International Business

Assignment 3

Presented for
Pooja Lekhi, Oleg
Instructor, International Business Management Program
Greystone College of Business and Technology

Prepared by
Camila
Lorena
Jack
Jayden

International Business Management Program

Greystone College of Business and Technology

August 6, 2019
 Index

Business Report .................................................................................................................... 1

1. Introduction ................................................................................................................... 1

2. Briefly Vietnam description ......................................................................................... 1

3. History and Geography ................................................................................................ 2

3.1. Hofstede’s cultural dimensions and Vietnam ..................................................... 2

4. Political System ............................................................................................................. 3

5. Economic system of Vietnam ....................................................................................... 4

6. Government involvement in trade ............................................................................... 5

7. Foreign Direct Investment ........................................................................................... 6

8. Regional Economic Integration ................................................................................... 7

9. General international strategy ..................................................................................... 8

10. Selected entry mode (Our business entry mode) .................................................... 10

10.1. Exporting and Importing .................................................................................. 10

10.2. Licensing ............................................................................................................. 10

10.3. Franchising ......................................................................................................... 11

10.4. Joint venture ....................................................................................................... 11

10.5. Greenfield............................................................................................................ 11

11. Conclusion ................................................................................................................. 12

References............................................................................................................................ 13
 Business Report

1. Introduction

Based on the purpose of developing a company in the sector the tourism industry in Vietnam,
this statement will demonstrate briefly about the country in terms of population, location,
language and so forth. In order to show the cultural issues, the Hofstede Framework will be
used and succinctly described each part of the technique that may influence the decision
making about doing business in Vietnam, and how to behave in certain situations. Concerning
about political, economic system and the government laws involved in trade, this report will
also describe briefly about the main points, which may be decisive when desire of doing
business in another country. Supporting the research, it will state how much foreign countries
have invested in Vietnam, which may be a good thermometer to stakeholders. In order to add
more information, it will be explained about the trading blocks that Vietnam already belong
and which one (s) it is going to be part of. To conclude the description, some general
international strategy will be defined as well as selected entry mode, with propose to make
this report complete.

2. Briefly Vietnam description

Socialist Republic of Vietnam is the official name with land area of 119,719 square miles
(310,070 square km) but the total area is about 127,881 square miles (331,210 square km).
Vietnam population is 96,160,163 according to the July 2017 sense. According to the same
sense the population growth rate: 0.93%; 15.5 births/1,000 population, 5.9 deaths/1,000
population, -0.3 migrant(s)/1,000 population; infant mortality rate: 17.3 deaths/1,000 live
births. The life expectancy is 73.7 years’ average.
People were born in Vietnam are called Vietnamese for the nationality, Vietnamese for the
ethnicity. The official language is Vietnamese, but English has considerably increased in
recently years. There are some parts of Vietnam that people speak French and Chinese.

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Talking about ethnic, the big majority is Vietnamese with 85.7%. Vietnam has 54 officially
recognized ethnicities. Buddhist 7.9% is the most popular religion with 7.9% being the
Catholic the second most popular with 6.6%. There is more religion followed by Vietnamese
people such as, Hoa Hao 1.7%, Cao Dai 0.9%, Protestant 0.9%, Muslim 0.1%, none 81.8%
according 2009 sense. The capital, Hanoi, is located in the north, while the country’s largest
city, composed by 1.064 million (2018 sense).

3. History and Geography

Vietnam occupies the eastern and southern part of the

Indochinese peninsula in Southeast Asia, the territory oh
Vietnam is limited to the north with China and west with
Cambodia and Laos. The nation after becomes independence
from the French in 1954, was divided into four countries, Laos,
Cambodia, North Vietnam and South Vietnam.

3.1. Hofstede’s cultural dimensions and Vietnam

Concerning about cultural issues when doing business in another known country, it is always
recommended analyses the cultural of a nation by the Hofstede’s framework.
The Power Distance in Vietnam is high, which means that people are familiar to receive
orders from the highest position within a company. Lower positions expect for directions by
their boss in order to be enrolled determined activities. Complementing, Vietnamese people
do not received well challenges, they may be interpreted it as an insult. With a low score on
Individualism, Vietnam is a collectivistic society. Vietnamese people preserve close
relationship, which may influence and transfer the close relationship from the friendship to
the company environment. The score of Vietnam is low on Masculinity dimension and hence,
it is considered as a Feminine society. Vietnam focus on working to live, they also preserve
equality, solidarity and quality in their working lives. When occurs some issue they solve it
by negotiations. Vietnam has a low preference for avoiding uncertainty. In that society is
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well-tolerated changes and are open to change or abandon rules when it does not work or are
ambiguous. Schedules are also flexible. Precision and punctuality do not come naturally.
On the dimension of Long-Term Orientation, Vietnam is considered having a pragmatic
culture.

