International Engineering Management - Report Example

INTERNATIONAL ENGINEERING MANAGEMENT By Name Course Instructor Institution City/State Date Table of Contents INTERNATIONAL ENGINEERING MANAGEMENT 1 Table of Contents 2 Executive Summary 3 Introduction 4 Background of Malaysia and Vietnam 4 Economical Overview 5 FDI in Malaysian and Vietnam 7 Risks Involved 9 Recommendations 10 Conclusion 11 References 12 International Engineering Management Executive Summary Malaysia has attracted numerous multinational companies with its large, young, literate urban population that offers a healthy labour market. Besides that, foreign businesses as well as workers are moderately safe since the crime rates in Malaysia are lower as compared to other developing economies in Asia. In this case, TNA may gain from the Malaysia’s transport network that is of high quality, with ports that are well-connected through inland transport to neighbouring countries and also major economic hubs. On the other hand, the long standing economic prospects of Vietnam driven by its workforce dynamism and demographics can be beneficial to TNA. Having a population of around 90 million, it is without doubt that Vietnam is progressively becoming an important market (PWC, 2011, p.2). The import demand of Vietnam is projected to grow by 250 per cent by, and so, this will be an important market for TNA. Therefore, it is a perfect time for TNA to explore the emerging opportunities in order to be able to take part in the economic transformation of Vietnam. As it will be evidenced in the report, Vietnam is currently the fastest-growing economy in Asia with a high growth in Gross Domestic Product (GDP), based on the power of the private sector and foreign direct investment (FDI). Evidently, decades of strong political stability as well as industrial growth, have made Malaysia a successful and vibrant economy in Asia. This report carried out a preliminary analysis of Malaysia and Vietnam markets to determine their relative advantages and disadvantages in terms of their market profit potential and will make recommendations on which of these markets would provide the best option for TNA Pty. Ltd. (TNA). Introduction Until now Vietnam as pointed out by Ernst and Young (2011, p.14) has transformed successfully from an economy that was planned a centrally with heavy subsidies and bureaucracy to a market economy that is socialist-oriented typified by fast growing entrepreneurship and strong dynamism. Furthermore, the economy of Vietnam has deeply integrated into the global as well as regional economies, leading to a sharp increase in foreign investment influx and trade volumes. In the last few decades, Vietnam’s GDP has averagely increased by 7.2 per cent annually with the FDI and private sector enjoying positive conditions created by the Investment Law as well as Enterprise Law of 2005. According to Asefeso (2012, p.55), the law institutionalizes the freedom of carrying out business in Vietnam and eliminates a lot of administrative impediments that hinders enterprises. On the other hand, strong GDP growth in Malaysia has changed Malaysia’s economy from the commodities-based economy to one that is orientated towards manufacturing. The strategic position of both Malaysia and Vietnam, between the South China Sea as well as the Indian Ocean, together with their stable political environment a and strong economy, make them a popular location for investment. Background of Malaysia and Vietnam Malaysia is positioned centrally within the ASEAN (Association of South-East Asian Nations) and has it is a federation of three federal territories as well as 13 states. Besides that, Malaysia is a multi-ethnic; multilingual as well as the multicultural society with a population of nearly 30 million (see Appendix 1). In this case, 57.1 per cent of the population comprised of the ethnic Malays, Chinese make 24.6 per cent of the population, Indian are 7.3 per cent and the remaining 11 per cent constitutes the other local ethnicities. The freedom of religion is guaranteed by the country’s constitution, even though Islam is the official as well as the largest religion since almost. 61.3 per cent of the population are Muslims. The country’s official language is Bahasa Malaysia, but Chinese and English are considered the main business languages. Vietnam having a population of almost 90 million is considered the 13th most populated nation in the world. Because of the substantial improvement in the standards of living, the population of Vietnam has steadily grown and is projected to increase by almost one million annually. Vietnam has a youthful population that makes 25.8 per cent (below 14 years) of the population while 67.9 per cent are aged between 14 and 65 years (International Markets Bureau, 2011, p.3). Besides that, just 25 per cent of Vietnam’s population live in the urban with most people living in the coastal region. Still, Vietnam is becoming more and more urbanized with the urban population increasing by 14.4 per cent between 2004 as well as 2009. Statistics indicates that almost 3 per cent of the population in Vietnam are currently living in urban areas. Economical Overview Malaysia according to AHK Malaysia (2011, p.1) is a dynamic nation that is constantly evolving, and being a middle-income economy, the country has since the 1970s transformed itself from raw materials producers to developing multi-sector economy impelled by capital intensive, knowledge-based and high technology industries. Furthermore, the Economic Performance position of Malaysia has improved from 12th position in 2007 to 7th place in 2011 (AHK Malaysia, 2011, p.1). Malaysian is located strategically in South-East Asia, and it provides a location that is cost-competitive for investors seeking to start offshore operations with the intention of manufacturing products that are technologically advanced for both international as well as regional markets. Besides that, Malaysia economy is market oriented and is supported by pro-business government policies. The Malaysian government has come up with plans to revitalize its private sector so as to improve the service sector that will generate over 3 million jobs. The 2011 GDP growth in Malaysia was 4.0 percent, and this was attributed to the feebler domestic demand (AHK Malaysia, 