Aston Martin Selects to Do Business in Vietnam - Example

Aston Martin selects to do business in Vietnam of Executive summary Economic globalisation has resulted in expansion of organisations beyond national boundaries. Consistent with this notion, Aston Martin is planning to expand its business in Vietnam and for that purpose, the paper evaluate business environment of Vietnam and international entry strategy of the company therein. The paper will discuss briefly the nature of business conducted by Aston martin and its industry of operation. An environment assessment will be conducted to determine existing issues in the Vietnamese business environment. The purpose of undertaking environment assessment is to determine counter measures that will help Aston Martin to gain market share in the country. Under environment analysis, economic, political legal and social factors of the country will be assessed so that business strategy is developed accordingly. In context of international business, culture plays an important role and many international ventures face failure due to acculturation issues. Cultural dimensions are best explained through Hofstede model, which will be used in the paper for assessing cultural aspects of Vietnamese population. The paper will, therefore, discuss cross cultural perspective of the venture with respect to international human resource management and propose recommendations regarding motivation and leadership with respect to cross cultural teams. Table of Contents Introduction 4 Company profile 4 Environmental assessment of Vietnam 5 Economic environment 5 Political legal environment 5 Cultural environment 6 Management of corporate social responsibility issues in Vietnam by Aston Martin 6 Recommendation on Aston Martin’s international strategy in Vietnam 7 Entry strategy of Aston Martin in Vietnam 7 Recommendations regarding human resource management 8 Motivation and leadership in cross cultural teams 9 Conclusion 9 References 11 Introduction The primary aim of this paper is to study international business environment of Aston Martin. Aston Martin is a globally recognised British firm engaged in manufacturing of luxury vehicles since 1913 (Aston Martin, 2014a). The paper evaluates the international business environment of the company as it plans to enter the Vietnamese market. Vietnam is a Southeast Asian country located in the easternmost part of the continent. As the company plans to initiate its venture in an Asian country, it is important to evaluate cultural convergence and cultural differences between that of Asia and the United Kingdom. In the following sections of the research paper, brief introduction about the company has been discussed followed by analysis of the macroeconomic environment of Vietnam. The paper further discusses various issues that the company may encounter and measures to mitigate the same have been proposed. Alongside, recommendations regarding international strategies regarding entry and cross cultural management among human resources have been discussed in the paper. Company profile ` In 1913, Aston Martin was founded by Lionel Martin and Robert Bamford in the United Kingdom. The company is a privately held corporation and over the century it has grown as a very powerful global brand. According to the CEO of the company, Aston Martin is a combination of three essential elements, namely, power, beauty and soul. The company has a very interesting history as it has witnessed various financial and other upheavals in past one century. The company has been successfully launched a number of sports cars till date and these cars have been spotted in various James Bond movies (Aston Martin, 2014a). Aston Martin is not a publicly registered company but has a number of private industrial stakeholders such as Investindustrial, Ford motors and others. The company is one of the oldest automobile manufacturers in the British history and has weathered first and second Word Wars. The ownership of the company has changed a number of times due financial issues and impact of global economic turbulence. Presently the company has three global offices in China, Germany and the United States besides its head office in England; however, the company has dealers in approximately 130 locations across the world (Aston Martin, 2014a; 2014b). Currently, the company is targeting the Vietnamese market. For this purpose, it is important to critically evaluate the business environment of the country so that issues that the venture may face in short and long run are resolved. Environmental assessment of Vietnam Vietnam is one of the largest countries in the Southeast Asia in term of population and area. The country is located in the eastern region of the Indochina peninsula. The country is well known for beautiful landscapes, rich cultural heritage and interesting history. Entry in Vietnam will be Aston Martin’s first step in the Southeast Asian economies and markets. Vietnam is one of the fastest growing economies in the south eastern region