Tremendous Opportunities for Read the World in Vietnam - Essay Example

?Economic Analysis Table of Contents Table of Contents 2 Introduction 3 Economic Environment of Vietnam 3 Socio-Cultural Factors 7 Political & legal environment 8 International Cooperation 11 Other Factors 11 Recommendation & Conclusion 12 Reference 14 Bibliography 17 Introduction The liberalization of Vietnam in the year 1986 has enabled the country to gain access to foreign investment in various sectors. Following this there has been a sharp jump in the number of foreign companies especially the Western nations willing to set up their operations on the soil of Vietnam. The country has emerged as major developing country in the Asian region though it is yet to match the other stronger Asian economies like China. Nonetheless the country is on the verge of transformation into a potentially successful economy. This report has been prepared for the CEO of the ‘Read the World’, a British origin company, that has appointed the consultancy firm for the purpose of evaluating the market for books in Vietnam and present the threats and opportunities that exist in the country. The report focuses on the social initiative of Read the World that functions with the aim of designing and producing educational books and magazines for the needy people in developing markets. Economic Environment of Vietnam Back in the year 1986, Vietnam started off liberalizing its economy. Once it opened its doors to encourage foreign direct investment in various sectors, a considerable jump has been noticed in the number of foreign organizations and western companies entering into the country. In the South East Asian region, Vietnam has emerged as a significant economic power. With the initiation of the renovation policy in the year 1986, the country has been able to fetch a sustainable high GDP growth rate during the past decade. With the GDP growth rate of 8.4 percent in the year 2005, the country has been able to the address the issue of poverty. The entire economic growth can be very well contributed to the practical economic reforms of the government to encourage the growth in the private sector. After 2000, when the Enterprise law was implemented, Vietnam registered over 120000formal private organizations were registered which was six times the number of companies registered before the enactment of this specific law. Still, there are more possibilities to spread the advantages of the rapid growth in Vietnam’s economy across the globe. The activities in the private sector concentrated across 64 provinces of the nation. The leaders of these provinces have established a regulatory framework which would encourage calculated risk taking by the private entrepreneurs. In the response, with the country’s continual decentralization process, the economic programs of the Asia Foundation have focused on the improvement of the business environment to enhance the private sector competitiveness as well as economic growth (The Asia Foundation, n.d., p. 1-2). Since early 1990s, the Vietnam Chamber of Commerce and Industry (VCCI) and the Asia Foundation together are responsible to promote global business development and economic integration across Vietnam, more specifically the growth among the small and medium enterprises (SMEs). In the year 2002, the Vietnam Chamber of Commerce and Industry (VCCI) and the Asia Foundation shifted their focal point to enhance the provincial governance, further encouraging the sector growth in the private sector. Started off in the year 2002, they initiated a program to find out the reason why some handful provinces have the ability to attract the private sector investment and to address the issue f economic success. This also reflects the eagerness of the respective authorities to make all the provinces equally attractive for the foreign investors. The economic outlook of Vietnam remains greatly positive supported by the government’s determination to comply with WTO. The country has experienced great progress with trade as well as investment reforms. Furthermore, its negotiation over the WTO entry has particularly been quite smooth. The country’s compliance with the WTO is expected to increase pressure on the firms based locally. However, the development would enhance the attractiveness of the business environment of the country. The development has also been done to ensure that the government meets the reform commitments. Furthermore, the government has also been pushing forward with the efforts to encourage the competition and the development in the private sector. The economic freedom of the country is 51.6. This has led to make the economy as 137th in 2011 index. Compared to the last year, the score was about 1.8 points more than the last year which reflects the increased scores in both business and monetary freedom. The country has been ranked as 30th out of some 41 countries across Asia Pacific region. The overall score of the country has been lower than the regional and world averages. The country has capitalized on the continual and gradual integration into both global trade and investment systems and furthermore, the country has transformed itself in a market which is more oriented towards the market. The reforms have considered fractional privatization of the enterprises owned by the state itself. Moreover, growing realization of the rights regarding private property and the liberalization of trade regime have also included in the economic reforms. During the recent recession, the economy has shown enough resilience to the adverse effects of the economic downturn. Despite of the challenges in the global economic environment, over last five years, the economy of Vietnam has experienced an average annual growth rate of around 7 percent. The overall economic freedom of the country is pretty much limited by some significant institutional factors. Despite of continual effort towards continual reforms, the regulatory economic environment has not been specifically transparent or efficient. However, the main issue has been that the investment is sometimes hindered by difficult system of bureaucracy as well as erratic legal system. The enterprises which are owned by the state government will account for around 40 percent of the total GDP. This has also hampered the materialization of the private sector with more dynamism (The Economist Intelligence Unit Limited, 2005, p. 1-2). The inflation of the country has been pretty high leading to an average percentage of 10.9 between the year 