2011, p.2). Advanced implementation of Economic Transformation Programme (ETP) projects in addition to 54 billion US dollars 2012 Budget that was tabled by Datuk Seri Najib Razak, the current Prime Minister of Malaysia was intended to improve the domestic demand, but failed to offset poor performance in the net exports. Moreover, the foreign capital focus in Malaysia has changed with equity capital being the largest foreign direct investment component followed by other capital such as reinvested earnings. In view of this, the equity capital value increased from 1.5 US dollars in 2001 to 31.5 US dollars in 2007 (Tanggapan et al., 2011, p.25). This increase was brought about new investment as well as the expansionary investment within the existing firms. Until presently, as mentioned by Ernst and Young (2011, p.14) Vietnam has transformed effectively from a centrally-planned economy to a socialist-oriented market (see Appendix Two for Vietnam’s Economy key indicators. Even though the economy of Vietnam was affected the 2008 global financial crisis in addition to the internal unfounded macroeconomic setbacks like high rate of inflation, budget overspending and trade deficit, Vietnam’s economy has rapidly recovered, with a 5.89 per cent GDP growth rate of in 2011 (Ernst & Young, 2011, p.14). Besides that, Vietnam was in 2011 ranked as a lower middle income economy, but still, the Vietnamese government has implemented numerous key solutions for its long-term development plan, which includes curbing inflation as well as macroeconomic stabilisation; administrative reform and restructuring of the economy; improved social welfare and workforce quality. Currently, the economic freedom score of Vietnam is 51.7; thus it is ranked 148th free economy for business investment. However, the country’s fast growing connections to the international market have not materialised into an all-inclusive economic reform program. Since 2010, Vietnam’s economic freedom has stagnated, and a disturbing inflation expansion has weakened potential gains from trade freedom advances. Being part of the Trans-Pacific Partnership talks has enabled Vietnam to open its market steadily and decrease both tariff and non-tariff barriers. Still, other economic freedom factors are less embedded, and the government lacks transparency due to prevalent bribery and corruption in the government departments. FDI in Malaysian and Vietnam The government of Malaysia encourages multinational companies to establish their businesses through joint-venture with local companies. According to Dohlnér and Grom (2006, p.21), foreign companies were until 2003 forced to joint-venture with Malaysian firms, due to the equity ownership regulation, but the legislation was abolished. Because of expertise as well as capabilities in Malaysian companies in particular sectors, Dohlnér and Grom (2006, p.21) posit that such sectors have equity restrictions. These sectors include manufacturing in plastic packaging, paper packaging, metal fabrication and stamping, printing, wire harness as well as steel service centers. However, the foreign investment confidence has been increased by the Malaysian government through creation of Investment Guarantee Agreement (IGA) whose main feature is that corporations do not have to restructure an accepted equity (Dohlnér & Grom, 2006, p.21). Other IGA features include; protection against expropriation and nationalization, ensuring acceptable, and prompt compensation after an expropriation has been nationalized, offering free transfer of capital and profits, making sure investment disputes are settled and offering international arbitration or conciliation. Imperatively, investing in Malaysia brings about many benefits; for instance, companies may be exempted from import duty on components and raw material regardless of whether the products are to be sold domestically or internationally. Furthermore, equipment as well as machinery may be exempted from levies considering that the Malaysian government policy does not impose taxes on equipment and machinery exported for manufacturing purposes. Vietnam has attracted successfully a significant volume of foreign direct investment (FDI), sustainable levels of between 10 and 12 billion US Dollars annually since 2009. Vietnam has been cited by numerous investors as being in a suitable geographical position, which is close to global supply chains. The country has a growing market for the consumers; its business climate is projected to improve because of the Trans-Pacific Partnership, relative economic as well as political stability together with the growing need for diversifying their manufacturing base within Asia are reasons why many multinational companies have opted to invest in Vietnam. In general, Vietnam political environment has been exceedingly stable with the government quickly reacting to quell the anti-China protests in 2014. Even though, scores of international investors see Vietnam as a productive investment location, Department of State (2014, p.1) posits that there are numerous areas that need improvement. Challenges such as weak legal infrastructure, corruption, inadequate education as well as training systems together with restraining labor policies, disadvantageous and inconsistent bureaucratic way of making decisions, discrimination towards foreign companies, limitations of land use, as well as unreliable energy source present risky environment for investment. Risks Involved There are numerous challenges that TNA will face while entering both Malaysia and Vietnam Market. For instance, corruption is the biggest threat to Vietnam’s economy since prevents many companies as well as investors from establishing their business in Vietnam. Furthermore, Vietnam’s uncertain actions of various procedures and unreliable legal system present an unbearable risk for the multinational companies. According to 2014 Corruption Perception Index, Vietnam was ranked 119th position out of 175 countries. Besides that, prohibitions of investments make it complicated as well as challenging for a company to inject money into the business and the government has been reluctant to solve the issue. Besides that, retaining qualified people is becoming more challenging for both Vietnam and Malaysia since people are progressively becoming wealthy and are