and expects to achieve the status of developed economy by the end of 2020 (BBC, 2014; The Heritage Foundation, 2014). For analyzing the business environment of the Aston Martin in Vietnam, it is important to critically assess the economic, political legal and cultural (social) environment of the country. Economic environment Vietnam is a lower middle income country having a population of 89.7 million and current gross domestic product worth US$ 171.4 billion. The country exhibits a steady growth rate 5% per annum. Study suggests that the economy has undergone dramatic changes in recent years. The manufacturing and service sectors of the nation are growing at a rapid rate; even so, agriculture continues to be the largest industry (BBC, 2014). Entry of Aston Martin in the country at present can prove to be a strategically advantageous decision as Vietnamese economy is being considered as one of the most dynamic economies in the Southeast Asia as well as in the world. Additionally, World Bank data suggests that level of poverty and unemployment have declined significantly (from 60 percent to 17 percent) in past two decades while remarkable progress has been noticed in the education sector (The World Bank, 2013; 2014). Political legal environment The political system of Vietnam is ruled and regulated by a single party where ideologies of socialism have a significant impact on the society and on politics. The states of Vietnam are officially governed by the president while the national government is headed by the prime minister of the nation. It was observed that Vietnam does not have any officially recognised opposition party. The country is prone to certain political instabilities due to monopolistic attitude of government and large wealth and power disparities between urban and rural regions. However, Vietnam has strong trade and economic freedom and is open to foreign investment. The average tariff and taxation rates in the country are relatively low causing it to be a suitable location for venturing by Aston Martin. Additionally, the country has sufficient labour freedom and an expanding financial sector which will further support entry of Aston Martin in the country (The heritage foundation, 2014; BBC, 2014). Cultural environment Vietnam is a highly diversified country with its total population comprising more than 50 nationalities. The majority of population are Buddhist and Vietnamese language is the official language in the country. Keeping in view the role of culture in international venture, the officials of the company have to learn the language and cultural aspects of the country prior its entry. The country score fairly well in the Hofstede scale suggesting that the business environment is driven by risk aversion and stability (BBC, 2014; The Hofstede Centre, 2014). Management of corporate social responsibility issues in Vietnam by Aston Martin Europe and Asia has significant gap in terms of ethics, culture and norms which are strongly highlighted in various business ventures. Studies suggest that unlike British business structure, the Vietnamese business framework is prone to corruption. Hence, a foreign entity may need to undertake sufficient hard work to select a morally and ethically responsible business partner. Besides ethical issues, Vietnam is susceptible to social and environmental issues which require immediate addressing (ACCR, 2011; Fukada, 2007). Vietnam is presently fighting with issues such as air and water pollution, heavy energy consumption, poverty, human rights and corruption. Issues related to environmental pollution can be managed by adopting, practicing and promoting governmental regulations regarding environment in the business and local communities. The international manager along with other member of the management of Aston Martin needs to adopt innovative measures so that the company can depend more on renewable energy sources for its operations. As a part of its CSR efforts, the company can investment in creating educational facilities in the rural areas of the country and provide vocational training to unemployed individuals. Additionally, the company need to develop greater communication links with local communities so that they can make necessary contribution towards addressing societal issues of the country by understanding the problems. Development of strong link with local stakeholders and communities will also help the company to have smooth operational functions in the country (ACCR, 2011; Fukada, 2007). Recommendation on Aston Martin’s international strategy in Vietnam In the environment assessment, it has already been observed that Vietnam is heavily dependent on Agriculture while other sectors such as manufacturing and service industry are gradually growing. In nascent industries, early entrants generally have an added advantage of exploring various opportunities. The automobile industry of Vietnam is in its emerging phase and entry of Aston Martin during this period will put the company in a strategically advantageous