Cellarbration Entry to Vietnam Market - Case Study Example

Strategy Report Name: University: Date: Strategy Report Executive Summary This strategy report provided numerous recommendations to Cellarbration on: basic entry decisions; entry mode as well as multinational structure/competitive strategy; global marketing strategies and R&D; production and supply management; and international HRM Strategies and other considerations. It was noted that the process of entering and afterwards developing an international market is not a simple task for Cellarbration. This is because penetrating a new country is similar to a start-up situation, with no marketing infrastructure, no sales, and no or little knowledge of the new market. In spite of these challenges, this situation is normally treated by companies as their business extension, a basis of incremental revenues for current services and products. Economic condition in Vietnam has not been friendly, but the government has made some signs of progress by trying to develop an environment favourable for investment through continuous revision of its legal system as well as introduction of crucial incentives for foreign investors. Corruption is another situation that can create challenges when entering the Vietnam market since the country is well known for its poor record on corruption, but the situation is gradually improving after the introduction of anti-corruption regulations. Cellarbration entry to Vietnam market will be a zero-base process since there will be no existing business and will have little market knowledge when entering the market, especially based on the managerial competence needed for the new market setting. Years after entering the Vietnam market, the changing rate of Cellarbration’s marketing capability will probably be higher as compared to the change in the market environment; therefore, in shaping strategy, the organisation effects could govern market effects. This will predominantly be imperative considering the business context, wherein the new business generation is crucial as compared to efficiency in the management of a business that is relatively stable. In spite of the recent liberalization, regulations in Vietnam are still presenting significant restrictions on foreign participation, especially in the distribution and importing sectors. Considerably, distribution and import activities are reserved only for Vietnamese entities, so, foreign producers are expected to work through Vietnamese companies so as to create retailing or distribution operations in Vietnam. Nevertheless, multinational companies that have a license for manufacturing activities in Vietnam are allowed to distribute their products in Vietnam. Besides that, investment licenses also permit the importation of raw materials by foreign-invested companies so as to produce their products in Vietnam. Moreover, finished products can be allowed prior to production start-up for developing and test marketing the business for a certain time period. In a number of situations, market entry is impelled as a reaction to a competitor’s move, and not some striking features of the host country. The economy of Vietnam has widely gained from the open-door policy introduced by its government. Besides that, thanks to its economic potential and its stable political environment, Vietnam has turned out to be an attractive market for foreign companies. It was observed that it was imperative to understand that the barriers attributed to market entry are variable, and changes as the industry mature or because of the strategic decisions by the main competitors. With regard to the international human resource management issue, it was observed that foreign companies experience numerous HR-related challenges such as strikes, job-hopping, and labour laws. Besides that only 15 per cent of Vietnamese are skilled or trained workers with higher or elementary qualifications; so, Cellarbration may experience a shortage of skilled labour force. Table of Contents Running head: STRATEGY REPORT 1 1 Strategy Report 1 STRATEGY REPORT 16 2 Strategy Report 2 Executive Summary 2 Table of Contents 4 3.0 Additional Analysis Reflecting Further Country Analysis 8 4.0 Recommendation for entry mode and multinational structure/competitive strategy 9 6.0 Recommendations Regarding Production and Supply Management 11 8.0 Conclusion 13 9.0 References 14 1.0 Introduction The strategy report seeks to offer a brief background of Cellarbration and Vietnam background through economic, political, culture, and ethics analysis. Subsequent to that, the report will offer additional analysis that will further reflect on Vietnam analysis based on the country’s competitiveness, Gross Fixed Capital Formation, CAGE framework, financing trade, and so forth. Besides that, the strategy report will offer recommendations with justification for entry mode as well as multinational structure/competitive strategy, wherein the company’s goals and capacity and various strategies such as competitive strategy, international strategy, and market entry strategy will be evaluated. Moreover, an evaluation of the global strategies and R&D is provided through identification of distribution channels and outlets and relevant pricing issue. The report offers recommendations concerning supply management and production and how they will impact the market entry strategy. Prior to a brief conclusion, the report will evaluate the international HRM strategies in terms of how well they are related to the macro environment in Vietnam and characteristics of Cellarbration. In view of this, the report will highlight numerous cultural issues and its implications for staff management, management structure, as well as international staff relations. Besides that, the international labour relations will be highlighted, and strategies that Cellarbration should consider will be recommended. 