International business environment Report writing help: Vietnam business policies and factors

Content:

1. Executive Summary………………………………………………………….3
2. Introduction…………………………………………………………………..4
3. Profile…………………………………………………………………………4
4. International business environmental factors………………………………5
5. Political system………………………………………………………………5
6. Legal system………………………………………………………………….6
7. Economic system…………………………………………………………….7
8. Economy……………………………………………………………………..7

8.1  Status…………………………………………………………………….8.

8.2  Foreign direct investment flow………………………………………….8

8.3  Stability & Growth………………………………………………………9

8.4  Other variables……………………………………………………………9

1. Cultural issues…………………………………………………………………10
2. Ethical issues…………………………………………………………………..10
3. Foreign exchange & financial management issues……………………………11
4. Other trade & investment risks………………………………………………..11
5. Recommendations……………………………………………………………..11
6. Conclusion……………………………………………………………………..12
7. Reference……………………………………………………………………….14

1. Executive summary:

The main aim of the essay is to represent the country Vietnam being a business executive of an Australian company which wants to expand its business and want to make an approach to the said country. First, a profile has been given with respect to the country Vietnam including its area, size, population, capital, currency and largest city. Further, a full analysis has been done in terms of assessing its political, legal and economic system so that a general idea can be drawn out of it. Next, the essay has demonstrated an economic analysis of the country by taking foreign trade investments, foreign exchange & interest rate, IMF consultations, per capita GDP and gross national income into account. Moreover, other trade risks such as ethical issues, cultural issues, investment aspects, foreign exchanges and financial management issues have also been involved as a part of the discussion. In this context, researches, surveys and market conditions have been concerned for the analysis for country Vietnam. The essay has attempted to make recommendations to mitigate the risks for international trade with Vietnam. Being a business development executive of that Australian company, a complete analysis has been presented in this essay so that it could be taken care for the assessment of the country’s nature to do business with. Finally, a conclusion has been drawn out and some decisive points have been made out of the essay as a summary to describe it in short.

1. 1.      Introduction:

International business environment completely refers to the economic, legal, ethical, cultural, political, etc conditions and events of nations that may influence and affect the business of an organization. It also includes other financial, natural, demographic and technological factors for the consideration in international business environment. When an organization thinks of internal business, it does not only take resources into account but also focus on the environment. For that, it is required to analyze the environment in order to formulate the policies and to implement the strategies in business’s practices (Cliffs notes, 2012). Being a business development executive of an Australian firm, the country Vietnam has been chosen for the business expansion of manufacturing and sales to its new market. In additional these international business factors consists of two micro and macro factors to be considered. Therefore, to present the essay in a comprehensive manner, it is necessary to brief the profile of the country Vietnam first so that a general idea can be drawn out of its economic and environmental nature.

1. 2.      Profile:

Vietnam is considered as one of the states that has one-party Marxist. Moreover, the country is counted in South-East Asia’s one of the countries that is having fastest developing economy. Vietnam also aims highly to be a developed nation by the year 2020 and thus have set strong sights in this regard. The country encompasses an area of 331,689 Km2 where population is more than around 80 million (UN data, 2012). The country’s capital city is Hanoi which consists of nearly 3.4 million of population out of entire. The largest city of Vietnam country is Ho Chi            Minh which covers nearly 8 million population of the country. The total number of Vietnamese in the country is around 85% and in addition it has nearly 54 other ethnic groups in the country. Apart from this, it is a certified member of the UN, ASEAN, APEC, non-aligned movement, ASEM and lastly the world trade organization. Furthermore, according to the researches, foreign investment in Vietnam has progressively increased and US has been named as the country’s chief partner for trading and businesses (BBC news Asia-Pacific, 2012).

1. 3.      International business environmental factors:

Moreover, a full PESTEL analysis can be made out to know the legal, political, economic and other systems of the country Vietnam. It will demonstrate both micro and macro environmental factors and structures of Vietnam that can be used by Australian firm for environmental scanning purpose from the perspective of strategic management. The company can take such factors into consideration while conducting a new market survey and strategic analysis of a nation. This tool is an advanced and effective tool to get an understanding of market condition, decline and risk factors of a new market (Reno, 2012).