position (BBC, 2014; The Heritage Foundation, 2014). Aston Martin is a renowned brand and it is expected that the entry of the company will have significant impact on four wheeler buyers. However, Aston Martin is a luxury brand and the majority of Vietnamese population comprises low middle income group. The organisation should, however, adopt premium pricing strategy in Vietnam as elsewhere, so that it maintains consistency in terms of its global image as a high quality luxury brand. The long term strategy of the company is to create brand loyalty so that when competition in the Vietnamese automobile sector matures, consumers continue to exhibit preference towards Aston Martin (Hill & Jain, 2007). Unlike marketing practices in developed countries, the company should implement unique marketing strategies for growing brand awareness among consumers. The company can make extensive use of car stickers, roadside signs and billboards to increase consumer awareness. Additionally, the company should integrate innovation in its distribution strategy so that it can serve private as well as state entities without falling prey to the existing tension therein (Hill & Jain, 2007; Verbeke, 2013). Entry strategy of Aston Martin in Vietnam Global expansion is undertaken by firms for a number of reasons but the primary goals comprise attainment of cost advantage and increasing international market share or consumer base. There are a number of entry strategies that are adopted by foreign firms while entering a new market or nation. These strategies are franchising, licensing, green field investment, exporting, international joint venture and management contract. Under the Vietnamese law regarding enterprise, a foreign entity can enter the country in the form of Limited Liability Company with one or more members, Joint Stock Company and through Partnership. Aston Martin should enter the country in the form of joint venture with a domestic partner and undertake green field venture (Twarowska & Kąkol, 2003). Under green field project, a company establishes its operations in a host country as well as create employment opportunities therein for earning profit. This venture will prove profitable for the company because the labour cost in Vietnam is relatively low. Additionally, the country is an emerging economy and resources will be available at a comparatively low cost. It was further ascertained that if the company hire local employees, it will be able to gain consumer loyalty in less time period (PWC, 2012; Verbeke, 2013). Recommendations regarding human resource management Acculturation has significant impact on cross cultural joint ventures. Cultural compatibility is considered critical in joint venture because incompatible behaviour is often a significant reason behind failure of joint venture. Acculturation can create an air of confusion which can be resolved with mutual respect, trust and interaction. The etiquettes and customs of Vietnamese differ significantly from that of the British and these factors should be taken in consideration while venturing into the country (Peterson, 2004; Ferraro, 1990). The Hofstede analysis suggest that Vietnam has a collectivistic society and they value family and put greater emphasis on group and team unlike individualistic nature of British society (The Hofstede centre, 2014). Considering these differences, the local and foreign employees of the company will require various cross cultural trainings so that the employees develop cordial work relationship. There are a number of training that are implemented by firms, such as, training regarding verbal and non-verbal communication gestures, cultural awareness training, experiential training and attribution training. These training are helpful in assisting expatriates in gathering knowledge regarding local culture, language and location (Forster, 2000; Hånberg & Österdahl, 2009). Communication training helps in minimisation of language barriers and helps in increasing interaction between foreign employees and local employees. It was considered that in international joint venture the most method of managing human resource is geocentric approach. Geocentric approach will ensure that the organisation is not biased towards any particular nationality. Geocentric approach is relatively expensive and time consuming but it yields considerable amount of benefits in the long run, such as, optimum utilisation of global resources, greater commitment to organisational goals and better management of resources (Littrell & Salas, 2005). Motivation and leadership in cross cultural teams The motivational process in a cross cultural team may encounter a number of issues. Cultural difference often cause misunderstanding, linguistic barriers and encourage self-interest. The process of motivation differs across different cultures and culture has significant influence on organisational goals and objectives. In most cultures such as Chinese and Vietnamese culture, need of belongingness are highly emphasised upon. Therefore, it