow of foreign currency into

Vietnam is welcomed with minimum restrictions and exemptions from taxes, while the

transfer of foreign currency out of the country has also been substantially liberalized.

(Vietnam-Ustrade, 2008) Lastly, foreign investors may carry their losses forward for up to

five years. (Meyer, Tran and Nguyen, 2005)

4.0 Challenges

4.1 Marketing

As the beer industry is the biggest sector of the Alcoholic Beverage industry, and with



continuing growth and significant opportunities, companies that operate in the beer sector

face considerable competitive pressure.

Market trends for Vietnam’s beer industry can be characterised by five fundamental themes,

which are considered as challenges for new companies to enter into the market, such as:

- Active government encouragement for local players to improve performance- in terms of

capacity, quality, price and distribution, in order to maintain a competitive position in the

market.

- Domestic brands leading sales, which means that local brand takes a major control in

the beer industry.

- Fierce competition fuelled by increasing presence of major global brands, especially in

the premium beer segment.

- International and local brewers increase share through merger and acquisitions

- Aggressive investment in brewing capacity by other leading brands.

Moreover, according to VCAD, it is assumed that in Vietnam, there are about 70% of beer

consumptions takes place in restaurants. The study also found that a large number of these

restaurants have exclusive contracts with specific brands, which limits competition quite

significantly. In responding to public health concerns, the government has imposed a

special consumption tax on beer and alcoholic drinks, and is developing a national policy to

deal with the effect of excessive alcohol consumption, which has a proposed goal to reduce

production of alcoholic drinks by 50% by 2015. This could, if adopted and implemented

successfully, offset to some extent the growth in domestic demand for beer. (Karen & Rohit,

2010)

4.2 Human Resource ManagementEven though Vietnam’s workforce expanded very quickly, a wide gap remains between

the demand for and supply of skilled labours. Furthermore, training methods have not

met staffing needs. Training has been largely instructor-focused, and there has been a

lack of well-trained local instructors. This has failed to satisfy the demand for skilled-

labour, especially for people with good experience in particular sectors such as retail,

telecoms and manufacturing. The failure to develop the existing labour force adequately

has led to a shortage of excellent managerial talent. (Invitation, 2008)

Moreover, Vietnamese executives, from the middle level upward, confront more



challenges than most. Many lack the critical soft skills – effective decision-making

abilities, ability to motivate and empower staff and practical management knowledge

and experience to complete in a global marketplace – that are the main factors enabling

executives to be successful. This lack of skills lowers the competitive advantage of local

middle and senior level Vietnamese managers compared with their foreign counterparts.

Due to cultural differences and legacy of communism, the majority of local workers in

Vietnam are not well suited to the demands of western companies. Growing

multinational companies are desperate for personnel who have experience in western

companies and can speak English. However, the pool of people meeting these

requirements is small, and due to competition they tend to have inflated salaries. There

is also the risk of poaching, which is rising as competition heats up.

4.3 Operation Management

Vietnam's inadequate infrastructure also creates problems for foreign investors. Insufficient

transportation systems make it expensive and time-consuming to ship goods. Everyday

tasks, such as placing phone calls and sending faxes, are not always easily done in

Vietnam. Power outages are frequent, causing costly delays in business operations.

(Barbara, James R. Downing & Patricia H., 2009)

Moreover, understanding the complex issues relating to legal representative and general

director in respect of control and operations of business is also considered as challenge for

foreign business operating in Vietnam.

4.4 Financial Management

One of the most challenge issues in financial management is the frequent regulatory

changes in taxation and the difficulties in identifying, translating and interpreting regulations,

as well as ensuring tax compliance. Moreover, difficulties in mapping Vietnamese

Accounting Standards and accounting practice to head office consolidation requirements,

resulting in the maintenance of two or more sets of accounting books seems to be another

challenges for most of the foreign companies. (Peligo, 2010)

5.0 Costs

The financial costs that are associated will mainly include the cost for advertising, land and

building, machinery, taxes, labours, company registration, factory licensing and utilities.

Moreover, the cost for training the local employees as well as language translator will also



included.

6.0 Strategies

In order to succeed in the Vietnamese beer industry, the business must consider the markettrends, which will likely shape the industry over the next few years. This will help to

understand the challenges that are encountered and also transform these challenges into

opportunities for process improvement, as well as enhanced flexibility and, greater

profitability.

