ASSIGNMENT 2 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 1: Business and Business Environment

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Student Name Nguyen Dao Huy Kha Student ID GBS200515

Class GBS0815_NX Assessor name Truong Anh Tuyet

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 Assignment Brief 2 (RQF)
Higher National Certificate/Diploma in Business
Student Name/ID Number: Nguyen Dao Huy Kha/GBS200515
Unit Number and Title: Unit 1: Business and Business Environment (485)
Academic Year: 2020
Unit Assessor: Truong Anh Tuyet
Assignment Title: ASSIGNMENT 2- Internal and External analysis
Issue Date:
Submission Date: Sep 12th, 2020
Internal Verifier Name:
Date:

Submission Format:

Format:

● This assignment is an Individual report and specifically.

● You must use font Calibri size 12, set number of the pages and use multiple line
spacing at 1.5. Margins must be: left: 1.25 cm; right: 1 cm; top: 1 cm and bottom: 1
cm.
● You should use in text references and a list of all cited sources at the end of the essay
by applying Harvard referencing style.
● The recommended word limit is 2000-2500 words (+/-10%), excluding the tables,
graphs, diagrams, appendixes and references. You will not be penalized for exceeding
the total word limit.
● The cover page of the report has to be the Assignment front sheet 2 (to be attached with
this assignment brief).

Submission

● Students are compulsory to submit the assignment in due date and in a way requested
by the Tutor.
● The form of submission will be a soft copy posted on http://cms.greenwich.edu.vn/.

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 ● Remember to convert the word file into PDF file before the submission on CMS.
Note:

● The individual Assignment must be your own work, and not copied by or from another
student.
● If you use ideas, quotes or data (such as diagrams) from books, journals or other
sources, you must reference your sources, using the Harvard style.
● Make sure that you understand and follow the guidelines to avoid plagiarism. Failure to
comply this requirement will result in a failed assignment.

Unit Learning Outcomes:

LO3 Use contemporary examples to demonstrate both the positive and negative
influence/impact the macro environment has on business operations.
LO4 Determine the internal strengths and weaknesses of specific businesses and explain their
interrelationship with external macro factors.

Assignment Brief and Guidance:

*This assignment guidance can be customized by the tutors meet specific needs.

Assignment scenario
You are working as a business analyst in Wells Fargo, an American multinational financial
services company. It is the world's fourth-largest bank by market capitalization and the fourth
largest bank in the US by total assets.
After your report of the chosen Company, your manager believes this firm has an opportunity
to be a profitable investment. He assigns you to write an analysis of the chosen company’s
internal and external environments.

For the analysis, you need to choose as follows:

1. The same company in Assignment 1 or a different company, regardless the nationality
(so called the chosen company)
2. The country or a specific province in the country, where the chosen company
provides its products or services, to make a research for the effect of the external
environment factors.

This will be performed a report to the Director and should include the following structures.

Structure of the Report

1. Introduction: this section should give a brief explanation of the purposes and structure of
the report from the perspective stated in the scenario.

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2. Identify the positive and negative impacts the macro environment has upon the chosen
company. Student needs to explain the competitive environment (Porter’s Five Forces
model) and at least 2 factors among 6 factors (PESTLE) of macro environment.
Compulsorily, with each factor, you also present the general impact of each factor on
general business or the chosen company’s business.

3. Conduct internal analysis of the chosen company to figure out the strengths and
weaknesses of the chosen company by analysing at least 2 aspects among the followings:
(At least 1 weakness and 1 strength must be concluded).

(i) Core value or Mission or Vision;

(ii) Organizational structure;

(iii) Human resources;

(iv) Brand name or brand equity;

(v) Financial strength/ factors;

(vi) Fix/physical assets;

(vii) Market resources;

(viii) Technology base or Research and Development.

Based on the previous analysis, identify the strengths and weaknesses of the company.

4. Explain how strengths and weaknesses interrelate with external macro factors.

a. First, you have to search for at least 1 real business decision-making of the chosen
company (strategies/ action plans/ investment decisions/ developing decisions).

b. Next, you have to prove how the previous mentioned decision is affected by (i)
strengths or weaknesses of the chosen company and taken into consideration of (ii)
macro environment factors (PESTLE) and (iii) competitive forces of the competitive
environment, which make an effect on the chosen company.

To enhance your statement, SWOT or TOWS should be applied to come up with

meaningful analysis of the internal and external business environment.

Furthermore, you had better find an example to highlight how different companies have
different business decisions when they are affected by similar external factors.

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5. Conclusion: summarize all the key points and analysis from the report.

Learning Outcomes and Assessment Criteria (Assignment 1):

Learning Outcome Pass Merit Distinction
LO3 Use P4 Identify the M3 Apply LO3 & 4 D2
contemporary positive and negative appropriately the Critically evaluate the
examples to impacts the macro PESTLE model to impacts that both
demonstrate both the environment has upon support a detailed macro and micro
positive and negative business operations, analysis of the macro factors have upon
influence/impact the supported by specific environment within an business objectives
macro environment examples. organisation. and decision-making
has on business
operations.
LO4 Determine the P5 Conduct internal M4 Apply
internal strengths and and external analysis appropriately
weaknesses of specific of specific SWOT/TOWS
businesses and explain organisations in order analysis and justify
their interrelationship to identify strengths how they influence
with external macro and weaknesses. decision-making.
factors. P6 Explain how
strengths and
weaknesses interrelate
with external macro
factors.

