TNA Company New Markets in Malaysia and Vietnam - Case Study Example

TNA COMPANY NEW MARKETS IN MALAYSIA AND VIETNAM By Name Course Instructor Institution City/State Date Table of Contents TNA COMPANY NEW MARKETS IN MALAYSIA AND VIETNAM 1 Table of Contents 2 1.0 Executive Summary 3 2.0 Introduction 3 2.1 Discussion 4 3.0 Market Analysis 6 3.1 Market Size 7 3.2 Political Analysis 9 3.3 Economic Analysis 10 3.4 Social Analysis 13 3.5 Technological Analysis 14 3.6 Legal Analysis 15 3.7 Infrastructure 16 4.0 Conclusion 16 4.1 Recommendations 17 5.0 References 18 TNA Company new markets in Malaysia and Vietnam 1.0 Executive Summary Firms go global for various reasons but mostly for expansion or growth. When a firm look for new markets overseas, a global strategy may help expand as well as diversify the business. Without a doubt, operating in foreign markets can help a company increase profit and reduce costs. With the view to Vietnam and Malaysia markets, TNA will find it cheaper to recruit locals because they offer cheap labour. The report seeks to exhibit that Malaysia is an ideal market for TNA because of various advantages such as skilled and high-quality labour and sustainable economy. Clearly, Malaysia is an advanced country; thus, making it more appropriate for various forms of investments. On the other hand, Vietnam is Asia’s latest market with a high level of investor enthusiasm, which to some extent is inflated. However, Vietnam’s market is weakened by the country’s feeble judicial system and lack of contract enforcement. Therefore, TNA will experience some difficulty in handling the Vietnamese bureaucracy and operating in the underdeveloped financial system will pose more challenges. This report examines Vietnam and Malaysia as the potential markets and provides viable recommendations that could help TNA improve its sales and marketing in these countries. 2.0 Introduction TNA is the world’s leading supplier of integrated food processing as well as packaging solutions having more than 14,000 systems in various countries across the globe. Furthermore, TNA offers different types of products such as packaging, processing, materials handling, and so forth. The innovative technologies have enabled the company to achieve flexible, more reliable and faster food products cheaply. Both Vietnam and Malaysia are suitable markets for TNA since they offer potential for improved profit, provide new business opportunities and would enable the company to gain market dominance. 2.1 Discussion TNA was launched in 1982 by Alf Taylor, but in 1983 it became a partnership between John North and Alf Taylor. The partnership was broken up in 1988 after North’s company’s share were bought by Taylor. After the break up, the company set up strategic management structure covering human resources, research and development (R&D), marketing, finance and manufacturing. According to Liesch et al. (2007, p.129, this structure facilitated the company to expand into other countries. The first expansion activity of the company was with U.K.’s Walkers, currently owned by PepsiCo Group. In 1989, the company began earning foreign revenue in the UK. Evidently, TNA leveraged the existing industry knowledge and technological stocks to rapidly expand into the global markets. TNA’s development pattern is notable; thus, offers the perfect illustration of the incremental approach to foreign market entry. At first, Taylor focused on the Australian market using a deal made with the Smith’s Chips. However, the company started to expand into international markets using one geographic area at a time with the objective of substantiating and facilitating its growth. Therefore, the company first entered the UK, then Europe, the US, and later to other countries. The incremental approach used by the company has enabled it to make technological changes and designs improvements while expanding to different foreign markets; therefore, TNA has been able to meet the demands of every specific market with their characteristics (Liesch et al., 2007, p.38). Figure 1: Factors to consider while selecting mode of entry (Kaffash et al., 2012, p.49) Some of the factors that TNA should consider while choosing the entry mode into the Vietnamese and Malaysian markets as evidenced in figure one include the environmental factors and production factors in the target market, and the company’s resources (Kaffash et al., 2012). 3.0 Market Analysis Even though Vietnam has been experiencing economic headwinds, most of the consumers in the country are young and willing to spend. Brands seeking to become successful in Vietnam must be tech-savvy since the largest percentage of the country’s population is young people. Besides that, Vietnamese economy is mainly steered by local companies, and the GDP growth rate has progressively been increasing. The country’s construction and manufacturing sectors are growing. Further growth in Vietnam may stall because of reduced oil prices, which affects the development investment and budget balance. Given that Vietnam market is growing fast, it will offer TNA an attractive platform for growth. This will be further enhanced by improved social and political stability, its membership in the WTO and ASEAN, and the young, motivated and educated (KPMG, 2014, p.3). On the other hand, Malaysia provides a suitable environment for TNA because of its developed infrastructure, supportive government policies, economic strength, educated workforce, quality of life, and pulsating business environment. More importantly, the country’s strategic position at the centre of the heart of South East