Market Profit Potential in Malaysia and Vietnam - Case Study Example

Market profit potential in Malaysia and Vietnam. Student’s Name Institution Professor. Date Table of Contents Abstract. 2 Keywords. 3 Introduction. 3 Success in emerging markets by other companies. 6 6 Advantages of setting up a company in emerging markets. 7 Malaysia. 7 Disadvantages. 7 Vietnam. 8 Advantages. 9 Disadvantages. 9 Possible risks that TNA will face in Vietnam and Malaysia. 10 Recommendation. 12 Conclusions. 13 References 14 Abstract. TNA has made a major stride in search of foreign markets in various countries in the world. The founders Alf and Nadia have faced many challenges in their pursuit of foreign markets .They have successfully created one of the leading companies globally in the food packaging and processing industries. The company’s success in the UK gave them the insight to extend their territory to many more countries in the world. Different countries come with unique challenges. Advantages and disadvantages in foreign countries vary. Every company need reliable information and enough knowledge of the market profit potential of the country of interest. This can help them make sound and informed decisions on whether or not, to start their operations in that country (Dawson 2000). Malaysia and Vietnam have greatly attracted Alf and Nadia and research is being conduct with the intentions of commencing their operations. They have to evaluate the risks they are likely to face and weigh options, they have to determine the market potential in these countries. This report will provide all the information needed in the venture and search for potential markets in these countries. The advantages, disadvantages, possible risks and give recommendations. Keywords. Customer receptiveness, cultural distance, competitive strength, extensive research, market selection, market research, economic prospects Introduction. Market research for emerging and potential markets in foreign countries is usually a very expensive exercise .There exists multitude of diverse markets and extensive research is usually necessary. Despite this factors there are great rewards to reap in Malaysia and Vietnam. TNA has succeeded in other countries and therefore have all the necessary skills needed to set foot in these countries, other companies in Australia have also succeeded in foreign markets and so TNA is no exception. TNA have never ceased to be innovative, therefore they are more than willing to take up the task of looking for emerging markets that have for long been ignored by other investors.TNA take lead in sourcing for opportunities and growth of potential in foreign countries. Sourcing for potential markets involves the ability to withstand the risk of drastic change, poor infrastructure, limited managerial resources, distribution systems and cultural diversity and differences (Dunning 1997). TNA has the intentions to conquer the emerging markets in Malaysia and Vietnam, but they ought to have sufficient knowledge to create a market selection framework. Several scholars have supported this idea which include long term market assessment (Arnold 1998).This provides them with a good basis to conduct their market research. This report will point out the factors that will enhance the operations of TNA in Malaysia and Vietnam.TNA should intensify their commitment in Malaysia and Vietnam as their knowledge and experience grows. (Casson 1998) tried to figure out whether a company should outsource some operations once it decides to set foot in a foreign market. The nature of a market opportunity is supposed to lead to evaluation of various factors such as informal barriers, accessibility, psychic distance and the market attractiveness (Root 1987). The population of these two countries is dominated by the young people. The company is assured of readily available labour, market and can consider making long term plans.TNA provides and offers quality goods and services which puts them at an edge, it will easily win the hearts of the people in these countries who have high chances of accepting foreign companies for the benefits they have constantly reaped from them such as employment opportunities and quality goods. Growth rate and market size are as a result of preferences made by the customers to the products and the competition that a company faces from other companies. Identification of a potential market involves assessment of the attractiveness of the industry and predicts the costs and revenues of the short listed countries. The company also has to select a country or several countries that best match their objectives and available resources (Johanson 1997).this practice of assessing countries helps them to have a good start in their juvenile stages of operation in a foreign country. This is the main principal behind the success of companies in other countries apart from their mother country. On the basis of such principles the company easily takes root and is able to stabilise and conduct its operations easily. Market estimation helps a company to rank countries on the basis of market attractiveness and the aggregate market potential. Various criteria’s should be used to evaluate foreign markets and those that scores highly are chosen. Factors and criteria’s such as ease of access, competition, growth, size and wealth (Conners 1960). Most consumers in emerging markets are still short of their peak spending years. These countries are characterised by a large base of consumers who are usually young. These highly populated markets have purchasing power that is far beyond the country’s per capita income. The combination of potential spending power and age have greatly enticed international marketers to emerging markets .This is a key factor that have influenced companies to invest in foreign countries. Success in emerging markets by other companies. Advantages of setting up a company in emerging markets. Malaysia. TNA can decide to approach both countries as a sole trader or get into partnership. Either of the methods comes with its own merits and demerits. First we shall discuss Malaysia in depth and later Vietnum.There