is possible that employees will feel more motivated when they work in team and share rewards instead of having personal gain. A convergence of Hofstede model and Maslow’s need hierarchy suggest that Vietnamese and British employees of the organisation can be motivated through open communication, discussion and team building activities (Anbari, et al., 2003; Peterson, 2004). Leadership is another complicated issue in cross cultural environment as different culture demands different kind of leadership. For instance, power distance in Vietnam is relatively high which suggest that employees do not object to bureaucratic leadership approach while in most British and American firms, participative leadership is applied. A number of authors have advocated that in cross cultural environment, servant leadership is most appropriate. The reason is supportive functional attributes of servant leaders such as employee empowerment, integrity, trust, communication, encouraging and stewardship (Russell & Stone, 2002). Conclusion In recent years, significant growth in international business has been observed worldwide. The paper has discussed one such situation of international business where Aston Martin is planning to enter the Vietnamese market. Aston Martin is a British company with global dealership but limited global presence. The Vietnamese business environment and culture is significantly different from that of the United Kingdom. Therefore, pre-entry environment analysis was recommended where various issues and relevant solution were evaluated. It was observed that the Vietnamese economy is growing at a rapid rate and has tremendous scope of advancement for national and foreign organisations in sectors such as manufacturing and automobile. The paper also assessed the CSR environment of Vietnam and presented solution to certain recognised issues from the perspective of international business. Lastly, the paper discussed entry strategy of Aston Martin in Vietnam and necessary motivational and leadership measures to resolve issues related to acculturation. References ACCR. (2011). Corporate social responsibility in Vietnam. Retrieved from http://www.accsr.com.au/pdf/CSR_Vietnamese_Perspective_MagalieMARAIS%20v2.pdf. Anbari, F.T., Khilkhanova, E.V., Romanova, M.V. & Umpleby, S.A. (2003). Cross cultural differences and their implications for managing international projects. Retrieved from http://www.gwu.edu/~umpleby/recent_papers/2003_cross_cultural_differences_managin_international_projects_anbari_khilkhanova_romanova_umpleby.htm. Aston Martin. (2014a). Company history. Retrieved from http://www.astonmartin.com/heritage. Aston Martin. (2014b). Global location. Retrieved from http://www.astonmartin.com/the-company/locations. BBC. (2014). Vietnam profile. Retrieved from http://www.bbc.com/news/world-asia-pacific-16567315. Ferraro, G. P. (1990). The cultural dimension of international business. Englewood Cliffs, NJ: Prentice Hall. Forster, N. (2000). Expatriates and the impact of cross‐cultural training. Human Resource Management Journal, 10(3), 63-78. Fukada, S. (2007). Corporate Social Responsibility in Vietnam: Current Practices, Outlook, and Challenges for Japanese Corporations. Retrieved from https://www.keidanren.or.jp/CBCC/en/report/200709observations.pdf. Hånberg, C. & Österdahl, G. (2009). Cross-cultural training of expatriates. Retrieved from http://www.diva-portal.org/smash/get/diva2:227437/FULLTEXT02. Hill, C. W. & Jain, A. K. (2007). International business: Competing in the global marketplace (Vol. 6). New York, NY: McGraw-Hill/Irwin. Littrell, L. N. & Salas, E. (2005). A review of cross-cultural training: Best practices, guidelines, and research needs. Human Resource Development Review, 4(3), 305-334. Peterson, B. (2004). Cultural intelligence: A guide to working with people from other cultures. Yarmouth: Intercultural Press. PWC. (2012). Doing business in Vietnam. Retrieved from http://www.pwc.com/en_VN/vn/publications/2012/assets/PwC-HSBC_Guide_to_doing_business_in_Vietnam.pdf. Russell, R.F. & Stone, A.G. (2002). A review of servant leadership attributes: Developing a practical model. Leadership & Organization Development Journal, 23(3), 145-157. The Heritage Foundation. (2014). Vietnam. Retrieved from http://www.heritage.org/index/country/vietnam. The Hofstede centre. (2014). Vietnam. Retrieved from http://geert-hofstede.com/vietnam.html. The World Bank. (2013). Poverty Reduction in Vietnam: Remarkable Progress, Emerging Challenges. Retrieved from http://www.worldbank.org/en/news/feature/2013/01/24/poverty-reduction-in-vietnam-remarkable-progress-emerging-challenges. The World Bank. (2014). Data: Vietnam. Retrieved from http://data.worldbank.org/country/vietnam. Twarowska, K. & Kąkol, M. (2003). International business strategy - reasons and forms of expansion into foreign markets. Retrieved from http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf. Verbeke, A. (2013). International business strategy. Cambridge: Cambridge University Press. Read More