Asia could provide TNA with a vibrant and dynamic business environment in terms of profits and growth. The Malaysian market is more suitable for TNA because it is an English-speaking country with almost similar technical standards as well as legal and business practices as Australia. Furthermore, the Malaysia’s transport connectivity and infrastructure are more excellent than that of Vietnam. Therefore, Malaysia provides TNA with a profitable gateway into the Asian markets. However, Malaysia’s GDP has become stagnant, which is characterised by the country’s overdependence on limited oil revenues as well as the constricted tax base. According to Wong (2009, p.7), Malaysia provides financial incentives and special taxation to foreign investors, especially in the area of R&D. 3.1 Market Size With a population of almost 90 million, Vietnam provides TNA’s a perfect environment for growth. The majority of the population (70%) are between 15 and 64 years of age, and this is expected to increase further in 2017 (Deloitte, 2014, p.5). Without a doubt, this would spur a higher demand for various products as well as product categories. TNA could capitalise on the Viet Nam’s young population, which has been termed as the ‘golden population’ by the United Nations. Figure two and three shows the potential market size of Vietnam in terms of population growth rate and demographics Figure 2: Vietnam’s population growth rate and total population between 2008 and 2017 (Deloitte, 2014) Figure 3: Vietnamese Demographic Breakdown (Deloitte, 2014) Malaysia’s population is approximately 29.5 million, which makes it a small market size as compared to Vietnam. The majority of the population as mentioned by Wan and Chew (2016, p.4) are concentrated on the west coast. As evidenced in figure 4, the Malaysia’s population growth rate has been declining since 1970 and is expected to decline below 10 million people by 2022. This will become more challenging to TNA because a decrease in population translates to a reduced market size. Figure 4: Malaysia’s Population Growth (Mahari, 2011, p.7) 3.2 Political Analysis Vietnam political history has been colourful and is recognised widely for its communist form of leadership. Vietnam attitude towards Trade relations and foreign direct investment is very receptive, which to some extent controverts the communist ethos. The government of the day has exhibited a commitment to improving the country’s investment and business climate. This is evidenced by the introduction of economic renovation policy (Doi Moi) in 1986 whose objective was to open the country to foreign investment. The country’s administrative powers are held by the prime minister, and not the head of the state (president). While entering the Vietnamese market, TNA should understand that there are significant limits on free speech as well as political activities (Senauth, 2012). Aside from its intolerance attitude towards dissent, conflict in the country has been rare. In case TNA decides to use online marketing in Vietnam, it could face challenges because of restrictions with regard to freedom of speech that could influence the use of the internet, especially blogs and social media. Furthermore, the Vietnamese government is not at ease with free market policies; therefore, it has been reluctant push reforms in the public sector. Generally, the government’s policies are inadequate. In Malaysia, the political risks are very high because of the increasing political differences and opposition in the ruling Coalition. Since independence the country has been ruled by one political coalition; therefore, the political difference has created a tense environment for business operations (Broadfoot, 2011, p.34). The United Malays National Organisation (UMNO) domination in Malaysia’s political environment has posed major questions concerning the consequence of it happen if losing power to the opposition since the possibility has recently been increasing (Jacques, 2008). More importantly, the Malaysian government has managed to provide a sustainable environment for foreign investors and is progressively shifting towards productive affirmative policies. Besides that, the Malaysian government has reduced fears associated with Islamic fundamentalists since most foreign investors are worried that the group could in the future influence the country’s economic policy. 3.3 Economic Analysis Thus far, Vietnam has managed to shift from a centrally-planned economy to a socialist-oriented economy that is characterised, which is typified by the increasing entrepreneurship in addition to strong dynamism. According to PWC (2014), the economy of Vietnam has deeply integrated into the global as well as regional economies; thus, resulting in high trade volumes and increased FDI. The average growth rate of GDP in Vietnam has been 7.2 % annually, and the country is presently ranked top in the Asia-Pacific region (Ernst & Young, 2013, p.14). The 2005 Enterprise Law and Investment Law brought about favourable conditions to Vietnam’s FDI and private sector. The law institutionalised the freedom of every person doing business in non-prohibited areas and got rid of various administrative barriers that hindered enterprises. Prior to joining the WTO, the country had exhibited continuous efforts that sought to improve the rate of GDP growth, changed its regulatory environment and liberalised its market. TNA will undoubtedly benefit from Vietnam’s membership in ASEAN and WTO. On the other hand, Malaysia is currently amongst the most developed South East Asian economies and had a 5.7% GDP growth rate in