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Contents
Assignment Brief 2 (RQF) ......................................................................................................2
Higher National Certificate/Diploma in Business ...................................................................2
I. Introduction ........................................................................................................................8
II. The impacts of the macro environment upon business operations...........................................8
1. Porter’s five forces model and its application in Vietnam aviation industry ...........................8
The threat of new entrants ..............................................................................................9
The bargaining power of buyers......................................................................................10
The bargaining power of suppliers ..................................................................................10
The threat of substitutes ................................................................................................11
The degree of rivalry......................................................................................................12
2. PESTLE analysis of the macro-environment in Vietnam .....................................................12
The political environment ..............................................................................................12
The economic environment............................................................................................13
The social, cultural, and demographic environment ..........................................................14
The technological environment ......................................................................................14
The legal environment ...................................................................................................15
The ethical environment ................................................................................................15
III. Internal analysis of Vietnam Airlines – its strengths and weaknesses .....................................16
1. Internal factors of Vietnam Airlines .................................................................................16
Vision and mission.........................................................................................................16
Organisational structure ................................................................................................16
Human resources ..........................................................................................................16
Brand equity .................................................................................................................16
Financial strength ..........................................................................................................17
Physical assets ..............................................................................................................17
Market resources ..........................................................................................................17
Technology base ...........................................................................................................17
2. Vietnam Airlines’ internal strengths and weaknesses ........................................................18
IV. Vietnam Airlines: how internal strengths and weaknesses interrelate with external factors and
how they influence decision-making ......................................................................................18
1. Case study: Vietnam Airlines’ takeover of Jetstar Pacific ...................................................18
2. Aids to decision-making .................................................................................................18
SWOT...........................................................................................................................18
Competitive forces ........................................................................................................21
PESTLE .........................................................................................................................21

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 3. Example of how different companies having different business decisions, affected by similar
external factors ................................................................................................................21
SWOT analysis of Vietjet Air ...........................................................................................22
PESTLE analysis .............................................................................................................23
Porter’s five forces ........................................................................................................23
V. Conclusion .......................................................................................................................24
Reference ............................................................................................................................24

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I. Introduction

As a business analyst at Wells Fargo – a multinational financial services company, I am to provide

identify the positive and negative impacts of the macro environment upon the chosen company in
the previous report – Vietnam Airlines on the basis of the current economic context of Vietnam,
applying the PESTLE analysis. Then, internal and external analysis of Vietnam Airlines will be
conducted using SWOT approach to identify its strengths and weaknesses as well as how those
interrelate with external macro factors. The report will also take a further step to provide a critical
evaluation of impacts of macro and micro factors upon business objectives and decision-making.

II. The impacts of the macro environment upon business operations

Business organisations operate within a changing and uncertain environment, therefore in order
to ensure that corporate resources are utilised effectively in pursuit of organisational objectives,
companies need to examine the external influences upon them and anticipate the extent of
possible environmental change (Worthington and Britton, 2006). There are a number of useful
approaches, including Porter’s five forces model and PESTLE analysis (Worthington and Britton,
2006).
1. Porter’s five forces model and its application in Vietnam aviation industry
Michael Porter provided a framework that models an industry as being influenced by five forces,
which has been suggested that the strategic business manager who attempts to establish a
competitive advantage over rivals can use this model to understand the industry context in which
the business operates (Stimpson and Farquharson, 2015). The five forces are threat of new
entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of
substitutes, and degree of rivalry, with the last one being the key part of the model (Stimpson and
Farquharson, 2015).

Figure 1: Porter’s Five Forces model

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The threat of new entrants
This refers to the potential competition that can affect the behaviour of companies, whose degree
relies on the existence and the height of barriers to entry and exit (Worthington and Britton,
2006).
 Barriers to entry are any barriers which deter or discourage the entry of companies into
the industry (Worthington and Britton, 2006). There are several sources of barriers to
entry, namely absolute cost advantages, access to inputs, government policy, economies of
scale, capital requirements, brand identity, access to distribution, and expected retaliation
(Stimpson and Farquharson, 2015).
 Barriers to exit are those that prevent or deter exit from an industry, mostly related to the
cost of leaving the industry (Worthington and Britton, 2006).
It appears that the threat of new entrants in Vietnam aviation industry is low mainly due to the
high barriers to entry and exit (Pratap, 2017).
With regard to barriers to entry, organisations that attempt to enter the airline industry are
confronted with a great deal of challenges, with the biggest one being the high capital
requirement (Rahman et al., 2015). The airline industry is arguably one of the most expensive
industries due to the massive cost of buying and renting aircrafts, safety and security measures,
purchase of exclusive flight service and manpower (Rasouli and Malabad, 2014). In addition to
economic factors, there are restrictive regulatory factors that make both entry and exit difficult
(Pratap, 2017). Rasouli and Malabad (2014) argued that the governing surveillance limitations can
be another great barrier to entry. According to Decree No. 30/2013/ND-CP dated April 8, 2013 of
Vietnamese government on air transportation business and general aviation, airlines that apply for
air transportation business licenses must completely satisfy a number of conditions relating to the
quality and quantity of aircrafts, operation, maintenance, human resources, legal capital, etc.
Besides, airline slots also act as a significant barrier for new entrants (Rasouli and Malabad, 2014).
Moreover, the high economies of scale in this industry further reduce the threat of entry. As an
airline gets bigger, the overhead cost per passenger carried decreases because the fixed cost is
spread over more passengers, and thus big airlines such as Vietnam Airlines enjoy great
economies of scale (Webber, 2012). Also, existing airlines have a large absolute cost advantages
and highly benefit from brand identity. Brand loyalty is of enormous significance in the airline
industry, especially to large airlines like Vietnam Airlines, which considerable resources are
invested in marketing and building customer loyalty (Pratap, 2017). Last but not least, there is
expected retaliation, in that existing competitors can possibly use their high capital to retaliate
against newer airlines with whatever strategies such as lowering prices and taking a loss.
Predatory pricing is a common retaliatory strategy used by airlines to deter new entrants from
making profits (Mhlanga et al., 2017). Overall, the barriers to entry are high and effectively keep
the threat of new entrants minimised.
In terms of barriers to exit, the airline industry is characterised by barriers to exit in the form of
sunk costs, labour related exit costs, and long-term contracts that prevent capacity adjustment
during a downturn (OECD, 2019). Unprofitable airlines may want to cut capacity when economic
conditions deteriorate, but this will have an impact on all airlines, depressing residual values and
making part of the investment of aircrafts irreversible (OECD, 2019). Additionally, there are costs
associated with severance payments to workers, costs of long-term contract violations such as
leases of gates and office space, and costs of abandoning valuable slots (OECD, 2019). The barriers
to exit are further raised in the airline industry owing to the uncertainty of future prices and