In societies with a pragmatic orientation, people believe that truth depends very much on
situation, context and time. They are propene to adapt and change conditions. Also, they are
perseverant in achieving results A low score of 35 on the Indulgence dimension indicates that
the culture of Vietnam is characterized as Restrained. Knowing it, they may tend to be cynics
and pessimist. People with this orientation have the perception that their actions are
Restrained by social norms and feel that indulging themselves is somewhat wrong.

Hofstede framework – Vietnam

4. Political System

The Socialist Republic of Vietnam, as well as China, North Korea, Cuba and Laos is one of
the socialist countries, being official communism system. The Socialist Republic of Vietnam
is a law-governed state is comprising by The Communist Party, as mentioned before. The
state of the Socialist Republic of Vietnam is the central organization and the pillar of the
political system. The National Assembly is the highest –level representative body of the
people, which exercises three main functions: legislate, which decides on important national
issues, to exercises supreme supervision over all activities of the State.

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The President is the head of state, elected by the National Assembly among its deputies to
represent the Socialist Republic if Vietnam in domestic and foreign affairs. Some of his
power are to declare the promulgation of the Constitution, laws and ordinances, to head the
all people’s armed forces and assume the Chairmanship of the National Defence and Security
Council, to recommend to the National Assembly the election, removal or dismissal of the
Vice President, the Prime Minister, Chief Justice of the Supreme People's Court, and Head
of the People's Procures.The Government administers the implementation of the State’s
affairs in the fields of politics, economics, culture, society, national defense and security and
foreign relations; ensures the efficiency of the State apparatus from central to grassroots
levels; assures that the Constitution and laws are respected and executed.

5. Economic system of Vietnam

Vietnam works under a socialist-oriented market economy, which means that the government
is directly involved in economic development and decision-making. Currently, it is a mix
between this centrally-planned economy and a market economy, which is controlled by
supply and demand. The eventual goal of the government is to achieve socialism. During the
1980’s, the Communist Party established this unique economic framework in an attempt to
move away from the Soviet-type economic planning that was then in place.

GDP of Vietnam grew 7.1% in 2018 compared to 2017. The GDP figure in 2018 was
$241,272 million, Vietnam is number 47 in the ranking of GDP of the 196 countries. The
absolute value of GDP in Vietnam rose $20,896 million with respect to 2017. The GDP per
capita of Vietnam in 2018 was higher than in 2017, it was $2,330. To view the evolution of
the GDP per capita, it is interesting to look back a few years and compare these data with
those of 2008 when the GDP per capita Vietnam was $1,154.

According to these information, many Vietnamese people are affordable to travel vacation
spots in their nation as the GDP of Vietnam is getting higher. Therefore, our hotel will be
able to focus on not only foreigners but also Vietnamese people. In addition, the government

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of Vietnam is trying to change their economy system to be socialism, so it will be helpful to
manage our hotel in Vietnam flexibly.

6. Government involvement in trade

The Tourism and hospitality industry plays a key role in national economic development,
thus the Vietnamese government has provided a lot of incentives and policies to encourage
and attract investment. With recent improvements to the law on enterprise and investment,
the country is now more open for foreign direct investment than ever before. Foreign
companies are permitted to open a company with 100 percent foreign-owned capital. In
addition, government investment in infrastructure will improve overall connectivity which
provides a better condition for investors to start building up hotels. In the next two years, Tan
Son Nhat Airport in Ho Chi Minh City is planning to increase its capacity to welcome 38
million passengers coming from all around the world. More direct flights from Russia,
Hongkong, Korea and even the United States of America are going to be organized to keep
up with the rising demand of travelers.