2007 and 2009. The Vietnam government influences the price through the subsidies, regulation, banks and state owned enterprises as well as utilities. To account for the measures which would distort the domestic prices, fifteen points had been deducted from the monetary freedom score of Vietnam. The foreign investment in several sectors of the economy of Vietnam has been either prohibited or else would require government approval to be carried out, which is surely not a favorable situation for ‘Read the World’. Few factors are identified as the barriers to the investment and these include non-transparent regulations, unwieldy bureaucracy, cumbersome and unreliable legal systems and corruption within the country. Both the residents as well as non-residents can get hold of the foreign exchange accounts which have been subject to the both the government approvals and several restrictions. Both the transfers and payments are subject to several restrictions. Majority of the transactions in capital instruments and money market, the commercial credits, direct investments and derivatives would require the approval from the government. The labor market in Vietnam would remain moderately rigid. Apart from the salary, other cost for employing an employee is pretty moderate; however, releasing an employee can emerge as difficult activity for the company. During the recent years, Vietnam government has raised the lowest wage in both the domestic as well as enterprises invested by the foreigners. This was done to ease out the labor unrest. Starting in the year 2010, a minimum wage would be applied across all the businesses within the country (The Heritage Foundation, 2011). Socio-Cultural Factors As per Farrell et al (2003) the macro-economic performance in the last decade has ensured a considerable improvement in the living standard of the average citizen of Vietnam. There has been a sharp reduction in the poverty level with a sustained improvement in the standard of living of the individuals in the nation. The firms of the developed countries having operational facilities in Vietnam are under national pressure to improvise on their overseas labour standards. The people in the country do prefer to work in factories as some of the domestic factories have independent audit of labour standards and maintain a desirable salary yet there are other factories stick to the Western type of “South East Asian sweatshop”. The average citizen of Vietnam would prefer to be employed as a doctor or teacher or some other public service as compared to working in a factory (Mennen, 2010, p.8). In the Vietnamese society the position of family head belongs to that of the father. However unlike the Chinese society the Vietnamese father jointly shares with the other family members’ bilateral and collective responsibility. Though the Chinese culture has a significant influence the people in Vietnam retain most of their tradition and culture. In the Vietnamese culture the siblings’ relationship is based on “principles of seniority” that calls for the young siblings to give respect to the elders. In the last few years the family institution in the country has been impacted from various fronts. The Western practices brought forth the concept of liberation of individual from the family encroachments. In the post-war period the people in Vietnam have been devastated. The families have broken apart but despite of this there are feelings of strong family ties (Dinh Te, n.d.). A Vietnamese child has to face high pressure as the way they are raised is dramatically different from the other American children (Long, 2011). The decisions of the children are taken by the parents. The Vietnamese parents have high levels of expectation from their children. This means that the parents have an increased focus on the education of their children. Considering the authoritative attitude of the parents the children from the very begging are exposed to habits of learning. If from an early age the children are taught the benefits of reading educational and other such related books then this will not just ensure the academic enlightenment of the children and would also mean a brisk business for the book publishing enterprises. Political & legal environment The political culture in Vietnam is based on a series of factors. One such factor is communism. The political tradition in the country is the one that applies borrowed ideas to the domestic conditions. The political processes in Vietnam incorporate both from the national mythology as well as pragmatic concerns brought forth by the current issues. The political culture in the country is majorly influenced by the Chinese lineage. The political institutions in the country were under the rule of Chinese for almost 1000 years. The political culture in Vietnam is isolated from the other states that are non-communist. This isolation has mainly resulted from the self-imposed barriers imposed against Western influences. The communist ideology has also played a role in shaping the domestic political culture. The country has adversarial relationships with its neighbouring states which has defined the political culture of the region. Vietnam had a rift with China and Cambodia that transformed into an open conflict in the 1970s. The agrarian economy of the country also contributed to the development of the domestic political culture. As an agrarian economy the Vietnamese lacked the urban ability to carry forward their revolution. As a result the strings of leadership passed on the peasants, scholars and official intellectuals. The VCP has successfully identified communism with the domestic nationalism and acquired the position of leadership of the Vietnamese struggle for independence by taking into account a number of religious, ethnic and political groups (Government of Vietnam, n.d.). As per the Constitution the highest representative body in the country is National Assembly which serves as the supreme authority in the country. It is re-elected after every five years as per the principle of equal, universal, secret and direct ballot. The President of the state is elected by the National Assembly. The President serves as the head of the armed forces. The Cabinet is headed by the Prime Minister who is in charge of running the Government. The State of Vietnam exerts tremendous pressure to improve the living conditions of the people. This implies that the government is supportive of providing quality education for the domestic people. The country is also trying hard