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demand conditions (OECD, 2019). Hence, it is concluded that the airline industry pose significant
exit barriers.
The bargaining power of buyers
This refers to the power of customers have on the producing industry (Stimpson and Farquharson,
2015). Similarly to the competition between producers in a market, the amount of competition
between buyers will also have an influence on an industry (Worthington and Britton, 2006). Buyer
power is determined by bargaining leverage, buyer volume, buyer information, brand identity,
price sensitivity, threat of backward integration, and product differentiation (Stimpson and
Farquharson, 2015). Buyer power will be raised if company products lack differentiation and
diversity, the cost of switching suppliers is low, and buyers can realistically and easily buy from
other suppliers (Stimpson and Farquharson, 2015). Buyers will also have more bargaining power
when buyer volume is concentrated and limited, when the buyer information has sufficient
information, when there is possibility of backward integration, and when selling prices of products
or services make up an inconsiderable part of the cost price of buyers (Rasouli and Malabad,
2014).
In the airline industry, the bargaining power of buyers is gradually increasing as there are lots of
airline choices and there are hardly any switching costs between airlines (Rahman et al., 2015). In
recent years, revolution in distribution and sale systems through creating virtual networks and
online booking has decreased commission prices of airline companies as customers do not always
have to rely on travel agents or intermediaries (Rasouli and Malabad, 2014). Because of the
internet, pricing information is less fragmented and easier to compare. When buyers are
informed, they are in a position to know about differences in prices among competitors and
availability of substitutes (Mahlanga et al., 2017). Because air transportation is relatively
expensive, and travellers have become increasingly price-sensitive through the years, the overall
demand for airfare is elastic (Garrow, 2007). Customers nowadays are likely to fly with different
carriers with lower costs for the same schedules, and brand loyalty thus does not seem to be
significant. Nevertheless, the bargaining power of buyers in Vietnam aviation industry is not that
strong. There are limited choices of low cost airline which is of relative quality standard. Two
notable low cost carriers are Jetstar which has been merged with Vietnam Airlines recently, and
Vietjet Air which is notorious for their frequent flight delays and receives negative feedbacks from
customers. Bamboo Airways is also a low cost carrier but it has just established since 2017, and
has not firmly developed reputation yet. In other words, variation of choices for customers is
narrow. Moreover, in terms of long-haul flights, there are few foreign airline companies which
exploit the international routes from Vietnam because of the monopoly of Vietnam Airlines. These
factors to some extent have decreased the bargaining power of buyers in Vietnam airline industry.
To conclude, the bargaining power of buyers in Vietnam aviation industry is moderate, albeit
gradually increasing.
The bargaining power of suppliers
The power of suppliers over the company is likely to be extremely crucial in certain markets,
relying upon the characteristics of the product being supplied (Worthington and Britton, 2006).
Having good and reliable supplies is getting more and more significant since companies have
started to adopt just-in-time production methods (Worthington and Britton, 2006). Reducing stock
levels to reduce costs can only be effective if companies can rely on their suppliers, hence the
development of partnership sourcing in which companies develop long-term relationships with
their suppliers (Worthington and Britton, 2006). Furthermore, when the company can produce the

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components needed in the production process by itself, the power of suppliers is highly reduced
(Worthington and Britton, 2006). The bargaining power of suppliers is determined by a number of
factors, including supplier concentration, importance of volume to supplier, differentiation of
inputs, impacts of inputs on cost or differentiation, presence of substitute inputs, threat of
forward integration, and cost relative to total purchases in industry (Stimpson and Farquharson,
2015). Stimpson and Farquharson (2015) have suggested that suppliers will be relatively powerful
in comparison with buyers when the cost of switching is high, when the brand being sold is very
powerful and well-known, when there are possibilities of suppliers opening their own forward-
integration operations, and when customers have little bargaining power as they are small
companies and fragmented.
Suppliers in aviation industry range from aircraft makers, fuel corporations, flight academy which
provides pilots, flight attendants, etc. In broad terms, the bargaining power of suppliers in
Vietnam aviation industry is very strong. In the airline industry, there are two main suppliers of
aircrafts, namely Boeing and Airbus, and they have substantial bargaining power on the prices
they charge (Rahman et al., 2015). The supplier concentration has ruled out the possibility that
airlines can exert control upon suppliers. Indeed, it is almost certainly impossible for Vietnam
Airlines to integrate into aircraft makers to self-manufacture its own planes. Moreover, the price
of oil is one of the major factors of cost for all airlines and has a direct impact on air ticket
(Rahman et al., 2015). High fuel prices force airlines to cut current spendings on all items, use fuel-
efficient aircrafts, and operate flexible schedules. In addition, Vietnam Air Petrol Company Limited
(Vinapco) has abused its monopoly and forced domestic airlines into a dilemma that they have no
other option but to choose Vinapco as their fuel supplier. Because of the little availability of
substitute inputs, the bargaining power of suppliers in Vietnam airline industry is enhanced.
The threat of substitutes
In Porter’s model, ‘substitute products’ does not mean alternatives in the same industry, but in
other industries (Stimpson and Farquharson, 2015). There are a number of influences of the threat
of substitutes, including switching costs, buyer preference for substitute, price performance, and
trade-off of substitutes (Stimpson and Farquharson, 2015). Stimpson and Farquharson (2015) have
argued that the threat of substitutes will come into existence when new technology make other
options available, when price competition forces customers to consider alternatives, and when
any significant new product leads to consumers spending that results in less being spent on other
goods.
Substitutes for air travel include other means of transport, such as car, train, bus, etc. The degree
of this threat depends on a variety of factors such as money, convenience, time, and personal
preference of travellers. In general, the threat of substitutes in Vietnam aviation market is from
medium to high, influenced by a number of factors.
 Availability and price attractiveness of substitutes: In comparison with other means of
transport, airline ticket prices are much higher. However, this gap will get smaller on the
long routes from the North to the South. Therefore, airlines still have a firm position in
domestic market.
 Comparability of substitutes in terms of quality, performance and other relevant
attributes: Apparently, airlines are of highest level of quality, speed and safety.
Nevertheless, in domestic market, especially with short routes, competitive advantages are
reduced as apart from flight time, it takes remarkable time for passengers to travel from
city centre to the airport and vice versa because airports are located far from city centre.

