Vietnam's Market Potential - Case Study Example

?Vietnam's Market Potential Introduction In the twentieth century, Vietnam initiated a policy that allowed free market reforms and this opened a doorfor Vietnamese market which consists of 72 million people. Therefore, many US companies seized the opportunity immediately. As Vuong, Q.H. (2003) states, Vietnam provides a very potential market for Pepsi products. There is great amount of interest in these products and raw materials are locally available from agricultural commodities that are produced in large quantities. In every meeting, the first question is if they should go to Vietnam. Many global companies have preceded Americans in venturing in Vietnam. Daewoo by South Korea was the only large investor but other companies that have heavily invested in Vietnam are Sony Honda, Toshiba, and British Petroleum bad Peugeot. The first US Company to market legally in Vietnam was Carrier, which windows air conditioners which appeared in Ho Chi Minh City and Hanoi stores. Pepsi and coca cola companies were also first to venture in Vietnam. Vietnamese Market Potentials and Challenges Experts believe that the market of Vietnam has great long term potentials. However, compared to Thailand, it is less economically developed, and it might take it a minimum of two decades to reach the economic level of Thailand today. However, the location of the country at the center of Asia, together with enough low wage work-force powerfully attracts foreign investors into the country like a magnet. Presence of neighboring countries like Thailand and Malaysia which are fast developing has made Vietnam lag behind. Politically, the Vietnam War isolated it from industrial west as well as United States. Recently, the country has tried to solve many problems with Chinese government and currently, china is an important economic ally of Vietnam. Vietnamese population is so poor that they only earn $200 per capita (International Monetary Fund, 2010). This may still offer sufficient market for Pepsi products like tomato and chili sauces. Infrastructure is also under developed where only 10% of roads are paved and electricity is also very unreliable (Anonymous). However, manufacture of Pepsi may not be affected because raw materials are readily available within the locality and labor force is sufficient and cheap. For every 100 people, there is rarely a telephone available and the system of banking is underdeveloped too. However, Vietnamese communist party is currently struggling to adapt market economy principle and bureaucracy. With layers built up in decades of the rules of communist, which slow change pace. State committee for investment and cooperation is the key agency and because every agency wants to make the final decision, then the investment climate must be improved, if Pepsi and other companies are to thrive well in this country. How Western Countries can Help Improve the Political Climate in Vietnam Western countries can sign business contracts with Vietnam in order to improve the market conditions in Vietnam, besides ensuring a ready market for the products. Western countries should also stop interfering with foreign affairs of Vietnam, so as to prevent political wars that are frequently witnessed in Vietnam. Diplomatic relations with Vietnam, for example the one reestablished by president Clinton on 11th July, 1995, should be encouraged among western countries because they boost business in Vietnam (Anonymous). Lack of diplomatic relations in Vietnam makes Vietnamese exports difficult to enter western countries markets like US because their tariffs are prohibitive. However, despite the initiatives of Washington, Vietnam does still qualify to the status of favored nation. Bilateral trade agreements can also help open up foreign investment trade in Vietnam besides giving exporters of Vietnam western markets accessibility and this may also largely benefit Pepsi. For example, the US and Vietnam bilateral trade agreement in July 2000 allowed Vietnamese exporters to easily access US markets, thus widening their market and hence increasing profits (Vuong, Feb, 2010).. The agreement has also increased investment of US in the markets of Vietnam. Another example that has helped to boost Vietnam economy is the late 2001, trade deal between Vietnam and the U. S that allowed Vietnam acquire normal trade status like United States. This allowed Vietnam to ship its products to the markets in U.S. at very low tariff rates. Meanwhile, Vuong, (2003) observes that U.S. companies reap greater access to markets in Vietnam. As a result, export from Vietnam’s activity (in 2003 worth about $20 billion) is booming, because of its large, cheap, and efficient workforce as well as growing foreign investment and Pepsi can take advantage of these opportunities. Vietnam’s exports to U.S are now doubling each year. The problems a company might encounter while conducting market research in Vietnam are political