(Source: 2012 index of economic freedom, 2012)

1. 4.      Political system:

First of all, political environment has a direct impact on the economic development of a country and investments made by it for businesses. In this context, the frequency of political stability can become volatile as it rests on people’s support and ever changing. It is seen that political policies are written seldomnly and changed on a very fast pace. Political system of a country covers its policies of taxation, government stability, business regulations and legislations. Similarly, it also includes the regulations of foreign trade, quotas, tariffs and blockages in a country. As far as Vietnam’s political system is concerned, the country’s communist party (CPV) has been struggling for its independence on national level over the last 75 years. Therefore, CPV has taken initiative in this regard and has led the people of Vietnam to renovate their country and to get its modernization and industrialization done (Vision, 2012).

The said country has considered the people as its main root and thus has established a well-structured political system. There is a national assembly in Vietnam which is known to establish both domestic and foreign policy of the country as well as represents the legislative body there. This national assembly exercises the power of people at fundamental and diverse local levels. Moreover, the highest legislative body in Vietnam is the council of ministers which is currently known as government. Here, it also known that CPV has the power of leading country’s political system and is a member of this political system. Therefore, CPV party works effectively and leads respects and develops state’s role (Vietnam net, 2010).

1. 5.      Legal system:

Furthermore, talking about legislative system of Vietnam, it covers employment law and consumer law of the country            . Likewise, the legal system also has the constraints to take care of health & safety, monopolies legislation and other products related safety perspectives of the country. Apart from this, the legal system of Vietnam encompasses constitution of the country, codes, ethical laws, circulars, legal letters, and ordinances up to some extent (Vision, 2012). However, National assembly’s established standing committee issues the ordinance to be regulated in an area of the said country where a law has not been circulated or regulated.  For that, the orders and decision for the implementation of issuance of such ordinances and law are made by the government to the national assembly. There is a framework of civil law which states that 2005’s civil code has European style in its reflection (Indux mundi, 2012).

1. 6.      Economic system:

Afterward, economic environment can be taken for further discussion. Economic system of a country reveals the current status of interest rates, money supply, inflation, GDP, GNP, tax structures, average disposable income and exchange rates ongoing in the country. Some of the major indicators of Vietnam can be approached to know the current economic system of the country such as its current GDP growth in 2010 was around 6.8%, in 2011 it was nearly 5.9% and on current basis in 2012 it is around 5.6%. Nonetheless, there has been a worldwide economic recession; even then Vietnam noticed such a high growth in its GDP rate. Moreover, the inflation rate in Vietnam has been 9.2% in 2010, 18.7% in 2011 and currently it is 12.6% in 2012 on a yearly average basis. Besides, the company has current budget balance of -3,7% and account balance of -1.5% and current public debt of 48.2% (Coface, 2012).

1. 7.      Economy:

After assessing such environments and systems of Vietnam, other international tradition risks can be assessed in this context. For this, economy status, stability, foreign exchange rates, role of FDI, sectorial growth, global integrations can be determined. At very first, basic economic conditions and international relations of Vietnam can be taken into account. Vietnam is developing country and its economy is dominated by state-owned organizations and moreover it still generates nearly 40% GDP. Looking forward to their sectorial growth perspective, its economic structure has made up of three key sectors that are agriculture & forestry, industry & construction and lastly services. All these three sections are making an advanced contribution to the country with agriculture sector has shown a reduction in overall contribution and on the other hand industry and services sector has made tremendous growth (Central intelligence agency, 2012).

(Source: Vietnam report, 2012)

8.1 Status:

In addition, on the basis of survey, it has been noticed that agriculture had 2.78% share in year 2010 and 3.08% in year 2011 which has shrinked from around 25% to about 2011 since last 11 years. On the other front, industry sector has made a progressive growth of 6.49% in 2011 from 7.7% in 2010. In sum, it has presented an increment of around 5% since last 11 years or so. The service sector also contributed about 7.52% and 6.12% in 2010 and 2011 respectively. Not only this, but also worldwide recession has shown an impact on the trade nature of the country and affected its export trade. In addition, due to a consistent imbalance in trade and export system of Vietnam, its currency dong also faces continuous downward pressures and affects the economic stability of the country (Vietnam report, 2012).