2.0 Brief background to company and selected international country Cellarbrations is one of the four national independent retail brands of Independent Brands Australia (IBA), and it offers its customers a sincere alternative to other chains, with a brand identity that is exceedingly appealing. Cellarbrations is recognized to be amongst the best Australian independent liquor brands, and this can be evidenced by its fantastic Australia coverage, with outlets in almost all territories (Cellarbrations, 2014). Cellarbrations is from Metcash Limited, a leading marketing as well a as wholesale distribution company in Australia that specializes in liquor, fresh food, grocery, automotive parts, hardware as well as accessories. Vietnam, the 66th largest country in the world, is and has 93,421,835 people, making it the World’s 15th largest population and 3rd largest in the Association of Southeast Asian Nations. Currently, Vietnam is a developing country with a gross domestic product per capita of $1,900 as of 2013 and after Indonesia, it has the most evenly distributed wealth in ASEAN (Department of Foreign Affairs and Trade, 2014). Based on Purchasing power parity (PPP), Vietnam economy is ranked 42st in the world. In the last two decades, the economy of Vietnam has achieved extraordinary growth, definitely profiting lots of Vietnamese considering that the improved economy has lifted more than 30 million people out of poverty. Currently, the rate of poverty in Vietnam stands at 7.8% in comparison to 58% in 1993. The Vietnamese dong (VND) is the main currency in Vietnam, and since it cannot be converted easily, it relies heavily on gold as well as United Sates dollars (USD). Moreover, the GDP growth of Vietnam was 5.4 per cent in 2013, which is a slight increase in contrast to 5.2% per cent in 2013 (Vaughn, 2014). Still, the country’s GDP is improving and is currently 6.03 per cent. The Vietnam’s infrastructure is considered weak after years of wars but is improving steadily. Vietnam has endeavoured to improve its economy through global economic integration made possible by participating in Asia-Pacific Economic Cooperation (APEC), the WTO, the ASEAN Free Trade Area, as well as a growing free trade agreements network such as AANZFTA (ASEAN-Australia-New Zealand Free Trade Agreement) (Department of Foreign Affairs and Trade, 2014; PWC, 2015). Some of the barriers include the prohibition of documenting the tax obligations discharge when remitting, purchasing, or conveying foreign currency overseas for purposes of currency transactions. Vietnam has been a one party state ruled by Communist Party of Vietnam (CPV), wherein the CPV politicians decide the country’s strategic direction in terms of stability, international integration, and domestic economic development. Evidently, corruption is still a problem in Vietnam. In 2014, Vietnam scored 31 out of 100 in the Corruption Perceptions Index, ranking 119 in the world as well as 18 out of 28 territories and countries in the Asia-Pacific region. Vietnam has sound legal frameworks for protecting Intellectual Property Rights (IPR) and is also a member of the World Intellectual Property Organization (Mayer Brown JSM, 2014). Almost 15 per cent of Vietnamese are skilled or trained workers with higher or elementary qualifications. The Vietnam’s 1994 Labour Code that was amended on 2007 generates a legal framework that sets out obligations as well as rights of employees and employers in regard to labour agreements, working hours, social insurance payment, strikes, overtime, as well as employment contracts termination (PWC, 2015). The Intellectual Property Law in Vietnam was passed in 2005, and it protects various intellectual property rights, which includes trademarks, copyright, and inventions. In Vietnam, Land is a state property, so, land users are expected to rent or acquire land use rights from the Vietnamese government. Vietnam population is composed of almost 90% Vietnamese, and the remaining 10% include the Hmong, Chinese, Khmer, Thai, Cham, as well as other mountain groups (Kwintessential, 2004). The official language is Vietnamese, and other languages include Chinese, Cham, Khmer, and indigenous language spoken by the mountainous tribes.  The face custom in Vietnam is the teachings of Confucius, which influence the Vietnamese description of the individual position within the society.  In Vietnam, the hierarchy is much based on status and age (Hofstede, 2011). Vietnam is a low scorer in masculinity, has a low preference for avoiding uncertainty, is a high scorer in long term orientation, a low scorer in indulgence, and is a high-context culture. Vietnam has exhibited its commitment to fight corruption by approving the United Nations Convention against Corruption (UNCAC) though with particular hesitations. Besides that, Vietnam joined the ADB/OECD Anti- Corruption Initiative for the Pacific and Asia (VILAF, 2014). In general, the anti-bribery laws in Vietnam have failed to criminalize bribery, especially in the private sector. However, the Penal Code has been revised, and the government is considering new bribery criminal liabilities within the private sector 3.0 Additional Analysis Reflecting Further Country Analysis Based on the Global Competitiveness Report 2014–2015, Vietnam improved from 70th position to 68th out of 144 countries and is ranked 6th in Southeast Asia. According to the report, Vietnam performed remarkably well in the areas of market size and labour market. Even though the report indicated that the Asian region labour market was in general functioning poorly, Vietnam performed well ranking 49th with