to catch up with the development attained by other major Asian economies. This attitude has helped in the growth of English as a foreign language (Hiep, n.d.). This implies that an enterprise will simultaneously sell both the English language and local language books. The growing interest of the Vietnamese towards the English language implies that the enterprise may be saved from the efforts of translating the English books in the local language. This will save on considerable amount of resources. The legal framework in the country consists of codes, laws, decrees, constitution, ordinances, circulars, official letters and directives. The legal situation prevailing in the country is a bit complicated for the foreign companies. It is only recently that the investment and trade in the country are a very recent phenomenon. The country is awaiting a most-preferred status from US which will surely boost the country’s exports (Taylor, 1994). Until then the country is subject to high levels of custom duty. The laws in the country are still in the stage of development. Though the government of the country encourages foreign investment at all levels but there is little specification about any permissible levels. This shows that the book publishers are not likely to face any legal resistance from the local government. The legal system in the country seems to be encouraging of all activities that promote the development of the nation or that put the nation at par with the other major markets in Asia. In the case of some countries the foreign companies face a serious opposition from setting up their establishments in the local region. But this is not the case with Vietnam. The legal system in the country is conducive to the development of the standard of living of the people. This implies that the book publishers will not face any legal hurdles in the establishment of their machines in the indigenous locations. Their effort to produce books at low prices in the country is likely to receive an appreciation from all the segments of the society. In other words there will be no legal barriers that the Read the World will face in initiating its operations in the country. International Cooperation Vietnam has been involved with various communities and countries to encourage the sectors in Vietnam. First of all, Vietnam’s cooperation with Japan has given the country an edge towards the economic success. In the year 2000, Japan International Cooperation Agency signed a five year plan to establish a center for cooperation contributing towards the development of human resources of Vietnam and Japan (Masina, 2006, p. 99). The centre is expected to offer course on management, accountancy, Japanese language and information technology. In the same year, a trade agreement was signed between United States and Vietnam. In the same year, both Japan and Vietnam signed a protocol to enhance the tourism sector within the central region. Even in the year 2002, Vietnam initiated its inclusion in WTO (Faure & Schwab, 2008, p. 150- 153). Later on Vietnam has also enhanced its bilateral trade with China. In the year 2005, the volume of bilateral trade among these two countries went up to 21.6 percent over that of the last year (China.org.cn, 2006). Out of all these international cooperation, Vietnam has been mostly beneficial by the relationship with Japan. There have been a number of instances where both these countries shave worked together to the beneficial of their economic environments Other Factors Vietnam has suffered considerably and had to bear extensive damage in the Vietnam War. After this, the government has become very much proactive in the attitude towards the environment policy. Despite of its desire to indulge in the modernization and foreign investment, it has become pretty important that the government must look into the environmental factors. Vietnam has lately included into the international community which was majorly due to the inherent policies of United States. The international community did not fully recognize its government and its interest in the open trade policies. As a consequence, the amount and volume of foreign aid and moreover, investment has become slower than that in the neighboring countries such as Indonesia and Thailand. A broad of factors has led towards the ecological effects to the extensive soil, forest areas with subsequent adverse impact on the river and dam systems. Furthermore, there have been related issues in the fishing and agricultural industries. These issues are now coupled with the economic development. With the enhanced technology, improved in the manufacturing sector, the environmental damages are continuing (The Berkeley Electronic Press, 1994, p. 1-4). However, in the wake of recent environmental awareness the government has become increasingly concerned about the environmental issues. Hence, the issue can emerge as a significant influential factor for the ‘Read the World’. The company is required to align its operation in accordance to the environment rules and regulations. Recommendation & Conclusion Thus it can be said that there are tremendous opportunities for Read the World in Vietnam. The enterprise will publish the educational books in both the English and local language which seems to be a very positive point and is likely to exert a positive influence on the market for books in the region. Besides, the local people show an increased interest in reading educational books in the local language. Moreover, the government and other institutions are aiding the development of the locals by promoting the use of English as a language. A major risk for the company is its reluctance to adopt the route of direct distribution. A reliance on the local chain of distributors can expose the company to serious risks. On the whole it can be inferred that the company can go ahead with its social endeavour of providing quality educational materials such as books and magazines. Analyses of the economic and socio-political conditions in the country as well as the existing legal framework are all indicative that the company is not likely to face any major barriers in its social initiative. Reference China.org.cn. (2006). Bilateral trade relations. [Online]. Available at: http://www.china.org.cn/english/features/fmar/168169.htm [Accessed on May 09, 2011]. Dinh Te, H. (No date). Family relationships. Available at: http://www.vietspring.org/values/family.html [Accessed on May 9, 2011]. 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