now looking for a higher quality lifestyle that both countries are finding hard to offer. In Vietnam, for instance, the hospital situations as well as the health care system are deplorable and there are no adequate parking spots for automobiles in the City of Ho Chi Minh. Even though, both countries’ large market as well as increasing population, offers an opportunity to TNA, high rate of unemployment present challenges. Moreover, comprehending the working culture and business practices of Vietnam challenging and with no connection, it is hard to establish a business in Vietnam’s economy. In Malaysia, challenges arise from the fact that its economy relies on external demand while the economic revenue depends on the performance of oil and gas sector. Furthermore, the economic erosion of price competitiveness associated with high labor cost and ongoing regional disparities makes the investment in Malaysia and Vietnam very challenging. Malaysia has a limited ability to overcome the challenges of market globalisation and liberalization and the country’s knowledge acquisition, and technology management capability is limited. Other challenges that TNA will face while operating in Malaysia and Vietnam include: lack of ability to adopt technology; human resource constraints; as well as inadequate information concerning the potential markets (Saleh et al., 2008, p.88). Even though, the Malaysian and Vietnamese business climate are progressively improving, obstacles still remain. Recommendations Malaysia is a more favourable destination for TNA as compared to Vietnam. Malaysian stable economy offers a suitable environment for broadening a foreign company market base. Presently, the Malaysian economy is considered amongst the world’s stable economies and has a sufficient educated workforce who can effectively serve the needs of TNA. The working population of Malaysia has begun gaining lots of credibility from multinational companies for the reason that they have the skills required by companies to function efficiently and are also highly educated. The Malaysian labour force offers TNA an advantage in carrying out business since finding labour with the required skills is easy. Besides that, the Malaysian government is continually searching for ways of making the country suitable for foreign investment. Therefore, having a healthy combination of competitive local companies as well as foreign owned companies will create a vibrant economy that will transform Malaysian business environment making it suitable for foreign investment. TNA should capitalise on the improved Malaysian infrastructure that offers an effective business environment for foreign companies to operate efficiently. Furthermore, TNA and other multinational seeking to invest in Malaysia and Vietnam must make sure that their business models are sustainable as well as flexible even if wages increase and business growth become slower than expected. Furthermore, TNA should concentrate more on creating long-term value, which includes increasing quality as well as boosting branding, improving management, and concentrating on the business bottom-line instead of focusing only on the revenue growth. Vietnam economic growth in the last decade has been so stable and considering that its GDP has been raising constantly then TNA should be worried about the Vietnamese economic situation since its continuous economic improvement is the investors; safety factor. Besides that, the government stability in Malaysia offers TNA an opportunity as well as pull-factor for investing in both countries. Still, TNA should be cautious because government procedures in both countries are very slow reforms to increase foreign investment are yet to be implemented fully. Both countries should development sound economic policies so as to continue to attract foreign investment. All in all, Malaysia provide a better market for TNA since the risks involved are minimal, and it is strategically positioned. Conclusion In conclusion, this research report has carried out a preliminary analysis of Vietnam and Malaysia markets so as to determine their relative advantages and disadvantages in terms of their market profit potential and has offered an initial recommendation on which of these markets would provide the best option for TNA. As evidenced in the report, Malaysia offers the best option for TNA its economy is growing steadily, barriers to foreign investment has been removed, and risks of entry are very low when compared to Vietnam. Malaysia is more attractive due to its vibrant and strong economy as well as the numerous business opportunities it offers to foreign companies. TNA will undoubtedly thrive in Malaysia because the country has a stable macroeconomic situation, well-built infrastructure and transparent legal system. On the other hand, Vietnam offers cheap labour, but high rate of corruption and poor legal system make it less favourable as compared to Malaysia. References AHK Malaysia, 2011. “Market Watch 2012” The Malaysian Food Industry. Market Report. Kuala Lumpur: AHK Malaysia. Asefeso, A., 2012. CEO Guide to Doing Business in Asia: (Singapore, Malaysia and Indonesia). Swindon, UK : AA Global Sourcing Ltd. Department of State, 2014. VIETNAM. [Online] Available at: http://www.state.gov/documents/organization/229305.pdf [Accessed 5 September 2015]. Dohlnér, L. & Grom, K., 2006. Establishing in Malaysia The Impact of Cultural Factors. Thesis. Jönköping, Sweden: JÖNKÖPING UNIVERSITY. Ernst & Young, 2011. Doing Business in Vietnam. Ho Chi Minh: Ernst & Young. International Markets Bureau, 2011. Packaged Food in Vietnam. Market Analysis Report. Ottawa, ON: Agriculture and Agri-Food Canada. PWC, 2011. Doing business in VCaientandaam. Hanoi: HSBC Bank. Saleh, A.S., Caputi, P. & Harvie, C., 2008. Perceptions of business challenges facing Malaysian SMEs: some preliminary results. In 5th SMEs in a Global Economy conference. Tokyo, Japan, 2008. Tanggapan, D., Geetha, C., Mohidin, R. & Vincent, V., 2011. The Relationship Between Economic Growth And Foreign Direct Investment In Malaysia: Analysis Based On Location Advantage Theory. International Journal of Economics and Management Sciences, vol. 1, no. 2, pp.24-31. Appendices Appendix 1: Economic Facts of Malaysia Appendix 2: Key indicators of Vietnam’s Economy Read More