The government of Vietnam is supporting companies to trade between foreign countries, so

since 2014 January, Vietnam and Chile established VCFTA. Up to 2023, Vietnam has
committed to eliminating another 1163 headings compared to the starting time, bringing the
total tariff lines, equivalent to 42.42% of the whole chart. The speed of the tariff elimination
commitment in VCFTA will be intensified in the last five year of the Agreement to reach
87.8%, which is the maximum level in 2028. The products which Vietnam has committed to
abolish the tariffs, including: chemicals, wood, textile materials, machinery, chicken meat,
orange, mandarin, wine, maritime products, beer, construction steel and so on.

Nowadays, the government of Vietnam has given permission to foreign companies to open a
business and the government is encouraging that foreign companies invest and build the hotel
in Vietnam. Therefore, if we build a hotel, there will be no obstacle to interfere our business.
In addition, Vietnam has established VCFTA, so when our company construct the hotel,

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bring building materials from Chile and open restaurants in our hotel, we will be able to save
money as we don’t need to pay tariff.

7. Foreign Direct Investment

Vietnam as a country in the developing process has go through hard stages however show
relevant growth. Part of this development is shown through the Foreign direct investment
that Vietnam is able to do in other countries nowadays and also the Foreign direct investment
that other countries are doing in Vietnam because it looks like an attractive market.

According to ceicdata (2019) Vietnam’s Foreign Direct Investment (FDI) increased by 3.2
USD billion in Mar 2019, compared with an increase of 4.9 USD billion in the previous
quarter. In the latest reports of Vietnam, Current Account recorded a surplus of 1.8 USD
billion in Mar 2019. Vietnam's Direct Investment Abroad expanded by 178.0 USD million
in Mar 2019. Its Foreign Portfolio Investment increased by 495.0 USD million in Mar 2019.
The country's Nominal GDP was reported at 244.9 USD billion in Dec 2018.

In the other hand, Foreign direct investment into Vietnam rose by nearly 7 percent year-on-
year to USD 10.55 billion in January to July 2019. In addition, FDI pledges for new projects,
increased capital and stake acquisitions - which indicate the size of future FDI disbursements
surged from a year earlier to USD 20.22 billion. The manufacturing and processing industry
are set to receive the largest amount of investment (71.5% of total pledges), followed by real
estate (7.3 %) and wholesale and retail sector (5.4 %) (Trading Economics, 2019).

Broadly speaking, the country’s leadership has agreed on a vision of economic development
focused on offering highly productive, cost effective labour for working in any kind of
industry. Even though the real estate industry is not receiving the largest amount of
investment doesn't mean this industry doesn't have enough potential. Since 2010, the number
of international tourists has grown three-fold from 5 million to more than 15 million in 2018.
In 2018, international arrivals to Vietnam reached 15.5 million, up 2.7 million compared to
2017, while domestic tourists grew by 6.8 million compared to 2017, to an estimated 80

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million in 2018. Visitors coming by airways increased by 14.4 percent in 2018, while arrivals
by road increased by almost 60 percent, and by seaway decreased by 16.8 percent (Vietnam
Briefing, 2018).

All these data let us know we have the opportunity to invest in the hotel industry because this
market segment is not being supported enough and that's why doesn't have enough resources
to satisfy customer needs and expectations. Following the advices of the Eclectic theory this
country give us localization advantage, ownership advantage and internalization advantage
which are the main requirements to start a business with right foot.

8. Regional Economic Integration

Vietnam has prioritized international trade integration with its most important trade partners
outside the Association of Southeast Asian Nations (ASEAN) region. For Vietnam, its own
international trade integration is a more important objective than the shared the Association
of Southeast Asian Nations (ASEAN) interest of establishing a fully functioning, successful
and globally integrated The African Economic Community (AEC). Vietnam has understood
that, in today's world, ‘international’ goes hand in hand with ‘national’ or ‘domestic’, but that
there is a fundamental difference between ‘international’ and ‘supranational’.

Also, Vietnam is consciously pursuing a trade creation strategy whereby it actively seeks to
participate in preferential free trade agreements with important economic markets outside the
Association of Southeast Asian Nations (ASEAN) region (mainly the EU and the USA) that
could potentially have an important trade creation effect for the country. In this scenario,
Vietnam takes advantage of the reduced customs tariffs both within The African Economic
Community (AEC) and with the European Union (EU) and the USA to attract exporting
companies to produce in Vietnam, and from Vietnam export onwards to trade partners
outside the Association of Southeast Asian Nations (ASEAN). In other words, Vietnam
wants to create new trade flows and focuses on ensuring its own (economic) security by

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making use of regional and international trade agreements. Following the USA's withdrawal
from The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP).

