International Marketing of Marks & Spencer (M&S) in Vietnam - Essay Example

?International Marketing of Marks & Spencer (M&S) in Vietnam Marks & Spencer (M&S) is a UK-based company that was established by Michael Marks and Time Spencer many years ago, and it is now one of the largest clothing, food, and home product retailers in the world. The company has an ambitious goal, which is to become the “world’s most sustainable major retailer” by 2015 (Wills, 2011). The company has a group revenue of ?8,733.0 million in the UK and ?1,0073 million in the international market (see figure 1). Providing needs and satisfying customers with the best product experiences across the world are the top priorities of M&S; in fact, they have continued to meet expectations of their 21 million weekly customers by expanding in many international markets. M&S has about 700 domestic retail stores in the UK and “361 wholly-owned, partly-owned, and franchised stores in 43 territories across Europe, the Middle East and Asia.” (Marks & Spencer, 2011, p.29). The main thrust of this paper is to investigate or conduct a global market opportunity analysis of Vietnam’s macro environment and recommend possible market entry strategies for M&S in Vietnam. 1) Macro Environmental Analysis of Vietnam (STEEP) Macro-environment is one of the environmental issues that influenced the retail industry in Vietnam, as well as the industry’s growth prospect. This analysis will focus on major trends that have an impact on the organizational growth of foreign-invested companies including socio-cultural and demographics, technology, economic condition, ecology and physical environment, and political-legal. 1.1 Socio-cultural and Demographics In every investment, understanding customs and behaviors of a certain country is one of the important factors to be successful in foreign markets. Vietnam is a socially stable country because of its economic renovation policies; however, social discrimination or divisions have been part of its local customs, particularly the treatment of men and women in the society, as well as the working and middle class Vietnamese. International businesses are placing a significant value on customs and cultures of their host countries because these are substantial in gaining a market share. Vietnamese customers are hard to please because they are price sensitive and value or quality conscious, and doing business in the country needs patience because Vietnamese prefer to have lengthy negotiations. Furthermore, the family is the basic unit of the society in Vietnam; however, inequalities in terms of gender issues and classes can still be observed. For instance, men are considered superior or better than women in such a way that they have the power to make decisions for the family and do outside activities while women are left in the house to do household chores. This attitude is also practiced in the workplace wherein lower-level employees are not empowered to make decision, initiate change, and keep information without the approval of those in managerial positions. On the other hand, there is an unequal distribution of income and a biased tax system between rural and urban communities wherein taxes imposed to rural residents are higher compared to urban constituents; this event shows that government policies are concentrated to the growth of urban areas (Cao & Akita, 2008, p.12). Other urban biases are observed in terms of trade liberalization or industrialization, tax distribution among industries, credit admission, foreign direct investment (FDI) programs, employment opportunities, service access, and many more. In terms of demographics, Vietnam has a total population of 91,519,289 wherein 25.2%, 69.3%, and 5.5% of the population are 0-14, 15-64, and 65+ years old, respectively (Central Intelligence Agency, n.d.). This age structure implied that Vietnam is equipped with a high and substantial workforce, which is favorable to international businesses because the population is young. For instance, half of Vietnam’s total population is the young generation or “below age 30,” and this group is a good target market for retailers because it enjoyed shopping; thus, retail outlets or stores in the Vietnamese market have high potential for success (Kearney, 2006, p.6). 1.2 Technology Technology has been an important issue in Vietnam because trade liberalization and privatization in the country has given emphasis on the improvement of the technological environment factors. Traditionally, the level of technology improvement or transfer in Vietnam is relatively low; however, the country has a successful “transition to a knowledge-based high technology environment...