Furthermore, the economy of Vietnam has deeply integrated into the global as well as regional economies, leading to a sharp increase in foreign investment influx and trade volumes. In the last few decades, Vietnam’s GDP has averagely increased by 7.2 per cent annually with the FDI and private sector enjoying positive conditions created by the Investment Law as well as Enterprise Law of 2005. According to Asefeso (2012, p.55), the law institutionalizes the freedom of carrying out business in Vietnam and eliminates a lot of administrative impediments that hinders enterprises.

On the other hand, strong GDP growth in Malaysia has changed Malaysia’s economy from the commodities-based economy to one that is orientated towards manufacturing. The strategic position of both Malaysia and Vietnam, between the South China Sea as well as the Indian Ocean, together with their stable political environment a and strong economy, make them a popular location for investment. Background of Malaysia and Vietnam Malaysia is positioned centrally within the ASEAN (Association of South-East Asian Nations) and has it is a federation of three federal territories as well as 13 states.

Besides that, Malaysia is a multi-ethnic; multilingual as well as the multicultural society with a population of nearly 30 million (see Appendix 1). In this case, 57.1 per cent of the population comprised of the ethnic Malays, Chinese make 24.6 per cent of the population, Indian are 7.3 per cent and the remaining 11 per cent constitutes the other local ethnicities. The freedom of religion is guaranteed by the country’s constitution, even though Islam is the official as well as the largest religion since almost. 61.3 per cent of the population are Muslims.

The country’s official language is Bahasa Malaysia, but Chinese and English are considered the main business languages. Vietnam having a population of almost 90 million is considered the 13th most populated nation in the world. Because of the substantial improvement in the standards of living, the population of Vietnam has steadily grown and is projected to increase by almost one million annually. Vietnam has a youthful population that makes 25.8 per cent (below 14 years) of the population while 67.

9 per cent are aged between 14 and 65 years (International Markets Bureau, 2011, p.3). Besides that, just 25 per cent of Vietnam’s population live in the urban with most people living in the coastal region. Still, Vietnam is becoming more and more urbanized with the urban population increasing by 14.4 per cent between 2004 as well as 2009. Statistics indicates that almost 3 per cent of the population in Vietnam are currently living in urban areas. Economical Overview Malaysia according to AHK Malaysia (2011, p.1) is a dynamic nation that is constantly evolving, and being a middle-income economy, the country has since the 1970s transformed itself from raw materials producers to developing multi-sector economy impelled by capital intensive, knowledge-based and high technology industries.

Furthermore, the Economic Performance position of Malaysia has improved from 12th position in 2007 to 7th place in 2011 (AHK Malaysia, 2011, p.1). Malaysian is located strategically in South-East Asia, and it provides a location that is cost-competitive for investors seeking to start offshore operations with the intention of manufacturing products that are technologically advanced for both international as well as regional markets. Besides that, Malaysia economy is market oriented and is supported by pro-business government policies.

The Malaysian government has come up with plans to revitalize its private sector so as to improve the service sector that will generate over 3 million jobs. The 2011 GDP growth in Malaysia was 4.0 percent, and this was attributed to the feebler domestic demand (AHK Malaysia, 2011, p.2). Advanced implementation of Economic Transformation Programme (ETP) projects in addition to 54 billion US dollars 2012 Budget that was tabled by Datuk Seri Najib Razak, the current Prime Minister of Malaysia was intended to improve the domestic demand, but failed to offset poor performance in the net exports.

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