instability, poor infrastructure, communication barrier, and inadequate funds. During the research, a company might encounter communication barrier because Vietnam is located is located in Asia, where the official language is Chinese, while many of the western countries that might be interested in investing here mainly speak in English. For example, in one incident, Hanoi embarked on a “social evils crackdown” that included pulling down or painting over any sign or billboard printed in a language other than Vietnamese. Laws concerning taxes and foreign exchange are also in constant flux thus making business and Pepsi’s income unpredictable. As International Monetary Fund (2010) observes, only 10% of Vietnamese roads are paved and this could result into challenges in transport during the research. On the other hand, Vietnam frequently experiences political wars thus making it politically unstable, thus not conducive for investing in. during the research; a company may hence encounter wars. Inadequate funds may result from the poverty levels that are experienced in Vietnam. If their income per capita is about $200, then this means that there is no money and might be very expensive to carry out a research in Vietnam for any company (Rogers and Sedghi, 15 April 2011). Perception of Vietnamese Products My perception of a product wit the label Made in Vietnam at first would be that it is of poor quality. This is because, the country is underdeveloped and most of its population consists of poor people. Therefore, the products they are likely to manufacture may be of poor quality so that their prices can be cheap for such poor people to afford. On the other hand, the country is characterized by poor infrastructure and insufficient power supply. This implies that they may have to use only the locally available raw materials because transportation of inputs from far may be hindered by poor transport network, while insufficient power supply translates into poor quality products. Moreover, the kind of labor found in Vietnam is normally cheap labor (World Bank, 2004); this means that the quality of their output is definitely low as cheap labor is associated with low quality production. Therefore, the quality of a product with the label “made in Vietnam” is questionable in my part. I think the type of product would play a role in forming our perception if and only if it proves our perception wrong by meeting our quality expectations. The development level of a country dictates the quality of the products they manufacture. This is because they are well equipped to with every technology required to manufacture the product. Therefore, Vietnam has to improve its infrastructure and power supply in order to win peoples confidence in terms of quality of its products. However, the emerging class of entrepreneurial in Vietnam has developed expensive products like Nikon cameras and Ray Ban sunglasses; this is also possible because labor force of literate people is readily available as Anonymous observes. Its economy is also fast growing with an 8% annual growth (Vuong, Feb, 2010). The nation’s economic doom that was trade-driven has saved many Vietnamese from poverty and this may consequently increase product quality. In the 1980s, the World Bank (2004).estimated that about70% of the population was poor in the past but that number reduced to about 20% by 2008. Vietnam gets income from official and unofficial sources and that’s why people are able to build houses and do other developments. The country’s exports are so diversified because it has variety of agricultural commodities, and manufactured goods. This makes it immune to price swings in either f its exports. Today, it is the largest pepper exporter in the world and very soon, it may overtake Thailand in exporting rice. Apart from china, Vietnam is performing very well economically and its economy grew by 8% and this is not likely to reduce (Anonymous). References Anonymous. Case Analysis: Vietnam’s Market Potentials. Retrieved on 20th June, 2011 from http://phtesting.yolasite.com/resources/Int_Mgt/VietnamMarket.pdf. International Monetary Fund. (2010). "Vietnam". http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=582&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=71&pr.y=7. Retrieved 2011-06-20. Rogers, S. and Sedghi, A. (15 April 2011). Rating of Countries Economic Performance". The Guardian. http://www.guardian.co.uk/news/datablog/2010/apr/30/-ratings-country-economic-standard. Retrieved 20 June, 2011. Vuong, Q.H. (Feb, 2010). Financial Markets in Vietnam's Economy: Facts, Insights, Implications. Saarbrucken, Germany. http://en.wikipedia.org/wiki/Economy_of_Vietnam Vuong, Q.H. (2003). Essays on Vietnam's Financial Reforms. Washington DC; Foreign Exchange Statistics. http://en.wikipedia.org/wiki/Economy_of_Vietnam World Bank. (2004). "Doing Business in Vietnam". http://www.doingbusiness.org/ExploreEconomies/?economyid=202. Retrieved 2011-06-20. Read More