8.2 Foreign direct investment flow:

Afterward, talking about foreign direct investment in Vietnam, it has been pointed out that around 13,893 projects that are foreign invested have been licensed in June 2012 with a registered amount of about US$204.331 billion. From the point of view of different sectors, US$97.921billion amount of the capital has been mainly observed by processing and manufacturing sector with around 7,853 projects in Vietnam. Moreover, over 95 different countries have made investments in Vietnam. Japan is one of the biggest investor among all of them with its around 1,681 projects and US$28.035 billion capital (Vietnam trade office in the United States of America, 2011).

8.3 Stability & Growth:

Apart from such economic factors, many other variables can be discussed about as a part of this essay’s discussion. Likewise, the total population of the country is 87.84 million according to the survey as on 1 July. This segment of population again has been separated into several parts such as population density, annual changes in population and urban population of Vietnam. Next, while defining economy of Vietnam, investment financing can also be described in terms of current prices. In that case, GDP calculated on the basis of per capita in 2011 is 28,859 thousand dong and per capita gross national income in 2011 is 27495 thousand dong. Both GDP and GNI have shown seem less growth since last few years which is contributing advancement to its economy. Additionally, the money supply in Vietnam calculated as an end of the year is 705998 billion where it has revealed an annual change of around 12.1% over last few years (United Nations, 2010).

8.4 Other variables:

Moreover, the current interest rate in the country as on 2011 is 3.20% per annum which was about 3.00% in 2010. A country’s stability factor is generally measure by its export and import. Similarly, Vietnam has presented 34.2% annual change in export and around 25.8% in import in year 2011. In contrast, Vietnam has its export system with countries like United States mainly, Japan, China, Australia, Korea, Germany, Singapore, etc. Likewise, it has import framework with China, Korea, Japan, Singapore, United States, etc. Consequently, while evaluating company’s economic status, exchange rates also has been regarded which are measured based on the end of period and average of the period.  Exchange rate at the end of period in 2011 is 20,828 Dong per US $ and at the average of period is 20490 Dong per US $. Furthermore, the IMF credit’s use in Vietnam is around US$45 million as on year 2011 (Asian development bank, 2012).

 8.      Cultural issues:

After economy discussion, some cultural issues can be illustrated as a risk for international trade with Vietnam which can be considered for the evaluation. First issue can take place in terms of Confucianism which states that according to Vietnamese they believe and give importance to the relationship, commitment and accountability. This can become a cultural issue for the Australian company as Vietnamese still believe in Confucious’ philosophy. Secondly, Vietnam is a collectivist country which believes in the need of a group or a team and places them over the need of an individual or a person (Australia unlimited, 2012).

Therefore, it is another big issue for Australia to come over with its approach of manufacturing and sales which generally takes care of individual needs. Vietnamese put the families and groups before the individual or person’s needs. They are very much comfortable with their sharing personal lives with each other involving their personal hobbies, family issues, and point of views on personal basis which  is totally different in case of Australian culture. Lastly, their family values and beliefs come before in any case. As per Vietnamese, there is only one head of the family and that is father which has the right to take any important decision for the family. Apart from this, Vietnamese learn to live with their families and their lives are influenced by their ancestors worship. Not only this, but also they are taught to owe to their parents and elders (Thien, 2007).

1. 9.      Ethical issues:

Afterward, while doing international business with Vietnam, Australia can also face a few ethical issues with the country. According to one of the survey, it has been found out that there has been inadequacy in supply in terms of a good infrastructure and approach to financing. This can become a general issue to set up a company or a branch in Vietnam as risk can be there with reference to appropriate infrastructure. Apart from this, Vietnam has not sufficient workforce that are educated enough to handle the high or average positions for an Australian firm.