7.0 Recommendations

These recommendations are taking into account such as:

- Identifying the dynamics of the industry value chain in Vietnam, especially the nature

of competitor responses.

- Confirming the key players and the roles they play and are likely to play

- Assessing if business or community practices affect the ease of market entry

- Developing the provisional value proposition- including any features would attract the

customer.

- Identifying the cluster that offer high attractiveness and they key risks associated with

attractive clusters

- Priorities clusters based upon best balance between attractiveness and ability to

compete.

Lastly, to survive in the increasingly competitive market place, it is recommended that OZ

Spirit™ should introduce change into its business models and to implement to functionality

needed to support it. Only by streamlining its operations and focusing on real improvements

can also achieve truly profitable growth.

8.0 References



INTERNET

1. Asia Now, 2009, ‘Success Strategies – Continuing Growth and Significant

Opportunities in Vietnam’s beer Industry’ , viewed 23rd October 2010:

http://www.asia-now.com/files/ideas/studies/q2_2009_beer_market.pdf

2. Ames G. 2002, ‘Vietnam Human Resource Update 2002’, viewed on 26th October

2010:

http://www.pacificbridge.com/publication.asp?id=2

3. Barbara, James R. Downing & Patricia H., 2009, ‘Doing Business in Vietnam’,

viewed 19th October 2010:

http://www.nysscpa.org/cpajournal/1997/0497/features/f36.htm

4. Christopher R. 2006, ‘Investing in a New Factory in Vietnam: Danang and Quang

Nam Province’, viewed on 25th October 2010:

http://www.business-in-asia.com/factory_in_vietnam_danang.htm

5. Karen, E, Rohit, S. 2010, ‘Assessing the Economic Impact of Competition’, viewedon 1st November, 2010:

http://www.odi.org.uk/resources/download/4954.pdf

6. Peter, H. 2008, ‘Inside Out – Doing Business in Vietnam’, viewed on 19 th October,

2010:

http://www.japaninc.com/mgz_jan-feb_2008_business-in-vietnam

7. Peligo 2010, ‘VIETNAM: Setting up a Company, Tax Planning and Financial

Management for Foreign Investors’, viewed on 15th October 2010:

http://www.peligotraining.com/CourseDetails/20100416%20Vietnam%20Investment

%20_Spore_.pdf

8. Sam, P., Thu, V. 2004, ‘Preparation by Viet Nam’s Banking Sector for WTO

Accession’, viewed on 2nd November 2010:

http://www.wto.org/english/res_e/booksp_e/casestudies_e/case45_e.htm







http://www.peligotraining.com/CourseDetails/20100416%20Vietnam%20Investment%20_Spore_.pdf














9. Vietnam Ustrade, 2008, ‘Banking system & foreign currency regulation’, viewed

26th October 2010:

http://www.vietnam-ustrade.org/index.php?f=news&do=detail&id=31&lang=english

10. Vietnam Net, 2010, ‘Business In Brief’, viewed 23rd October 2010:

http://english.vietnamnet.vn/biz/201001/BUSINESS-IN-BRIEF-21/1-890834/

11.Xinhua News Agency, 2008, ‘Vietnam's beer market to become hot’, viewed 23 rd

October 2010:

http://www.highbeam.com/doc/1P2-16208025.html

ARTICLES

1. Craft, Jason. "Manufacturing in Vietnam: why the nation is an ideal spot for high-mix/low-volume production.(Vietnam)." Circuits Assembly. UP Media Group, Inc.2006.

2. David, R.2007, ‘Vietnam is top destination for manufacturing opportunities’, FinancialDirector. VNU Business Media Europe 2007.

BOOKS

1. Meyer, Klaus E., Tran, Yen Thi Thu & Nguyen, Hung Vo 2006, ‘ Doing Business inVietnam’ , Thunderbird International Business Review 28, no. 2, p. 263-290.

2. Quang, T. & Dung, H. K. (1998). Human Resource Development in State-OwnedEnterprises in Vietnam, Research and Practice in Human Resource Management ,6(1), p.85-103.




http://www.highbeam.com/doc/1G1-151704879.html









8.0 Appendix

Documents

International Business Term4