Plan for performing a feasibility study on entering the Vietnamese market

20 June 2011
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Objective
To provide a framework (plan) for performing a feasibility study on entering the Vietnamese market. The study shall provide recommendations going forward and shall consist of the following elements:
1. 2. 3. 4. 5.

6.
7. 8.

Country Assessment Market Assessment Entry Strategy Rules for Doing Business Corporate Social Responsibility (CSR) Cultural Dimensions Financial Analysis Team/Schedule/Cost Estimate
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Country Assessment
1.1 Business Environment Risk Intelligence (BERI) Index

Purchase a full report of Vietnam from BERI (+) displays market attractiveness (-) subjective selection of criteria (-) no industry characteristics

Source: http://beri.com/
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Country Assessment
1.2 PESTLE Analysis

Provides a macro-environmental scanning

Political- Political stability, labour law, trade restrictions and

tariffs Economic- Interest rates, exchange rates, economic growth Social-Culture, population growth rate Technological R&D activity, rate of technological change Legal- Consumer law, antitrust law, health and safety law Environment- environmental laws and issues

Source: http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx
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Country Assessment
1.3 Other Recent History
Transition from command economy into a market economy

Demographics Size of middle income class (target group) out of a population of 90 million Purchasing Power of families Infrastructure Accessibility of roads that are critical to distribution channels Degree of communication tools available in the country
Source: Euromonitor: Doing business and investing in Vietnam and http://www.vietnaminvestment.net/news/
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Market/Industry Assessment
2.1 Porters 5 Forces analysis
The threat of entry of new competitors

- to analyse the threat of other market entrants and how can entrance of these potential competitors be prevented? The buying power of customers in the market - the position of customers in the market target group? The intensity of competition - competitive strategies and competitive advantages of competition? The threat of substitute products - alternatives products in the market or may be implemented soon? The bargaining power of suppliers - how to get raw inputs and the power of suppliers?
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Market/Industry Assessment
2.2 SWOT analysis
Strengths:
(internal) characteristics of company or team that bring competitive advantages compared to others

Weaknesses:
(internal) characteristics of company that bring company at a disadvantage compared to others

Opportunities:
(external) possibilities to get advantages out of the market (profit / sales / etc.) or activities that are beneficial for the environment

Threats: (external) characteristics of the market / environment that may bring the business into trouble

Market/Industry Assessment
2.3 Other
Value Chain Analyses
separate the activities in the value chain to spot competitive advantages to exploit them further and to build them at activities in which they are not present

The Four Ps
where and how to position business activities in the market? product, price, place and promotion

Other competitors
how did competitors enter the Vietnamese market in the past?

in what factors have they been successful, why and how? in what factors did they fail, why and how? what are the lessons learned, ways for improvement?
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Entry Strategy
Value-adding Activity

Ownership
Establishment mode

3.1 Value adding Activity

Export:
+
Less resource intense Acquiring market knowledge

High economic risk Exchange rate risk & Tariffs

Foreign Subsidiary:
+
Extrensive Control
* Source: INTERNATIONAL BUSINESS - Dipl.Kfm. Stefan Heidenreich

High capital investment High governence and control costs

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Avoidance of trade restrictions

Entry Strategy
3.2 Ownership mode Cooperation:
Forms Contractual rel. Joint venture Merger Characteristics

Share capital
Independency

NO
YES

YES
YES

YES
NO

Wholly owned subsidiary:

+
Reduction of transaction costs Independence from a local partner Protection of know-how

High expenditure Political Risk Time for gathering market knowledge

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Rules for Doing Business

4.1 Starting a Business
There are some procedures to follow in order to tap the Vietnamese market. We should focus on 4 points: Procedures to legally start and operate a business Time required to complete each procedure Cost required to complete each procedure Paid-in minimum capital

4.2 Dealing with Permits

In emerging markets, building a warehouse can be difficult because of administration and corruption possibilities. A company had to focus on some points: How many procedures do we have to deal with? How long will it take to manage with them? How costly will it be?

4.3 Registering property

Ensuring property rights in fundamental for a company. Procedures to legally transfer titles on immovable property Time required Cost required
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Rules for Doing Business

4.4 Getting credit
A company has to understand the local rules for credits What is the legislation in the field of credits? Is it complicated to have a credit as a foreign company if need be? Is it cheap?