1. 10.  Foreign exchange & financial management issues:

One of the surveys reveals that the average inflation rate of about 11.5% in the country can also create a business issue for the firm. Besides, the conditions of the tax regulations in the country are very high according to an Australian manufacturing firm which is around 8.2%. One more risk is there in terms of policy instability factor because survey delineates that it is approximately 7.6% in Vietnam. Moreover, the country ahs poor work ethics at workplace showed by the labor force at national level which is only around 6.8%. Apart from this, corruption, tax rates and foreign currency regulations are very high. Not only such rates, but also foreign exchange rate of Vietnam is dynamic and changes very quickly because of its export system and make an impact on its international business (Business-in-Asia.com, 2010).

1. 11.  Other trade & investment risks:

Consequently, there are other international trade risks with respect to the country Vietnam. First it has shown a consistent slowdown in growth in year 2012 and the cases of bankruptcies have also increased since last years by about 6% to year 2012. Next, there are risks of dept of high public and lack of transparency. In contrast, the currency of Vietnam dong has been in stabilized form and shown the downsize pressure due to the lack of transparency and successive devaluations. Apart from this, there can be a risk for Australian firm to make an entry in Vietnam where the banking structures and frameworks are very poor because they are not properly capitalized and are highly dollarized (Coface, 2012).

1. 12.  Recommendations:

After assessing each key point of Vietnam’s economic system, a few recommendations can be made out as a business tips for the company to make an entrance in Vietnam. First, the company can prepare a well-structured guideline and principle format including background research and other market surveys so that all the positive and negative aspects could be separated easily (Australia unlimited, 2012). Next, it can be fully prepared with sufficient financing and legal conditions in accordance with the country’s requirements. Afterward, the firm can establish a clear and communicative relationship with the Vietnamese business partners at early stage in order to deal with them in future as well. Apart from such things, it needs to identify a proper location for its manufacturing process. Besides, the company can take the support of ASEAN to make an entry to the new market which will provide a relaxation on tariffs and quotas up to some extent (New Zea land ministry of foreign affairs & trade 2010).

13.  Conclusion:

Finally, at the end, a conclusion can be drawn out of this discussion about Vietnam country which has a rich population of high density about 265 persons per square km. The country represents a GDP growth of around 5.9% in year 2011. Apart from this, the essay has also highlighted the political, legal and economic system of the company. It reveals that the power of politics is in CPV party’s hand which generally reports to the government. Moreover, as a part of country’s legal system there is a national assembly which issues the ordinances, other laws and orders in the country after approval of the government. Talking about its economic system, the essay has emphasized on GDP, GNI, inflation and average disposable income of the country. In contrast, the country has skilled workforce available on low-cost. Moreover, the industry and service sector contribute to the country more than the agriculture sector serves. On the other hand, Vietnam consistently presents shortcomings with regards to the business environment that can be a risk factor for the Australian company wanting to make an entry to this country.

In addition, the country has not sufficient infrastructure and financing access that creates the broad level of inequalities. Afterward, the country has high level of interest rate and policies instability that are measured as a trade risk for any business. It also has talked about the flow of foreign direct investment flow. According to the research, it was drawn out that Japan is one of its biggest investor with its more than 6000 project with the capital of around US$28.035b. Moreover, by sectors, processing and manufacturing sector takes foreign capital’s largest quantity, by localities, Ho Chi Minh and other cities are the most attractive part for foreign investment point of view. And finally, from the national’s point of view, more than 90 countries and territories have made an investment in V       Vietnam. Apart from this, in case of foreign exchange, the responsibility has been given to MOF to implement related plans and policies regarding transfer. Exchange rates are taken care by SBV of the country at the time of transaction. Next, a few recommendations have been made for the Australian company to take care while making an entry to Vietnam, first It has to consider the guidelines and principles that should be well-structured consisting Vietnam’s legal and political system into account. Afterward, Australian firm can take help of ASEAN to deal with new and expected challenges that may come from Vietnam while doing business. Therefore, a complete market survey and the aspects of internal business environment provide a clear picture of the trade risk factors and other environmental conditions in a specific country.

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