the third quarter of 2015 (Wan & Chew, 2016, p.5). Furthermore, the country’s economy has shifted to manufacturing-based economy considering that Malaysia economy has been relying on primary commodities and agriculture. More importantly, Malaysia has transformed to a knowledge and service driven economy and its trade policy would create a favourable environment for TNA. Furthermore, TNA would benefit from the government’s continued effort to remove the existing trade barriers by signing a number of free trade agreements (Wan & Chew, 2016, p.6). As evidenced in figure five below, the Malaysia GDP was exceedingly higher than that of Vietnam. Figure 5: GDP Size (Broadfoot, 2011) As evidenced in table one, Malaysia outshines Vietnam only in terms of market size, inflation, the balance of payments, and growth prospects. The economic dynamism score of Vietnam is way higher (6.70) than that of Malaysia (4.53) (Broadfoot, 2011). With regard to the rate of real GDP growth, have been experiencing a high positive percentage change as compared to Malaysia’s change (see table 2). Table 1: Economic Dynamics Variables (Broadfoot, 2011) Table 2: The Rate of Real GDP Growth (Broadfoot, 2011) Therefore, TNA while making the decision to invest in Vietnamese market must take into account various factors like and high inflation rates, weak currency and low disposal income. On the other hand, the decision to invest in Malaysia will be influenced by a number of economic factors such as low FDI success and high foreign debt. 3.4 Social Analysis Recently, English has turned out to be a popular second language in Malaysia and apart from being taught in most schools, it is considered important for Malays seeking better jobs. In Vietnam, is not considered an important language; therefore, it considered a luxury by most Vietnamese. In the view of this, TNA is likely to experience language barriers in Vietnam than in Malaysia. As indicated by Broadfoot (2011, p.23), the standards of English in Malaysia is very high in Malaysia than other South East Asian countries. Education is given a high priority in Vietnam just like in Malaysia. However, most Vietnamese lack sufficient funding to complete their education and most of the teaching methods used are out-dated. Besides that, there is no connection between Vietnam’s research and teaching activities and there is a large gap between practical training and theory; thus, most graduates cannot find job easily. Therefore, TNA will likely experience skills shortages in Vietnam. The affirmative action policies of the Malaysian’s government have negatively affected the country’s higher education system since there has been a shift from engineering and mathematics to subjects such as religious studies. As a result, there is a incongruity between the talent needs of the Malaysian industry and the education system is supplying. Still, the graduated from Malaysian universities have high quality skills than Vietnamese and would be beneficial to TNA. Most Vietnamese employees lack technical talent, which is the biggest strengths of Malays (Broadfoot, 2011, p.21). Therefore, TNA should take into account the cultural and social dynamics of Malays and Vietnamese people. Vietnam experiences social issues like unemployment, poverty as well as workers exploitation by bigger companies, but these issues are non-existent in Malaysia. 3.5 Technological Analysis As of 2012, the number of laptops and desktop computers used by Vietnamese was almost 7 million. This means that there are almost 7.86 computers in every 100 inhabitants. Besides that, the number of mobile phone subscribers as of 2013 was more close to 138 per cent of the total population (Dung, 2015, p.33). This proves that technology in Vietnam has developed swiftly because of the government’s active support. Still, restrictions on the internet use have led to a low number of internet users. Online transactions have been made by only 20 present of the total population; therefore, the existing internet users lack knowledge about online purchasing. This will clearly be a disadvantage for TNA since it is heavily based on technology. Malaysia is a suitable market for TNA because it has a high internet penetration (more than 66%). As of 2014, the mobile penetration in Malaysia was 140% per cent, and with over 10 million smartphone users the country provides a suitable environment for ecommerce. The size of the Malaysian e-commerce market was worth $ 880 US dollars in 2013 (eCommerceMILO, 2014). Generally, the Malaysian market provides TNA a suitable technology market. The Vietnamese technology market is still in the infancy stages; therefore, would offer TNA a good opportunity to gain technology market share. 3.6 Legal Analysis Vietnam has no independent judiciary since judges are selected and vetted by the ruling political party, the Communist Party of Vietnam (CPV). Therefore, majority of judges are selected for reasons of political reliability. Given that the judiciary is controlled by CPV, there is likelihood that a case can be compromised to favour the government of the day. Still, the country’s legal system has started evolving; therefore, there is a possibility that the legal system transparency and dynamism would improve in the future. However, this is outdone by Vietnamese weak legislation that has made the legal system unstable as well as inadequate. Therefore, unstable and unpredictable Vietnamese legal environment should be a main concern for TNA. Besides that, the companies’ tax obligations and customers’ safety and security in Vietnam are still a major challenge (Dung, 2015, p.36). Malaysian law is considered favourable because it is influenced by the UK’s law since the country was colonised by British before gaining independence in 1957. More important, the land law utilised in Malaysia is anchored on the Australian Torrens system. The sharia law is practiced in some Malaysian regions, but the legal system of the country is influenced mainly by the English Common Law (Wan & Chew, 2016, p.7). In terms of legal aspects, Malaysian legal system would more favourable than Vietnamese mainly because there is transparency and dynamism. 