[and] made a giant leaps forward in technology investment and the provision of an effective technology based infrastructure” (Rickards, 2003, p.116). Furthermore, the country has initiated technological activities like technology education, and it invested in new technologies to improve the technological background of the Vietnamese, particularly in terms of reducing labor-costs. The government has also established policies and programs (i.e. Decree No. 80/2010/ND-CP) to encourage advanced technology exportation, research and development, and online transactions. Businesses in Vietnam are now considering the use of online marketing and e-commerce to introduce their products in the market. Also, international enterprises in the country have strengthened their online capabilities and used bricks-and-mortar outlets to widen the scope of their target market. Therefore, to support the industry’s technology campaign, the government is encouraging the public to use computers regularly; however, the level of piracy in Vietnam is high considering that “85% of the packaged software...is pirated” (Datamonitor, 2011, p.23). 1.3 Economic Conditions Vietnam is one of the emerging countries in the Southeast Asia region that “consistently performed well over the past five years and has one of the fastest growing economies” in the region (Kearney, 2006, p.6). In fact, Vietnam ranked No. 3 (overall score is 84%) in the 2006 global retail development index (GRDI), which illustrated that the country has a competitive environment in terms of risk, market attractiveness, market saturation, and time pressure (see figure 2). Thus, Vietnam has an excellent economic ground for foreign trading companies, and it is a good marketplace for expansion, particularly to the retailing industry. Vietnam is one of those countries that are highly dependent on international trade and investment in the economic sustainability. Also, it is one of the fastest developing countries in its region because of its ongoing and proactive economic reforms or open economic policies to foreign investors. In fact, when Vietnam has become part of the World Trade Organization (WTO), the country’s FDI and trade statistics have increased, and the Vietnamese market has become more attractive to foreign-invested companies because formal and informal trade barriers are reduced. In addition, Vietnam is a country that is focused on import-export activities because these are GDP’s contributors, and these are needed in implementing and centralizing a modernized and liberalized economy. Furthermore, it has a stable economic condition based on its GDP growth rate, which is at a constant rate of 6.8% (see figure 3). The increase of GDP shows that the Vietnamese standard of living is improving or people have high income, and the earning status of most households has increased their consumer spending; thus, the consumption demand will increase. In fact, “consumer spending is increased by about 16 percent and modern retail sales rose by 20 percent from 2004 to 2005” (Kearney, 2006, p.6). However, some economic factors are not favorable to the international business operations such as the high unemployment rate caused by the rapidly increasing population and the extreme inflation rate, which would elevate production costs, wage demand, and prices of commodities. Furthermore, the acceleration of the inflation rate has resulted to the depreciation of Vietnam’s local currency (dong), and this would “make exports expensive, and servicing of debt in foreign currencies would also become more costly” (Datamonitor, 2011, p.18). 1.4 Ecology and Physical Environment Vietnam is an environmentally friendly country; in fact, it has established several environmental laws, policies or programs, and agencies that will promote environmental development or preservation, and govern companies operations for environmental protection. Examples of environmental agencies in Vietnam are the National Environment Agency (NEA) and the Department of Science and Technology and Environment (DOSTE) (Thanh, et al., n.d., p.204). The government also acted as a catalyst for green productivity programs that are focused on the treatment of waste water from various pollutants, air pollution, solid waste disposal, reduction of carbon emissions, deforestation, protection of endangered species, and many more. Furthermore, it has established several ecological laws including the “Mineral Law, the Law on Protection of Public Health, the Forest Protection, and Development Law, the Petroleum Law, and Land Law, the Water Resources Law, and the Enterprise Law” (Datamonitor, 2011, p.60). In terms of the physical environment, the country has invested heavily in infrastructure development or expansion because government officials wanted to speed up the equalization of state enterprises (public & private) as the driving force of higher economic growth. 