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  Switching costs: There are also hardly any switching costs involved in the process of
changing from air transportation to other transportations.
Because Vietnam is a middle-income country, people are highly price-sensitive. In addition with
the low switching costs and the remote location of airports, airlines are somewhat left behind
other means of transport due to its price and inconvenience.
The degree of rivalry
This refers to the intensity of competition between companies in an industry, and is suggested by
Stimpson and Farquharson (2015) to be the key part of Porter’s model, as it sums up the most
important factors that determine the level of competition or rivalry, based on the other four
forces. By acting strategically, companies can change the current level of competition and,
therefore, market structure (Worthington and Britton, 2006). Competitive rivalry is most likely to
be high when the threat of new entrants is low, when there is a threat from substitute products,
when suppliers have much power, and when buyers have much power (Stimpson and
Farquharson, 2015).
In Vietnam aviation market, the degree of rivalry is high. Carriers are involved in a constant
struggle to take away market share from each other, while the industry growth is somewhat
average and it is easy for customers to switch between airlines. Apart from the increased number
of airlines, the entry of low-cost carriers has further intensified the competition. The degree of
rivalry is also raised due to the high fixed costs. Furthermore, the airlines are operating on the
supply side of the market rather than the demand side, which means airlines are unable to choose
freely which markets to operate and which segments to target, and the power of choice lies in the
hands of flyers. This is the reason why low-cost carriers such as Vietjet Air or Bamboo Airways
have certain advantages to compete with a state-owned airline like Vietnam Airlines. By and large,
Vietnam Airlines is competing with other airlines in terms of prices, technology, in-flight
entertainment, customer services and many more aspects.
2. PESTLE analysis of the macro-environment in Vietnam
PESTLE analysis, which focuses on the macro environment in which a business operates, looks at
likely changes in political, economic, socio-cultural and technological factors and attempts to
predict the extent to which change is likely to take place and its possible consequences for the
organisation (Worthington and Britton, 2006).
The political environment
A number of aspects of the political environment apparently have an influence on business
activity, which range from general questions concerning the nature of the political system and its
institutions and processes, to the more specific questions relating to government involvement in
the working of the economy and its endeavour to influence market structure and behaviour
(Worthington and Britton, 2006). Given the trend towards the globalisation of markets and the
existence of international trading organisations and blocs, international politico-economic
influences on business activity represent one key feature of the business environment
(Worthington and Britton, 2006). Another key feature is the influence of public and political
opinion in areas such as environmental policy and corporate responsibility (Worthington and
Britton, 2006).
The Socialist Republic of Vietnam is one of the five remaining single-communist party states in the
world together with China, North Korea, Cuba and Laos (Le, 2015). The Communist Party keeps

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the political environment relatively stable since there have been few riots. The most recent and
extreme event was the violent anti-China protest that burnt down many factories owing to China’s
deployment of its oil rigs in the conflicted waters occurring in summer 2014 in several major cities
(Le, 2015). In addition, the government attempts to dismiss most people’s protests, which leads to
pointing of freedom of speech (Le, 2015). According to Human Right Watch Organisation, the
situation of Vietnam’s human rights deteriorates remarkably and remains a key problem for the
nation, and press is strictly governed and censored by the government (Le, 2015). Furthermore,
bureaucracy and corruption are at a high degree in spite of the government’s effort to reduce it
(Le, 2015). According to Transparency International 2014, Vietnam ranked at 119 in 175 countries
which were reported in Corruption Perceptions Index (Le, 2015). These factors apparently have an
uncontrollable impact on any businesses, particularly foreign organisations (Le, 2015).
The economic environment
The state of a nation’s economy, which means the rate of economic growth, the rate of price
inflation, the unemployment level and the exchange rate, can have a direct contribution to the
success or failure of businesses (Stimpson and Farquharson, 2015). The economic environment
can create ‘economic constraints’ on business activity, as well as enable a business to take
advantage of great new opportunities (Stimpson and Farquharson, 2015). Also, governments have
their economic objectives and may take economic policy decisions that can have a significant
impact on the success and profitability of businesses (Stimpson and Farquharson, 2015).
Therefore, understanding these objectives and policies is crucial to managers who plan to protect
their organisation from negative policy changes and to take advantage of positive policy changes
(Stimpson and Farquharson, 2015).
Vietnam is the 46th largest economy in the world, whose nominal GDP in 2018 was worth $245
billion and is expected to reach $265 billion by the end of 2020 according to Trading Economics
(2020) (Rahman, 2020). The nation has been making lots of progress in poverty eradication and
lifted 45 million people out of it between 2002 and 2018 (Rahman, 2020). Its economic outlook for
the following years is positive and vigorous (Rahman, 2020). It should be noted that Vietnam has
emerged out as one of the largest beneficiaries of the trade dispute between China and the USA,
and has been struggling with high price increases for years (Rahman, 2020). Vietnam is currently a
middle-income country, with GPD per capita being $2566,60. Vietnam Inflation Rate is 2.47% as of
September 2020, continuing to decline, which means that the country has made an outstanding
progress since 2011, when the Inflation Rate was 21.3%. Besides, the nation’s unemployment rate
as of July 2020 is 2.73, which is remarkably high as compared to that of July 2019, 2.16, mainly due
to the COVID-19 pandemic. Also, Vietnam’s fiscal deficit stayed high at 5.7% of GDP, arguably due
to delays in the divestment of State-owned Enterprises and lower import tax revenues. The
government targets fiscal deficit at below 4% of GDP in 2020, and down to 3% in 2030, ultimately
maintaining a balanced budget in the long run. By and large, Vietnam’s economy has made a
massive progress through the years.
Vietnam is the only ASEAN country apart from Singapore that aims to have trade agreements with
its two major trading partners outside the region, the EU and the USA, helping secure favourable
market access to its three primary export markets, EU, USA and ASEAN (Deprez, 2018). This
position gives the lower-middle-income manufacturing country of Vietnam an excellent advantage
in comparison with its ASEAN peers (Deprez, 2018). Trade Agreement (EVFTA) and the Trans-
Pacific Partnership (TPP) in which the USA was the most important participant for Vietnam, whose
negotiations of both trade agreements were concluded at the end of 2015 (Deprez, 2018).
Moreover, implementing the EVFTA and the TPP-11 will require domestic reforms, however, the