3.7 Infrastructure Malaysian infrastructure according to Helleiner (2016, p.88) is relatively good but the country still experience some periodic issues with water and power. Generally, the condition of the country’s infrastructure is good; therefore, TNA can effectively move its products across the country. Furthermore, Malaysia’s airport links as well as ports, and its links for international communications are in good conditions. On the other hand, Vietnamese government has poorly invested in the country’s infrastructure; therefore, TNA is likely to face delays and deficiencies because of poor transportation networks and inadequate power supply. As pointed out by Broadfoot (2011, p.18), Vietnam transport infrastructure is substandard and could hinder businesses seeking to expand into the country. Furthermore, most of Vietnam’s ports are very small with out-dated facilities. 4.0 Conclusion In summary, Vietnam seems to be an attractive market for TNA because of its many untapped opportunities. However, there are numerous issues that must be taken into account before expanding to the Vietnam’s market, such as high inflations rates, low internet penetration, poverty, language barrier and low employability skills. The Market is still at the infancy stage, but very welcoming and dynamic; therefore, it could be rewarding to firms willing to take the risk. On the other hand, Malaysia’s market is more suitable for firms seeking to go global because of its economic, social and political stability, business policies that are very friendly, skilled and high quality labour force, and well-developed infrastructure. 4.1 Recommendations In view of the market analysis, it is clear that TNA should expand to Malaysia rather than Vietnam, because the former provides the company an educated workforce, suitable legal system, and improved physical infrastructure. Furthermore, TNA should invest in Malaysia because the country would create more opportunities such as developed capital market. Although Malaysia provides a stable political, economic and social environment for TNA, the company should invest in training and developing programs so as to improve the skills of the local employees. Vietnam would not be a suitable market for TNA because the country’s Technological stock is out dated, most Vietnamese graduates lack the required employability skills, and the widespread corruption would result in inefficiencies. TNA should come up with a plan to capitalise on Malaysia’s well-developed capital markets. More importantly, the growth in export and demand in Vietnam could provide TNA a source of growth. This could be beneficial to the company in terms of cheap low labour, but for quality labour, the company should investment in employee development and training programs. To improve its revenue and sales in Malaysia, TNA should further research the preferences of the Malays so as to provides goods that meet their personal and cultural needs. 5.0 References Broadfoot, R., 2011. Emerging Asia S.W.O.T. Report. Hong Kong: Political and Economic Risk Consultancy, Ltd PERC. Deloitte, 2014. Retail in Vietnam Emerging market, emerging growth. Nguyen Vu Duc: Deloitte Southeast Asia Ltd. Dung, L.B., 2015. Challenges in entering Vietnamese market for companies in the sharing economy. Bachelor’s Thesis. Lahti, Finland: Lahti University of Applied Sciences. eCommerceMILO, 2014. With 140% mobile penetration, Malaysia has 10M smartphone users. [Online] Available at: https://e27.co/140-mobile-penetration-malaysia-10m-smartphone-users/ [Accessed 19 September 2016]. Ernst & Young, 2013. Doing Business in Vietnam. Ho Chi Minh City: Ernst & Young Vietnam Limited. Helleiner, G.K., 2016. Capital Account Regimes and the Developing Countries. New York: Springer. Jacques, M., 2008. Malaysia is a rare multiracial success. But its stability is being put to the test. [Online] Available at: https://www.theguardian.com/commentisfree/2008/aug/15/malaysia [Accessed 19 September 2016]. Kaffash, M.H., Haghighikhah, M. & Kordlouie, H., 2012. Identifying Factors Influencing Entry Mode Selection in Food Industry of Small and Medium-sized Enterprises (SMEs) in Iran. International Journal of Marketing Studies, vol. 4, no. 5, pp.47-55. KPMG, 2014. Vietnam Market Entry. White Paper. Ho Chi Minh: KPMG. Liesch, P., Steen, M., Middleton, S. & Weerawardena, J., 2007. BORN TO BE GLOBAL: A closer look at the international venturing of Australian born global firms. Working paper. Sydney : Australian Business Foundation. Mahari, M.Z., 2011. Demographic Transition in Malaysia: The Changing Roles of Women. In 15th Conference of Commonwealth Statisticians. New Delhi, India, 2011. PWC, 2014. Doing Business in Vietnam. Working Paper. Ho Chi Minh : PricewaterhouseCoopers. Senauth, F., 2012. The Making of Vietnam. Bloomington, IN : AuthorHouse. Wan, L.S. & Chew, G., 2016. Doing Business in Malaysia. Doing Business Guide. Kuala Lumpur : Christopher & Lee Ong. Wong, B., 2009. Doing business in Malaysia. Booklet. Kota Kinabalu, Sabah: PKF Malaysia. Read More