its market size ranked 34th in the world (Vietnam Briefing, 2014). Subsequent to the 2011 double-digit inflation, the macroeconomic situation in Vietnam is still improving, and the inflation has dropped to 6.6%. According to the CAGE framework, Vietnam is somewhat distant in terms of the cultural level, and this is mainly attributed to language. Besides that, in Vietnamese business culture, young people and women are disregarded, and because of its hierarchical society, managers are considered the higher authority in the Vietnamese companies (Makino & Tsang, 2010). Vietnam Gross Fixed Capital Formation according to General Statistics Office of Vietnam rose to 38.7 Billion USD in 2013 from 36.0 Billion USD in 2012. Besides that, the average Gross Fixed Capital Formation in Vietnam was 12.6 Billion USD between 1990 and 2013, being higher in 2013 and low in 1990 (TRADING ECONOMICS, 2014). 4.0 Recommendation for entry mode and multinational structure/competitive strategy Cellarbration can utilize cost leadership strategy as a an entry mode to Vietnam market, considering that this strategy aim is for the company to be a low-cost producer as compared to its competitors, and this strategy is useful for companies seeking to penetrate Vietnam market where price is the key deciding factor. Cellarbration can realize cost leadership if it cautiously selects production techniques and suppliers so as to minimize marketing, production, and distribution costs (Volkmann, Tokarski, & Grünhagen, 2010, p. 206). Differentiation is another strategy that can be utilized by Cellarbration, and this strategy is crucial for a company seeking to develop a competitive advantage by means of marketing and supplying a product that is one way or another different to that in the competition. If this strategy is developed successfully, it can help a company improve brand loyalty as well as reduce price sensitivity. As indicated by Mayer Brown JSM (2014), foreign investors can utilize a Wholly Foreign-Owned Enterprise (WFOE) or Joint Venture (JV) to do business in Vietnam. Both a JV and WFOE are corporate legal entities in Vietnam; so, Cellarbration can choose either of the two to do business in Vietnam (Mayer Brown JSM, 2014). In this case, Cellarbration should choose a JV because a key asset is held by the Vietnamese party who understand the local knowledge and know-how. Without a doubt, Cellarbration will benefit if it partners with local Vietnamese companies, considering that the local firms comprehend the Vietnamese culture, market, and ways of becoming competitive in the market (Mayer Brown JSM, 2014). Competitive advantage will take place if Cellarbration develops or acquires a combination of attributes that will facilitate it to outdo its competitors in Vietnam. Such attributes will include access to highly skilled and trained personnel and utilizing new technologies like IT and online business so as to establish its presence in Vietnam. 5.0 Marketing and R&D Considerations Cellarbration seeks to expand into Vietnam to provide its various liquor brands. Expanding to Vietnam is challenging because of its cultural differences, so Cellarbration should make an effort to comprehend these variations as well as integrate them into its marketing strategies so as to be able to succeed in the Vietnamese market. Basically, the distribution system of Vietnam is a fragmented makeshift of state-owned companies, independent Vietnamese agents, privately owned companies, retail outlets (IBP, 2013, p. 138). So, smuggled illegal goods have become a challenge not just to the government, but also to the foreign companies because the smuggled goods are sold cheaply. Moreover, the non-Vietnamese entities are barred from taking part in the Vietnamese distribution system, even though foreign investors can distribute, market, sell what they produce domestically. Once the company’s product is successful in the Vietnam market, Cellarbration will be able to manage its pricing strategy, but prior to that the company is not allowed to transfer its domestic prices to Vietnam. Research and development cannot generate value directly even if the company invests heavily in it. Therefore, the R&D by Cellarbration will depend much on the talents, practices, as well as innovations of its employees in Vietnam and not on the amount invested. This indicates that Cellarbration can invest less on R&D as compared to its potential competitors in Vietnam, but still manage to secure skilled workers as well as the needed goal orientation to produce the required results. Importantly, strategies of research and development help the company to generate strong strategies for marketing campaigns as well as advertising. 6.0 Recommendations Regarding Production and Supply Management Supply chain management issue that Cellarbration will possibly face in Vietnam can be grouped into two broad categories; first is the cost control issue which is an imperative feature of the supply chain particularly in the present time plagued with economic uncertainty (Khan, 2010). The second issue is the desire for an implementation and common organisational structure rooted in a framework offering the management team a systematic approach, allowing them to resolve the modern management challenges such as chaos, change, and other managerial issues that are presented by Vietnam. Basically, the various components of the supply chain such as manufacturers, suppliers, warehouses as well as stores must be integrated into one system, so as to make supply chain management successful. Besides that, Cellarbration should approach Vietnam systematically based on documented and integrated processes so as to avoid a supply chain failure. In this case, the team tasked with handling the supply chain