Operating in Vietnam Markets as an

Australian Business

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 Financial
Management. Specifically, the benefits associated with the opportunities identified and the
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 in
2015. 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 manufacturing
companies 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, those
areas around Ho Chi Minh City such as Dong Nai and Binh Duong attract the most
manufacturing companies. It often gives high levels of infrastructure, more reasonably
priced land, better availability of labour and lower operating costs with little or no
decreased in customer service or long term support than the joint venture parks.
(Christopher, 2006) Moreover, raw material for manufacturing in Vietnam is also
relatively cheap, compares to other regions in Asia.
According to WTO, during this integration process, the banking system in Vietnam will be
heavily influenced by the international financial market in terms of exchange rates, interest
rates and foreign currency reserves, while they must simultaneously carry out international
obligations and commitments. (WTO, 2010) With the continue growth of exchange rate, the
Australian dollar owes its strength in large part to the resources boom.

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

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. In human resource management, even though
Vietnam’s workforce expanded very quickly, a wide gap remains between the demand
for and supply of skilled labours.

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. Lastly, in order to succeed in the Vietnamese beer industry, the business must
consider the market trends, 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.
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 that
influence a company’s ability to complete.
2.2 Operation Management

The accounting firm’s inaugural report, the EM20 Index A- Balancing Risk and Reward
ranked 20 keys emerging markets and found that for manufacturing companies 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, those areas around Ho Chi
Minh City such as Dong Nai and Binh Duong attract the most manufacturing
companies. For the investment in the area around the South of Vietnam, which is Ho
Chi Minh City, its joint venture industrial parks were largely considered the only
international standard. It often gives high levels of infrastructure, more reasonably
priced land, better availability of labour and lower operating costs with little or no
decreased in customer service or long term support than the joint venture parks.
(Christopher, 2006) Moreover, raw material for manufacturing in Vietnam is also
relatively cheap, compares to other regions in Asia.

2.3 Human Resource Management

It is a planned and continuous effort by management to improve employee competency
levels and organisational performance through training and development programs.
Development refers to the acquisition of knowledge and skills, and behaviours, which could
improve employee’s ability to meet changes in job requirement and in client as well as
customer demands. (Quang & Dung, 1998)

2.4 Financial Management

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

Even 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 market
trends, 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’, viewed

on 1st November, 2010:

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

6. Peter, H. 2008, ‘Inside Out – Doing Business in Vietnam’, viewed on 19th 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
 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 23rd
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’, Financial

Director. VNU Business Media Europe 2007.

BOOKS

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

2. Quang, T. & Dung, H. K. (1998). Human Resource Development in State-Owned

Enterprises in Vietnam, Research and Practice in Human Resource Management,
6(1), p.85-103.
8.0 Appendix