1.5 Political and Legal In terms of the political landscape, the Socialist Republic of Vietnam is a single-party communist state since the 1967 unification, and this is currently managed by the Communist Party of Vietnam (CPV) headed by the party’s General Secretary. The party has managed to maintain the political stability and transparency in the government; thus, it has formed good relations with overseas companies, which are interested to invest in the Vietnamese market. However, there are various groups that wanted political reforms because of some issues including human development or civil rights (i.e. freedom of speech, religion, ethnic minorities, fair election, & assembly), social instability, privatization, and many more. In the contrary, government officials did not consider any broad political reform because they believed that political changes would weaken the country’s trade liberalization, as well as the control of political and economic power (Steinglass, 2010). Figure 4 below shows the political risk summary of Vietnam and the world average. As shown in the figure, Vietnam’s international transaction policy, legal system, regional stability, social stability, and fiscal policy are at risk while its monetary policy, business environment, labor flexibility, and government stability have lower risks. On the other hand, the government had opened the country to foreign investments by strengthening its trade relations and market deregulation. In fact, most of Vietnam’s international trade policies and legal frameworks like the Foreign Investment Law and Enterprise Law of 2000 are created to have “a healthy business environment by easing obstacles to entry, removing licensing requirements for more than half of the subsectors, lowering registration costs, and dramatically shortening the approval process for start-up” (Ashwill, 2005). Furthermore, Vietnam had become a global trader when it committed to several international trade agreements and implemented free trade pacts to different countries as part of liberalisation and globalisation. However, FDI has “decreased in recent years due to a lack of transparency, uncertainty, and inconsistency in the legal and taxation system, and high costs of doing business” (International Business Publications, 2007, p.212). Moreover, administrative barriers, high import taxes, and tariffs are still substantial in Vietnam, and the current labor laws are not favorable to foreign-invested enterprises because expatriation is limited and Vietnamese workers are highly prioritized. Also, employment policies in the country are not strictly observed by many companies because workers are not given their exact wages or compensation (low-cost labor), and the majority of their rights are not acknowledged by most employers (Vietnam Trade Office in the USA, 2008). 2) Recommended Market Entry Strategies for M&S in Vietnam Vietnam is a good country for expansion because its economy is rapidly growing, and the government has performed several economic reforms and established an open door policy to attract foreign-invested companies. Thus, despite the country’s strict policies and regulations, international businesses are still encouraged to expand in the Vietnamese market. Based on the window opportunity analysis of Kearney (2006), Vietnam is currently in the peaking window or the Vietnamese market is rapidly developing (see figure 5). Countries under this window have promising markets, and “retailer should enter the market through sourcing offices, local representation and new stores” (Kearney, 2006, p.14). One of the most recommended market entry strategies in Vietnam is “to partner with a local company to provide solutions, including equipment and services, and leverage its connection and clientele” or it is known as the joint venture approach (International Business Publications, 2008, p.281). The joint venture approach or the strategic partnership with a Vietnamese counterpart will help the company reduced its operating expenses and increased its access to a broader target market. Also, strategic partners will become financially and legally committed to each other on the basis of what has been agreed upon. Another recommended strategy is the direct foreign investment considering that Vietnam has high trade restrictions and complicated legal frameworks. Direct investment is a good market entry strategy for this type of environment; however, the market risk and needed resources are high because the Vietnamese government is controlling market operations. Therefore, the most suitable market strategy for Marks & Spencer (M&S) is the joint venture approach because this strategy is capable of