According to Vietnam Briefing (2019), Over the past few years, Vietnam has been active in
signing bilateral trade agreements with countries throughout the world. Additionally, due to
its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has
become a party to several FTAs that the regional trade bloc has signed.

The next table show the free trade agreements that are being key to Vietnam’s
transformation.

The treaty signed with Chile and The Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (TPP) in which Chile is also present. These aspects give this country a
competitive advantage to be able to make foreign direct investment and start with the
expansion of our company belonging to the hotel industry in foreign fields.

9. General international strategy

Tourist arrivals have risen since 2000 and have surged since 2015, reaching a record high of
15 million in 2018. The pace of tourist arrivals has also risen, doubling from 7.5 million to
15 million over the last six years. Not surprisingly, more tourists have brought more revenue

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to the country. Tourism receipts accelerated in the past decade, generating US$27 billion in
2018, equivalent to 11% of the GDP. In mid-2015, Vietnam introduced a pilot one-year
program granting visa exemptions to five European countries, including France, Germany,
Italy, Spain, and the UK. The scheme has since been extended three times and is now
scheduled to last until 2020. In addition, Vietnam has targeted other major markets like
China, Japan, South Korea and the US by granting e-visa in early 2017, which was extended
to 46 countries later that year.

Thanks to the government’s policy in relaxing visa restriction, in 2018, around 80% of
tourists to Vietnam came from Asia, mainly from China and South Korea. These two
countries combined contributed 16 percentage points to the 20% growth of tourist arrivals.

The strong trend continues in 2019, with 6 million tourists visiting as of April, up by 9%
from last year. Thailand and Taiwan (China) have contributed the most to the growth so far
this year, indicating Vietnam’s increasing attractiveness to new markets. Should the trend
continue, Vietnam is very likely to reach its goal of welcoming 17-20 million tourists by
2020. Therefore, we decided to open our branch in Vietnam. Our company located in Chile.
As far as we know, Chile and Vietnam signed the FTA. Therefore, it would be good chance
for our business. In the FTA negotiation Chile obtained important concessions on products
with high tariffs in Vietnam:

1. Wine in 2011 paying 59% duty will be reduced by 20% over a year.
2. In Vietnam 2011, beef pays 18 to 33 percent tariffs, while pork pays 24 to 28
percent tariffs, which will decrease to 0 percent in 10 to 15 years.
3. Dairy products in 2011 pay 7-20 percent tariffs to enter the Vietnamese market and
will be exempt from taxation within seven to 15 years.
4. Fruit was also part of the negotiations. All in a decade, tariffs will reach zero.

With these rules, we can say that our business has the potential to enjoy a boom in Vietnam.
We can confidently say that the fact that hotels can import important food’s product without
tariffs is more likely than other hotels located in Vietnam.

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10. Selected entry mode (Our business entry mode)

In approaching a new market, particularly a frontier market such as Vietnam, there are
several considerations that are necessary to take in mind to ensure a successful market entry.
There are some methods.

10.1. Exporting and Importing

Exporting and importing are one of the ways to enter the new market. You can take risks at
low cost and diversification of goods. It can establish exporting and importing companies or
use local distributors. However, establishing your own export company and using domestic
distributors are not mutually exclusive. We can be exporters and importers and additionally
appoint local distributors. Because we signed an FTA with Vietnam. Therefore, we can
supply and distribute our goods. If exported, they can enter many markets at the same time
without much capital investment. But the downside is that you don't control the local market
you export. You rely on distributors and local buyers. However, if we import goods from
Chile, we can save a lot of money.

10.2. Licensing

Licensing means allowing a local party to use a company name and to produce, sell, or
provide services under a license agreement. We will offer products imported from Chile to
companies within our business area in Vietnam and receive royalties in return. Because we
can import products at lower prices than other companies. One of the fastest and most
profitable ways to expand business into overseas markets is to use a licensing market entry
strategy, but there is also the risk. For example, your brand image can be damaged when
there is no strict control over the company that purchased the license.

However, if there is a carefully prepared licensing agreement, licensing can be a good way
for larger companies to expand their markets. For example, it would be a huge benefit for us

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if Vietnam's leading conglomerate took licensing of our products. Because we can expose
our business to locals more easily.