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‘externally imposed’ changes by these trade agreements deliberately serve the national strategic
development goal of locking in necessary reforms aimed at further enhancing the competitiveness
of the nation and ensuring continued economic growth (Deprez, 2018). Whilst Vietnam’s earlier
trade policy was primarily concentrated on traditional international trade integration with the
reduction of tariff barriers, its current trade policy pay more attention to the strategic positioning
of the country in international trade (Deprez, 2018). Through preferential trade agreements
(EVFTA, TPP, TPP-11 and a bilateral trade deal with the USA) with its primary export markets for
final goods, Vietnam desires to position itself at the end of the production and global value chain:
a nation where finished high-value manufactured products could be easily exported to the EU and
other nations where they have preferential market access (Deprez, 2018). A good example of this
novel strategy is the exponential growth in exports of mobile phones assembled in Vietnam
towards the EU and the USA (Deprez, 2018). However, Vietnam may cope with many drawbacks
when joining EVFTA, in that Vietnam must strive in addressing challenges posed in the EVFTA
framework, especially the obstacles related to legal issues and business environment. Moreover,
with regard to the human resource challenges, Vietnam needs to ratify the International Labour
Organization (ILO) Conventions and revises its Labour Code accordingly, including No. 87 about
Freedom of Association and Protection of the Right to Organise.
The social, cultural, and demographic environment
Both demand and supply are affected by social, cultural, and demographic factors (Worthington
and Britton, 2006). Cultural factors might influence the type of products being produced or sold,
their markets, price and a range of other variables (Worthington and Britton, 2006). People are
key organisation resources and a fundamental part of the market for goods and services, which
accordingly make socio-cultural influences and developments and demographic changes have a
significant effect on business operations (Worthington and Britton, 2006).
In February 2020, the total population of Vietnam was approximately 97 million (Rahman, 2020).
Buddhism is the major religion, and Vietnamese is the major language in the country (Rahman,
2020). The life expectancy for men is 93 years, while 81 years for women (Rahman, 2020). An
emerging middle class is rising swiftly in Vietnam and is expected to reach 26% by 2026 (Rahman,
2020). Vietnamese people are broadly friendly (Rahman, 2020). The lifestyle of Vietnamese people
can be described as relaxed, informal and closed to each other, which is one of the factors
companies can take advantage of (Rahman, 2020). Nevertheless, there are numerous tourists’
complaints about being hassled, overcharged, and treated badly by the locals (Rahman, 2020).
Large, skilled, low-cost workforce has made Vietnam attractive to foreign investors (Rahman,
2020). In addition, there is growing concern about income inequality, which the gap between rich
and poor is large and continues to increase (Rahman, 2020). Another social challenge that the
country confronts is ageing population (Rahman, 2020).
The technological environment
Technological change is affecting all businesses and all departments within business (Stimpson and
Farquharson, 2015). Investment in technology and innovation is often perceived as a key to the
success of an enterprise and has been used to explain differences in the relative competitiveness
of different countries (Worthington and Britton, 2006). Due to the characteristics of this external
influence, the potential opportunities for technological applications are increasing almost on a
daily basis (Stimpson and Farquharson, 2015). In addition to its uses, advances in technical
knowledge also leads to new product markets, which hydrogen-powered cars and flexible mobile
phones are good examples (Stimpson and Farquharson, 2015). To sum up, technology is making an