are a number of factors that can make it easy for TNA to start operations in Malaysia. Economy: Malaysia has shown a constant economic growth since its independence in 1957. it has shown significant growth in service delivery and manufacturing. This is very important as most of the commodities and services required by TNA in its operation will be available and will save on the cost of importation. Government incentives; if TNA a foreign company qualifies for pioneer status, by setting up a company in Malaysia will benefit from incentives such as tax relief of 30% of its income for a period of five years .this will give the company a good start to operate and take root in Malaysia unlike in other countries where taxes are too high. Labour and employment; the government of Malaysia insists of employing of workers from its country. This makes employment cheap compared to workers coming from other countries. There is plenty of labour in Malaysia who could also turn out to be possible consumers of the products offered by TNA.This will save the company a lot of agony in search of labourers. Intellectual property; there is a regime ready to protect intellectual property in Malaysia, this gives foreign companies the confidence to operate in Malaysia (Yu 2010). Disadvantages. There are several factors that cannot be overlooked when one intends to start a business in Malaysia. A new company especially one being introduced in Malaysia from another country is likely to encounter the following challenges. Organised crimes; there has been organised crimes in Malaysia such as cigarettes smuggling in shipping areas and the foreign companies stand a chance of losing their imported goods or those awaiting exportation. There is also evidence of growing human trafficking in Malaysia, therefore security of the working stuff is also at risk. Terrorism threat; Malaysia faces a general threat from terrorism. East Malaysia is a very risky region due to frequent kidnapping. This vice is dominant in the islands of eastern Sabah. Bribery and corruption; giving of bribes is illegal in most countries. Corruption and bribery has greatly affected the foreign investors in Malaysia a lot. This encourages unfair competition with other companies and thus leads to poor service delivery and goods that are not of good standards .foreign companies stand a chance to lose a lot of money due to corruption. Cultural misunderstanding; this arises due to miscommunication ,there are some members of stuff who get employed in foreign companies and lack the ability to understand the language of the employers also the employers may not understand the language of the employees. This leads to language barrier that limits navigation of delicate business negotiations. Business culture; to succeed in Malaysia the company has to be dynamic.it should not bank on its past success in other countries. The people of Malaysia have a different culture from the people of Australia. The company has to learn their culture, their preferences and choices so that their goods will sell best in the market. Vietnam. Vietnam has a great market potential just like Malaysia .this is a country that has faced a lot of challenges in the past years but still emerges as one of the highly preferred emerging markets in Asia by foreign companies and corporate bodies. Advantages. Availability of land; the government of Vietnam has allowed foreign companies and corporate bodies to lease land in their country. This allows foreign companies to invest heavily into the country and even set up permanent stractures.foreign companies can have long term plans in the country. Economic growth;vietnum is one of the highest growing economies in the South Eastern Asia .the long term economic prospects of Vietnam remain to be very positive .this gives foreign investors a lot of hope of doing well in this country compared to others. Good investment climate; Vietnam is of the most attractive foreign investors destinations. The country has introduced continuing tax incentives, cheap labour, and a coastline that is sophisticated and fully equipped. The government also issues positive legislative measures to foreign investors in the country. Employment; the government provides work permits for foreigners working for corporate bodies or business entities in vietnum.this gives foreign companies the ability to also employ people from their home countries besides the locals.it only takes ten days to be issued with a work permit in Vietnam. Infrastructure; for economic development the government as improved the infrastructure in the country. This has been achieved by upgrading and expanding of the available infrastructure .there is a good network of roads in Vietnam and also those that leads to her neighbours such as china. Disadvantages. Starting a business; for one to start a business in Vietnam, you have to undergo a very tedious process that involves not less than ten procedures. This discourages the foreign investors a lot. There are also some tasks which face new corporate entities that are very unfamiliar to companies overseas. Construction permits;contruction permits in Vietnam usually take not less than 110 days and some lengthy procedures almost 11.this becomes a challenge for companies that intend to have quick permanent structures ,to start their operations. Various departments have to be consulted in order to put up a structure. Electricity; it has never been easy to get electricity in vietnum,foreign companies face a lot of challenges and again have to undergo very lengthy process.it also costs them a significant percentage of income per capita .Operation of companies that heavily depend on electricity is affected. Labour; the system of education in Vietnam puts more emphasis on pure theory rather than on practical skills. This leaves the country without skilled people in the various fields of operation and production. Foreign companies are forced to seek for people with the required skills from other countries which becomes costly at times. Limited proctetion.this is a great risk for new companies in vietnum.this can range from corruption to briberly.This