must be highly skilled and experienced in the function of supply chain management anchored in the situational experience rather than the hierarchy positions of the company. Furthermore, the managers concerned with operations of the supply chain have to be accountable and committed and must not purely depend on standards and procedures that can be realised through closely interacting with the operational supply chain team. For economical, efficient and effective operation in its production activities, Cellarbration will have to integrate the system of production control and that of planning. In essence, both production control and planning follow product design adaption as well as the production process finalization (Cheng & Xiao-Bing, 2013). Through proper work expedition and scheduling, Cellarbration will manage to offer better services to the potential Vietnamese customers based on better quality of the liquor brands and cheap prices. Production control will help Cellarbration delivery its products in proper quality and time; thus, helping it win the customers confidence, improve its relationship with the customers and be able to promote cost-effective repeat orders. 7.0 International HRM issues and considerations Evidently, operating human resources across cultural as well as geographical boundaries is very challenging both for business managers and owners. Still, with a continuous advancement of technology, communication ability with people from different cultures is challenging, so there is a need for companies seeking to expand to other countries to understand the various HR issues affecting that country. Culture is one of the main issue of international HRM, because foreign investors face challenges in understanding the host country culture so as to set up the business policies and practices in line with the culture (Eroğlu, 2014). Bearing in mind that values, traditions as well as norms are different in every country and disregarding them can result in a business failure. As Cellarbration starts expanding into the international marketplace and hires workers from diverse cultural and geographic backgrounds, it must adjust to the Vietnamese tax liabilities and labour law. Undeniably, compensation and benefits are the backbone of all HR strategies, however, in the international HR, the employees’ work-life balance is considered equally important as compensation and benefits. In work-life balance strategy, the foreign company is expected to offer its workers with initiatives and programs that improve both their professional as well as personal lives (Budhwar, Cascio, Dowling, & Scullion, 2013). So work-life balance should be part of Cellarbration international HRM policy, for the reason that it is considered a priority by the young potential Vietnamese workers. Maintaining and understating a cultural diversity is another international HRM issues facing scores of foreign companies since working with individuals from different cultural backgrounds mean new working style, new communicating ways as well as new social practices (University Alliance, 2012). In Vietnam, poor pay and overtime are key HR issues that are turning out to be progressively important, considering that the number of strikes by workers from different sectors have increased tremendously. Workers strikes have developed to be a new international HRM issue, and it takes money and time for an agreement to be reached between the workers and the company. 8.0 Conclusion To sum up, it has been argued that the rapid business evolution has forced a number of companies such as Cellarbration to go global in search of a new competitive advantage. As indicated in the report, a wide-ranging marketing approach is needed in Vietnam, and when marketing the company should consider the culture aspect of Vietnamese since they are a high-context culture as compared to Australia’s low-context culture. 9.0 References Budhwar, M. F., Cascio, W., Dowling, P. J., & Scullion, H. (2013). Current issues in international HRM: alternative forms of assignments, careers and talent management in a global context. German Journal of Research in Human Resource Management, 27(3), 161-166. Cellarbrations. (2014). About Cellarbrations. Retrieved from Cellarbrations: http://www.cellarbrations.com.au/about-us/ Cheng, W., & Xiao-Bing, L. (2013). Integrated production planning and control: A multi-objective optimization model. Journal of Industrial Engineering and Management, 6(4), 815-830. Department of Foreign Affairs and Trade. (2014, October 8). Vietnam country brief. Retrieved from Department of Foreign Affairs and Trade: http://dfat.gov.au/geo/vietnam/Pages/vietnam-country-brief.aspx Eroğlu, O. (2014). International Human Resource Management And National Cultural Challenges. Pamukkale University Journal of Social Sciences Institute, 19, 91-102. IBP. (2013). Doing Business and Investing in Vietnam Guide Volume 1 Strategic and Practical Information. 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(2014, March 10). Widening wealth gap threatens Vietnam’s political stability. Retrieved from GRI: globalriskinsights.com/2014/03/widening-wealth-gap-threatens-vietnams-political-stability/ Vietnam Briefing. (2014, September 5). Vietnam Shows Improvement in Global Competitiveness Report - See more at: http://www.vietnam-briefing.com/news/vietnam-shows-improvement-global-competitiveness-report.html/#sthash.YeeEUu71.dpuf. Retrieved from Vietnam Briefing: http://www.vietnam-briefing.com/news/vietnam-shows-improvement-global-competitiveness-report.html/ Volkmann, C. K., Tokarski, K. O., & Grünhagen, M. (2010). Entrepreneurship in a European Perspective: Concepts for the Creation and Growth of New Ventures. New York: Springer Science & Business Media. Read More