14
irreversible impact on business activity, including communication, product technology, costs of
production, marketing techniques, employee relations and consumer tastes (Stimpson and
Farquharson, 2015).
Vietnam’s information technology sector is witnessing rapid growth due to low costs and high-
quality labour, which makes the nation become the eighth largest provider of IT services globally
by now (Samuel, 2019). The IT industry is advocated by the government with tax and labour
incentives, further propelling its progress (Samuel, 2019). Five IT industries that are currently
trending are fintech, artificial intelligence, E-commerce, software outsourcing, and education
technology (Samuel, 2019). The government has adopted a number of policies that favour the IT
field, one of them is that IT companies are eligible for a corporate income tax exemption for up to
four years, followed by a 50% tax reduction for up to nine years (Samuel, 2019). The nation’s IT
growth is expected to remain intact growing roughly 30% per year (Samuel, 2019). The
government also actively promotes the application and development of IT, which is demonstrated
in its embracing of Industry 4.0 and the ASEAN Smart City Network (Samuel, 2019).
The legal environment
Businesses operate within a framework of law which has a crucial influence on a variety of aspects
of their existence (Worthington and Britton, 2006). Laws more often than not govern the status of
an organisation, its relationship with its customers and suppliers and certain internal procedures
and activities (Worthington and Britton, 2006). They might also affect the market structures and
behaviour (Worthington and Britton, 2006). Laws have a significant impact on the relationship
between employer and employee (Stimpson and Farquharson, 2015). Additionally, consumer
protection laws cover issues such as advertising, weights and measures, guarantees and defective
products (Stimpson and Farquharson, 2015).
The general legal environment in Vietnam is regarded by investors as complex (Le, 2015).
Investors state that the Vietnamese legal framework is extremely deficient in transparency,
consistency and reliability (Le, 2015). Unpredictable and unstable legal environment is the major
concern for both local and foreign investors in Vietnam (Le, 2015). However, foreign companies
are encouraged by the government to invest either directly or indirectly (Rahman, 2020). The
company law has become rather easier recently, which international investors can now easily
create limited liability companies (Rahman, 2020).
The ethical environment
Apart from being concerned with meeting objectives of shareholders and investors, business
decisions are also influenced by the needs of other stakeholders (Stimpson and Farquharson,
2015). Corporate social and environmental responsibility has become vital for companies as they
understand that they must listen to all stakeholders in order to achieve their objectives (Stimpson
and Farquharson, 2015). Therefore, ethical and environmental considerations have become an
increasing important influence on business behaviour, and have been incorporated into strategic
decision-making of more and more businesses (Stimpson and Farquharson, 2015).
Vietnam is badly affected by air pollution. Hanoi is the most polluted city in Vietnam and is among
the most polluted cities globally owing to high population density and excessive transportation
(Le, 2015). Pollution remains an unsolved issue for both citizens and the government, regardless of
Vietnamese people’s increasing awareness of the surrounding environment (Le, 2015). The most
recent viral event regarding environment was the serious environmental incident caused by
Formosa in Central coastal provinces of Vietnam, which made government policy-makers rethink

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their environmental management practice. Tourism is a significant industry in Vietnam and acts as
a factor to transform Vietnam’s agrarian economy to a service one (Rahman, 2020). It is also an
important factor to take into account in environmental issues. Rapid economic growth has led to
unsustainable exploitation of natural assets which might have an influence on future potential
growth (Rahman, 2020). Also, water pollution is an important problem and has significant impact
on human health (Rahman, 2020). Vietnam is greatly exposed to natural disasters such as floods,
droughts, earthquakes, floods, and typhoons (Rahman, 2020).

III. Internal analysis of Vietnam Airlines – its strengths and weaknesses

1. Internal factors of Vietnam Airlines

Vision and mission
According to Vietnam Airlines Annual Report (2019), the company’s vision and mission are
expressed as follows:
 Uphold the No.1 position as Vietnam’s aviation group leader
 Become a leading Asian airline of customers’ choice and be the primary force
transportation of Vietnam as a flag carrier
 Provide diverse and high-quality air transport which matches customers’ expectations
 Create a civilised and professional working environment with a variety of opportunities for
career progression for employees
 Run effective business operation and ensure sustainable benefits for shareholders
Organisational structure
Vietnam Airlines uses functional structure, with separate departments responsible for a particular
course of activities. There are a range of departments, including Marketing & Sales department,
Passenger Service Department, Technical Department, Information Technology Department,
Human Resources Department, Finance & Accounting Department, etc.
Human resources
Regarding the workforce, according to Vietnam Airlines Annual Report (2019), as of 31 December
2019, the company has a total of 6,409 employees. The workforce displays a continuous trend of
rejuvenation and greater level of professional expertise. Also, significance is attached to the
development of the talent pool of pilots, flight attendants, aircraft engineers and technician in
quantity and quality, gradually decreasing the proportion of foreign employees but still meeting
requirements of air transportation business.
With regard to training and development of human resources, Vietnam Airlines has conducted a
range of activities in a bid to enhance the capacity of the entire system, such as “Changing with
the world” workshop series and English courses in New Zealand. Furthermore, the airline has also
provided Safety-Security training courses for more than 11,000 pilots, flight attendants, flight
operators and ground service staff. Especially, there are 5 Masters of Science (MSc) received
training at Cranfield University – UK and ENAC.
Brand equity
According to Forbes Vietnam’s ranking, Vietnam’s brand value rose to US$247 billion, ranked 42nd
among the 100 most valuable nation brands in 2019, with the combined value of top most

16
valuable brands reaching over US$9.3 billion. As of January 01 2019, Vietnam Airlines’ brand value
was $416 million, ranked 8th most valuable brands in Vietnam.
Financial strength
The specific Vietnam Airlines’ financial factors of 2019 were described as follows:
 Consolidated revenue: VND 100,316 billion, increased 1.4% compared with that of 2018
 Consolidated profit before tax: VND 3,389 billion, increased 2.3% compared with that of
2018
 Consolidated profit after tax: VND 2,537 billion, decreased 2.4% compared with that of
2018
 Consolidated contributions to the State budget: VND 7,929.6 billion, increased 18.1%
compared with that of 2018
 Total liability: VND 57,847 billion
 Debt/Equity ratio: 3.11
Also, Vietnam Airlines is a state-owned enterprise, which is accompanied by both advantages and
disadvantages in terms of finance.
Physical assets
Vietnam Airlines' fixed assets as of December 31, 2019 were VND 46,955,933,985,097. Vietnam
Airlines currently owns the most aircraft with 104 aircraft. The fleet structure comprises the
foremost renovated models, which includes wide-body aircraft such as Boeing 787 - 9, Boeing 787
- 10 and Airbus A350; narrow body with A321Neo.
Market resources
Macroeconomic indicators were stable while the number of international tourist arrivals
witnessed an energetic trend. The actual fuel price in 2019 was USD 76.7 per barrel, a USD 6.1 per
barrel lower than the planned USD 82.8 per barrel.. In 2019, the total market size was 34.7 million
passengers, a growth of 15% as compared with that of the previous year. The size of the domestic
aviation market was 37.3 million passengers in 2019, 13.5% higher than the 2017 – 2018 period,
which witnessed growth rates between 7% and 10%.