4.5 Protecting investors

Shareholder rights in related-party transactions Which are the requirement for disclosure in case of related-party transactions? The role of CEO and Board of Management in case of related-party transactions Easy access to information for shareholders

4.6 Paying taxes

Tax system is different around the world and can be complicated and costly Number of taxes paid by other MNCs Time required in case of complicated administrative tasks Tax rate in total
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Rules for Doing Business

4.7 Trading across borders
Exporting and importing by ocean transport Complexity of procedures Time required to export and import Cost linked to international trade (Customs, port handling)

4.8 Enforcing contracts

Resolving a commercial issue through the court Complexity of procedures Time required to trial Judiciary costs and enforcement costs

4.9 Closing a business

Insolvency proceeding against a local company Time required to recover dept Cost to recover dept Recovery rate for creditors Source: doingbusiness.org

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Corporate Social Responsibility

5.1 How can Globefood contribute to CSR in Vietnam?
Strategic Philanthropy, Benchmarking, CSV Initiatives

5.2 Strategic Philanthropy

Working in the field of CSR has to be seen from a strategic perspective and needs

to be focused. One can improve competitive advantage by improving competitive context. What are the goals of Globefood in this field and which level of CSR does Globefood want to use according to Carrolls pyramid? Ideally, a combination of all areas.

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Corporate Social Responsibility

5.3 What has the company done in other Asian divisions?
The company is already present in Southeast Asia and could follow the strategies applied in Thailand, Malaysia and China for instance: What has been done? Has it been successful? Is it implementable in Vietnam?

5.4 What do other MNCs do with respect to CSR?

Globefood could benchmark other MNCs in Vietnam: What has been done? Has it been successful? Is it implementable for Globefood?

5.5 World Corruption Index, how to work with it?

Vietnam was ranked 116 out of 178 countries using Corruption perception index in 2010. How to avoid this phenomenon and turn a threat into an opportunity?
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Corporate Social Responsibility

5.6 Explore opportunities beyond CSR, into Creating Shared Value (CSV). Three ways to do this:
Reconceiving products and markets Redefining productivity in the value chain

Building supportive industry clusters at the companies locations

Source: Porter and Kramer. Creating Shared Value. HBR, Jan-Feb 2011.
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Cultural Dimensions
Main question: how to do and approach business with people in countries that have different cultures?

6.1 Hofstedes five dimensions

Power distance

the acceptance of the distribution of power in the society Individualism importance of and focus on the group / individualist in the society Masculinity assertive (masculine) vs. caring (feminine) society Long-term Orientation short-term (traditional) vs. long-term (perseverance) focus of society Uncertainty Avoidance
tolerance for uncertainty and ambiguity in the society
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Cultural Dimensions
6.2 Trompenaars dimensions additional to Hofstedes
Particularism vs. Universalism (relationship vs. rules) Neutral vs. Emotional (extent to which emotions are shown) Specific vs. Diffuse (differentiation between working/private life) Achievement vs. Ascription (prove ourselves or position in society given)

6.3 Other Compare the Vietnamese culture with the culture in Belgium and identify differences that explain how to do and approach business in Vietnam.
Effects of religion and eating habits on products Globefood wants to sell

(differentiation / innovation needed?)

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Financial Analysis
7.1 For all potential courses of action:
Initial outlay/capital expenditure requirement Financing strategy (debt/equity/cash) Foreign exchange risk mitigation plan

Projection for revenue and operating expenses (short,

medium and long-term). Breakeven analysis Payback period for initial investment WACC, NPV, ROI and IRR calculations

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Team/Schedule/Cost Estimate
8.1 Team composition
The New Business Development Team is to be cross-functional in nature, consisting of a Project Manager leading members from the following groups: Marketing, Legal, Finance, Human Resources, Operations, as well as the Country Managers of Thailand, Malaysia, and China.

8.2 Recommended timetable

Feasibility study should take approximately 8 weeks, with weekly status meetings, and a final report presented to the COO.

8.3 Cost estimate

Assuming 9 team members at an average annual salary of 60.000 (~31/hour) and a standard work week, labor costs would be approximately 86.000. With an allocation of 14.000 for travel and admin costs, a budget of 100.000 should be proposed for the feasibility study.
Source: http://www.glassdoor.com/Salaries/brussels-salary-SRCH_IL.0,8_IM992.htm
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