establishing proficiency and favorable trade contracts between the government and the market. Furthermore, using this strategy will help the company in reducing formal and informal trade barriers, and have the direct participation over the investment because the allowable foreign ownership in Vietnam is extended up to 70%. Also, this entry mode “allows for more control of the venture” (Ireland, et al., 2009, p.163). However, this mode of entry is costly because it is not isolated to political and economic risks; thus, the company needs to spend a considerable amount of resources to be used in setting up operations and in accessing local distribution channels. Conclusion In summary, Vietnam is one of the attractive countries for international expansion. The country’s macroeconomic environment is reflecting a positive impact on the future performances of foreign-invested companies considering that its economy is rapidly growing. Also, its admission to the global economy has reduced the country’s formal and informal trade barriers, thus, entering the Vietnamese market has been made easier. Moreover, the possible market entry strategies for the country are the joint venture or strategic partnership and foreign direct investment. Among the two strategies, the joint venture approach is the most effective and suitable to the macro environment of Vietnam because it will reduce trade barriers and increase the company’s capacity to participate and control its investment in the market. References A.M. Best. 2011. AMB country risk report: Vietnam. [Online] 28 September, pp. 1-4. Available at: http://www3.ambest.com/ratings/cr/reports/Vietnam.pdf [Accessed 27 February 2012]. Ashwill, M. A., 2005. Vietnam today: a guide to a nation at a crossroads. UK: Nicholas Brealey Publishing. Cao, T.C.V. & Akita, T., 2008. GSIR working papers - economic development & policy series EDP082: urban and rural dimension of income inequality in Vietnam. [Online] pp. 1-36. Available at: http://gsir.iuj.ac.jp/publications/pdf/EDP08-2.pdf [Accessed 28 February 2012]. Central Intelligence Agency, n.d. East & Southeast Asia: Vietnam. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html [Accessed 28 February 2012]. Datamonitor. 2011. Country analysis report: Vietnam. [Online] pp. 1-62. Available at: www.datamonitor.com [Accessed 27 February 2012]. International Business Publications. 2007. Vietnam: recent economic and political developments handbook. USA: International Business Publications. International Business Publications. 2008. Vietnam: internet and e-commerce investment & business guide. 5th ed. USA: International Business Publications. Ireland, R.D. Hoskisson, R.E. & Hitt, M.A., 2009. Understanding business strategy: concepts and cases. USA: South-Western Cengage Learning. Kearney, A.T., 2006. Emerging market priorities for global retailers. [Online] Available at: http://www.atkearney.com/index.php/Publications/emerging- market-priorities-for-global-retailers.html [Accessed 27 February 2012]. Marks & Spencer, 2011. Only at your M&S, annual report and financial statements 2011. [Online] Available at: http://annualreport.marksandspencer.com/downloads/PDFs/annual-report/MandS_AR2011_New.pdf [Accessed 28 February 2012]. Rickards, T., 2003. Technology-rich learning environments and the role of effective teaching. In: M.S. Khine & D. Fisher, eds. 2003. Technology-rich learning environments: a future perspective. Singapore: World Scientific Publishing. Ch.6. Steinglass, M., 2010. Vietnam power shortages fuel calls to break up monopoly. Financial Times, [internet] 28 June. Available at: http://www.ft.com/intl/cms/s/0/5cb09f26-8251-11df-9467-00144feabdc0.html#axzz1njT3Mq5H [Accessed 29 February 2012]. Thanh, T.T., Yem, T. Hang, N.T.B. & Huy, L.Q., n.d. Vietnam. [Online] pp.199-242. Available at: http://www.apo-tokyo.org/gp/e_publi/gpp/0306VIETNAMrev.pdf [Accessed 28 February 2012]. Vietnam Trade Office in the USA. 2008. Labor in Vietnam. [Online] Available at: http://www.vietnam-ustrade.org/index.php?f=news&do=detail&id=35&lang=english [Accessed 27 February 2012]. Wills, J., 2011. M&S -wholly embracing staff in plan to become the world’s most sustainable retailer. The Guardian, [internet] 26 May. Available at: http://www.guardian.co.uk/sustainable-business/staff-plan-worlds-sustainable-retailer [Accessed 28 February 2012]. Appendices Figure 1: Financial Performance of M&S Source: Marks & Spencer (2011, p.10) Figure 2: The 2006 Global Retail Development Index Source: Kearney (2006, p.3). Figure 3: Vietnam - Key Fundamentals Source: Datamonitor (2011, p.5) Figure 4: Political Risk Summary (Score 1-best to 5-worst) Source: A.M. Best (2011, p.3) Figure 5: Vietnam - Window of Opportunity Analysis Source: Kearney (2006, p.13) Read More