Technology base
Vietnam Airlines is autonomously implementing every technical maintenance service for its in-
service fleet of ATR 72, A321, A350, and B787 aircraft including onsite and offsite maintenance.
Besides, VAECO, a subsidiary of Vietnam Airlines, also supplies maintenance and renovation
services for foreign partners.
Interior maintenance is always a concern, and Vietnam Airlines obtained Skytrax’s 4-star
certification for the fourth consecutive year.
Vietnam Airlines has been adopting numerous initiatives to strengthen fleet operational efficiency
and utilisation with optimal costs, specifically Constant performance of fundamental technical
programs (AD/SB, MOD) for higher reliability of equipment and aircraft systems.

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2. Vietnam Airlines’ internal strengths and weaknesses
Internal factors Strengths Weaknesses
Mission Clear, brief and understandable Quite far from being attainable
regarding ‘become leading airline in
Asia’, as Vietnam Airlines was not
qualified in top 10 Airlines in Asia in
2019
Functional The workers with specialized skills Functional groups may not be able to
structure can perform tasks quickly, efficiently communicate more often which
and with more confidence, while decreases flexibility and innovation.
reducing of work-related mistake.
Human Talented human resources directly Must adopt policies for employee
resources enhance customers’ satisfaction retention
Brand equity An important factor influencing Substantial budget spent for public
customers’ satisfaction media promotion both domestically
and internationally
Financial Finance raised mainly from the Government may interfere in business
strength from government decisions for political reasons
state-owned
enterprise
Physical assets High physical asset helps to reassure Needs to differentiate itself from its
investors competitors
Market Enable fuel costs to be slashed Intensified competition both
resources domestically and internationally
Technology base Independent, has its own training Fewer untrained staff will be required,
base, reducing training costs those unable to learn new skills may be
made redundant

IV. Vietnam Airlines: how internal strengths and weaknesses interrelate

with external factors and how they influence decision-making

1. Case study: Vietnam Airlines’ takeover of Jetstar Pacific

As of 23rd February 2012, Vietnam Airlines took over a majority 69% shareholding in Jetstar Pacific,
making it become a low-cost carrier subsidiary of Vietnam Airlines. There are strengths,
weaknesses, opportunities and threats accompanied by this business decision-making.
2. Aids to decision-making

SWOT
Strengths
 Has the largest market share in Vietnam with large number of services offered along with
available flight schedules

18
  Being the national airlines of Vietnam, Vietnam Airlines has a easily recognised brand name
 Substantial financial capacity, taking financial advantage of being a state-owned enterprise,
and receives government support with loans in foreign currency
 Vast network of offices and branches domestically and internationally
 Not too dependent on suppliers as it has Air Petrol One Member Company Limited as a
subsidiary
 Has its own Training Centre – Viet Flight Training JSC as its subsidiary

Weaknesses
 Political interference
 Slow decision-making
 Brand name is noted as highly valued as Singapore Airlines or Thai Airlines
 High pressure to pay off debt and interest. Liquidity ratios are decreasing

Opportunities
 The takeover gave Vietnam Airlines a combined market share of about 91%, rising from
previously 77%. This consolidated the monopolistic position of Vietnam Airlines
domestically and internationally, as well as slightly decreased the position of Vietjet.
 Eliminate one competitor
 Increased economies of scale
 External growth of Vietnam Airlines would benefit shareholders
 Increased power over suppliers, hence better discounts from aircraft manufacturers were
expected
 Reduce fixed costs as two head offices were streamlined into one
 The interlinking of the different air routes allowed more passengers to be offered
connecting flights with the new enlarged airline
 Low-cost carriers (LCCs) are particularly well placed to target the surging middle class in
Southeast Asia, since such carriers are focused primarily on short-haul markets and their
lower fares make flying more affordable

Threats
 Decrease in air travel
 Increase in competition
 May lead to monopoly investigation as the combined airline exceeds certain market share
limits and rationalisation may bring bad publicity
 Difficult to manage, especially geographically spread

19
SWOT matrix
Strengths
 Has the largest market
share in Vietnam
aviation industry
 Easily recognised brand
Internal name
aspects  State-owned enterprise
 Has Air Petrol One
Member Company
Limited as its subsidiary
 Has its own training
External centre
aspects  Vast network and
branches domestically
and internationally
Opportunities SO strategies
 Eliminate one  Expand areas of
competitor services by taking on
 Increased economies of routes that Jetstar once
scale covered
 Increased power over  Increase number of
suppliers, better flights
discounts from aircraft  Expand into low-cost
manufacturers carrier segments,
 Reduce fixed costs promote the size and
 Interlinking of different strength of the Vietnam
air routes Airlines brand in the
domestic market
 Expand into air freight
business to increase
profits
 Streamlining customer
and booking functions
will enable further cost
savings
Threats ST strategies
 Decrease in air travel  Take advantage of
 Domestic and economies of scale to
international increasing lower air ticket prices,
competitors increase competitive
 Monopoly investigation advantage over other
 Difficult to manage substitutes
 Level up customer
services
 Building customer
loyalty with reward
20
Weakness
 Political interference
 Slow decision-making
 Brand name is not as
highly valued as
Singapore Airlines and
Thai Airlines
 High pressure to pay off
debt and interest
 Slow decision-making
WO strategies
 Expanding fleet to
ensure it has the right
number of planes
 Lowering costs to boost
profits
 Position the airline for a
stronger future as
international travel
restrictions ease
WT strategies
 Review the budget
carrier’s structure and
future shareholding
arrangements
 Adopt flexible and
proactive management
measures
 Streamline operational
structure to reduce
complexity, improve
 programmes working efficiency
 Strictly follow
regulations of
monopoly