10.3. Franchising

If our business is gradually stabilizing, the next step is to think of Franchising. Franchising
is a business strategy that allows another party to run a business under your brand name. For
example, the franchiser (user) grants the franchiser (the second party) the right to use your
brand name and operating system. Franchisees may also use the same marketing campaign.
Assuming our hotel is in Vietnam and our business is stabilized, it can be a good opportunity
to open our franchise branch in other Vietnamese cities to maximize profits and promote our
brand.

10.4. Joint venture

Another strategy is joint ventures. It is of course harder than we thought for our business to
enter foreign countries. Therefore, there is a strategy of joint venture. In short, creating a
joint venture means that your company cooperates with one or more other parties. This can
be a useful strategy when entering new markets, as your company can benefit from the
infrastructure of local partners and experience in the market. If our business adopts hotels
and joint ventures in Vietnam, for our part, we can easily enter the market and take earnings
stabilization more easily than we thought."

We can create a third company with our partners and engage more in the local market than
in the case of licensing or franchising.

10.5. Greenfield

This is our ultimate business goal. Of course, Greenfield, a requirement for foreign
investment, is the most capital-demanding option among all market-entry strategies. To start

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a new company requires more capital than to cooperate with a local partner. However,
compared to other market entry strategies where domestic partners exist, setting up a new
company gives you full control over your overseas operations. Since we have good
conditions of an FTA, entering the market without strain can stabilize the business. Before
we accept this strategy, we should think of some strategic factors. For example, there are the
country's cultural environment, political environment, market size, production and delivery
costs, and international experiences. Thinking about these factors and starting a business can
bring about good results.

11. Conclusion

After a deep market research, our company has decided to open a luxurious hotel in Vietnam
because of the benefits that we can take advantage because of the FTA. First, for us is more
manageable import important food's products without tariffs than other hotels located in
Vietnam, this factor is extremely important because it gives us a competitive advantage in
terms of price and also we have differentiation advantage because we can access to products
from America which means we can create real American food and we can also learn to
prepare local food, which will allow us to meet the needs of our customers and thus provide
a quality service.

Second and decisive point, we have a wide sector to locate our hotel chain at convenient
prices, with respect to the competition, it can be said that being a developing country presents
a market with poorly developed entry barriers which we can cross and compete directly with
the few hotel chains that have been established.

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 References

The six dimensions of culture, research on July 30, 2019, obtained from:
http://www.workwithvietnamese.com/the-six-dimensions-of-vietnamese-culture.html

Explored Vietnam culture by Hofstede framework, obtained on July 30, 2019, from:
https://www.hofstede-insights.com/country/vietnam/

On behalf of the Embassy of the Socialist Republic of Vietnam, obtained on July 30, 2019,
from: http://vietnamembassy-usa.org/vietnam/politics

CEIC, recovered on July 30, 2019, obtained from:

https://www.ceicdata.com/en/indicator/vietnam/foreign-direct-investment

Trading Economics, recovered on July 30, 2019, obtained from:

https://tradingeconomics.com/vietnam/foreign-direct-investment

Vietnam Briefing, recovered on July 30, 2019, obtained from:

https://tradingeconomics.com/vietnam/foreign-direct-investment

Vietnam’s Free Trade Agreements – Opportunities for Your Business, , recovered on July
30, 2019, obtained from: https://www.vietnam-briefing.com/news/vietnam-free-trade-
agreements-opportunities-for-your-business.html/

https://chile.gob.cl/chile/en/blogs/vietnam/hanoi/principales-aspectos-del-tlc-firmado-entre-
chile-y-vietnam

https://emerhub.com/insights/choosing-best-market-entry-strategy-emerging-markets/

https://www.worldatlas.com/articles/the-economy-of-vietnam.html

https://countryeconomy.com/gdp/vietnam
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https://www.hospitalitynet.org/performance/4091633.html

https://www.mof.gov.vn/webcenter/portal/mof/r/lvtc/htqt/hnhttc/ftas/vcfta/vcftagtc/vcftagtc
_chitiet?showFooter=false&showHeader=false&dDocName=BTC074542&_afrLoop=4065
2596944179464#!%40%40%3F_afrLoop%3D40652596944179464%26dDocName%3DB
TC074542%26showFooter%3Dfalse%26showHeader%3Dfalse%26_adf.ctrl-
state%3D1bfnxlphj6_95

https://www.vietnam-briefing.com/news/vietnams-hospitality-industry-understanding-
current-trends-challenges.html/

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