is a result of lack of fully evolved and well established legal and ethical protection. Foreign business encounter crooked law enforcement persons and even criminals. Stealing and violence are very common. This challenges have made many investors to terminate their activities in that country and opt for elsewhere. Possible risks that TNA will face in Vietnam and Malaysia. Malaysia and Vietnam are good places to start business .a company needs to be aware of the level of risks involved in operating in either of the countries.Knowlege of the risk involved is of great concern. Malaysia has a history of organised crimes like discussed earlier. This is a great risk .crimes such as smuggling of goods at the port, human trafficking, kidnapping and possible terror threat are on the rise despite the government’s efforts to curb the menace. This has created a lot of fear for the foreign investors to operate in the country. The cost of hiring private security personnel is also very expensive .Security is a key factor to consider for any economic growth to be achieved in any country. The government of Malaysia is trying all ways and means possible to create a conducive environment for business to thrive, but still insecurity hinders many investors from setting up their premises in the country. In the economic and political fronts Malaysia is facing great challenges that everyone wishes they could end soon. The Prime Minister Najib Razak is facing great opposition from members who are within his party. These members are still very loyal to the former Prime Minister Mahathir Mohamad. Such political wrangles discourage economic growh.Investors are very cautious of such situations.Politacal rivalry has always resulted in violence in many countries and Malaysia is not prone to that. Many companies both local and foreign have lost a lot of assets in violence fuelled by political rivalry some even have lost their lives. The system of protecting intellectual property in Malaysia has been faced by many challenges for the last two years. The government decided to set up courts to improve on the situation but still there is a major slowdown in the prosecutions made by the courts. This makes cases to remain pending in the courts for very long and others are not reported at all. The government therefore fails in its duty to protect intellectual property. Vietnam just like Malaysia has great risks the investors face during their operation in that country. Vietnam is known for making very lengthy procedures for someone to start a business in that country .These procedures take very long for them to go through and are also very costly. In the process many foreign investors find themselves in the hands of crooked law enforcement personnel who trick them and they end up losing a lot of their money. This greatly discourages people from investing in the country. Getting electricity installed is a very lengthy process .this prevents companies from making plans early enough and thus operations are delayed. The system of protecting intellectual property in Vietnam is very poor compared to Malaysia. There are no organs set up by the government to cater for issues pertaining intellectual property. This is a clear indication that foreign companies are at a greater risk in Vietnam than in Malaysia. The IP enforcement systems in Vietnam are still at their lowest rate of operations. This has given plenty of room for counterfeiting and piracy to thrive among other crimes. Bribery and corruption is very rampant in Vietnam, this involves giving of cash or very expensive gifts so that a business deal can be conducted. Some companies have been forced to bend their rules to receive or give bribes to individuals or government officials so that they can operate in the country. A lot of money which could have been used in investment is lost and becomes difficult to recover.Vietnum holds number 123 out of 174 in the World Transparency International Corruption Perceptions Index. This shows that Vietnam compared to Malaysia is more corrupt and a foreign company is likely to struggle more in that country. The legal system in Vietnam is very poorly managed. The country is poorly resourced and lacks people with the necessary knowledge to handle commercial disputes between the locals and the foreigners. Many are times the judges give ruling in favour of the locals. There is a high tendency of not finding justice in their courts especially if you are a foreigner. Recommendation. Malaysia and Vietnam are among the best places to set up a business. These two countries have shown great capability to be the next big economies just like china .They have both great benefits to reap from and also some challenges that foreign investors will face when they start their operations in these countries.interms of protection of intellectual property the government of Malaysia has done more compared to Vietnum.The procedures to register a company in Malaysia is not as tedious and lengthy compared to Vietnum.The education system in Malaysia is by far better than that of Vietnum,In Malaysia it is easy to get highly skilled labour unlike in Vietnum.Getting electricity is much easier in Malaysia . Malaysia is a better place to start a business compared to Vietnum.TNA can also do well in Vietnam bearing the fact that it has operated in many countries and some ideas can be borrowed to facilitate smooth operations in Vietnam. Conclusions. Many companies like to start operations in highly attractive emerging markets, where they are likely to enjoy competitive advantage and low market risks. Emerging markets need a lot of considerations and a lot of study to be done so that some potential emerging markets could not be overlooked. There can never be any success in business without taking risks. References Arnold, D.J. and Quelch, J.A. (1998), “New strategies in emerging markets”, Sloan Management Review, Vol. 40, Buckley, P.J. and Casson, M.C. (1998), “Analysing foreign market entry strategies: extending the internalization process”, Journal of International Business Studies, Vol. 29, Cavusgil, S.T. 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