Competitive forces
This takeover also takes into account competitive factors. Increased monopoly of Vietnam Airlines
has a great impact on deterring new entrants. Also, it may result in increased economies of scale,
which may lead to lower prices. With the elimination of one competitor, especially a low-cost-
carrier, the competitiveness in the airline industry is reduced. However, less customer choice
might result in higher prices. Moreover, it also increases the airline’s bargaining power over
suppliers.
PESTLE
Regarding political factors, government is supporting this merger. Apart from the reason of being
a state-owned enterprise, this merger will keep air ticket prices down, which helps attracting more
tourists.
Regarding economic factors, long-term plans to offer more routes and cheaper prices will help to
keep inflation down and boost tourist numbers into Vietnam, thereby contributing to the national
economic overall.
Regarding social factors, the merger can lead to job losses, increasing unemployment rate at
existing business site.
Regarding law factors, recently, the number of lawsuits against airlines from both customers as
well as employees has risen. Furthermore, the regulators are getting stricter with the airlines,
which mean airline companies are now increasingly wary of their strategies, and actualising their
strategies only after they are completely convinced that they are not violating any laws.
Regarding technological factors, two airlines might be able to share research facilities and pool
ideas that will benefit both of the businesses. Moreover, the new enlarged airline can save on
marketing and distribution costs by using the same sales outlets and sales teams.
Regarding environment factors, as climate change grows in the social awareness, passengers now
take into account their carbon footprint, resulting in more environmentally-conscious approach.
The airline is being forced to adopt “green flying” and be more responsive to the concerns of the
environmentalists. Moreover, the social responsibility initiatives are becoming more pronounced
and more under scrutiny as consumers and activists pay more attention to the airline and their
corporate social responsibility.
3. Example of how different companies having different business decisions,
affected by similar external factors
As of November 2019, Vietjet placed order for 20 newest-generation Airbus A321XLR aircraft,
making it one of the first carriers in the world to operate A321XLR aircraft in 2023. With this latest

21
contract, Vietjet’s total order book with Airbus reached 186 aircraft with the first A321XLRs to be
delivered to the airline from 2023. There are many factors underlying this business decision.
SWOT analysis of Vietjet Air
Strengths Weaknesses
 VietJet has quickly captured  Sale and Leasebacks: Sale and
significant domestic market share leasebacks are typically attractive to
over the years LCC start-ups as they generate an
 Vietjet has a strong financial immediate profit. However, over the
potential. long term they can turn into a
 The aircrafts are mobilised at high weakness, since airlines profiting from
efficiency and good fill rate sale leasebacks end up paying higher
 Vietjet takes pride in owning a new, than average rental rates as their
modern, environmentally friendly aircraft age.
fleet and operating cost per unit of  Overloaded and delayed flight
product in the lowest of Asia as well  Brands and distribution systems are
as the world still weak in the international market
 Good ancillary revenue
 Vietjet has built a strong brand in
Vietnam
 The creativity, youthfulness and
newness of Vietjet's staff and the
strategic vision of the leadership
team.
Opportunities Threats
 The positive policies of Vietnamese  Domestic and international
government to support the private competitors
companies  Rising fuel prices
 Interlines and share codes: Vietjet is  Overloaded airports
currently very interested in two-way  Over-ordering
joint venture and has plans to build
and connect the global flight network
through interlines, share codes with
other airlines
 Tourism industry with the
international & domestic visitors
increased sharply
 Low-cost model is suitable with
Vietnam
 Vietnam is one of the most attractive
aviation markets and the fastest
growing markets in the world.

This business decision has proven that Vietjet has taken into account of its internal strengths and
weaknesses as well as external factors. Taking advantage of their strong financial potential, this
purchase enabled Vietjet to extend their networks at the lowest possible cost. The new A321XLR
will be the perfect upgrade to comprehensively modernise Vietjet’s fleet as the airline look to

22
strongly grow their international flight network, enhancing its brand in international market. In
addition, this also increased Vietjet’s competitiveness in Vietnam aviation industry.
PESTLE analysis
Political factor
-Government support national carriers and minimal migration.
-Security control is strictly maintained to assure the integrity of airlines.

Economic factor
-Increasing urbanisation in Vietnam leads to more travel destinations.
-Government establishes aggressive policies to promote regional tourism.

Socio-cultural factor
-Consumers become much more demanding in terms of price, service, etc.
-The Vietnamese population, which is young and increasingly urban, has naturally traded in long
bus and train journeys for domestic flights.
-Income levels and the middle class population have expanded, putting air travel within the reach
of a significantly higher proportion of Vietnam’s 93 million citizens

Technological factor
- Passengers now prefer to access ticketing and check-in services through their hand-held devices
instead of forming a line or booking manually
-Technology also means that aircraft are lighter which provide speed and fuel economy
-Increased technological advancements can make airlines gain profits through offering safety and
enhanced services.
Environmental factor
-Aviation industry is known for the environmental issues related to noise pollution and
greenhouse gas emissions
-Natural disasters (storms) in the travel season negatively influence Vietnam’s tourism industry
and indirectly affect aviation

Legal factor
-There are many laws devised for air traffic and the safety and security of passengers
-Airlines are made responsible for air crashes or any other type of damage or disaster
Porter’s five forces
Vietjet Air’s five forces follow the general five forces of Vietnam aviation industry, therefore have
similar conclusion like Vietnam Airlines. The threat of new entrants is generally low due to high
up-front investments and establishing costs. The threat of substitutes is high because of the
availability of many other substitutes and there are hardly any switching costs. The bargaining
power of buyers is moderate because there are hardly any switching costs between airlines, but
there are also limited choices of airlines with relative quality standard. The bargaining power of
suppliers is very strong because there are a few major suppliers for the whole industry. The

23
degree of rivalry is high, there are a number of competitors, domestically including Vietnam
Airlines as well as newcomers such as Bamboo Airways, Vietravel Airlines, and internationally
including Air Asia, Lion Air and Tiger Air.

V. Conclusion

To summary, Vietnam Airlines possesses a number of advantages which make it a strong

competitor in Vietnam aviation market. However, they remain several drawbacks that needed to
be overcome. It is proven that the business decision-making of Vietnam Airlines taking over Jetstar
Pacific is influenced by a number of factors, including SWOT analysis, PESTLE analysis and Porter’s
five forces.

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