TNA Market Profit Potential in Malaysia and Vietnam - Case Study Example

TNA Market Profit Potential in Malaysia and Vietnam Name Course Institution TNA Market Profit Potential in Malaysia and Vietnam Introduction TNA Pty. Ltd. (TNA) is an Australian engineering and manufacturing company. It provides equipment and machinery for use in the food processing and packaging industry. It is a well-established company in Australia, having been founded in 1982 by an engineer working in the food industry. The company seeks to be the leading producer of its kind in the world. Thus far, it has succeeded in taking over the Australian market by storm, and the owners of the company are seeking to expand overseas. This is an analysis on two potential markets, Malaysia and Vietnam, and their market profit potential for TNA. Malaysia Malaysia has a very richly diverse population in terms of culture and natural resources. This, combined with its lush tropical climate, makes the country a great and convenient place for all manner of food cultivation and research. For this reason, Malaysia is on its way to becoming one of the leading countries in food processing and production in Asia (Malaysian Investment Development Authority (MIDA), 2015). Advantages Malaysia has an economic freedom score of 71.5, as of 2016, ranking 29th in economic freedom in the world. The country’s economic freedom has been on a steady rise over the years, improving by 5.1 points since 2012. It has made especially great strides in the management of public finance and trade freedom (Heritage.org, 2016). Malaysia has attained a status of “mostly free”. A number of government subsidies have been reduced, and the corporate tax is set to be reduced this year. Malaysia’s regulatory efficiency has also improved greatly. The government has put in place new measures to ensure this. Starting a business in Malaysia is very easy; it only takes three steps, and there is no stipulated minimum capital (Heritage.org, 2016). The country also has open markets. Malaysia’s economic freedom (Heritage.org, 2016) Malaysia has recorded a steady population growth rate of about 2% per annum. The country’s living standards have also been increasing along with the population increase. There is, therefore, an annual increasing demand for health and convenient foods, which in effect means that food factories continue to record growing market. The steadily increasing demand for packaged food in Malaysia makes the country a prime market for TNA, seeing as the food factories will require more machines, both in quality and quantity, for greater production. The food processing industry in Malaysia is already well established, which means that TNA already has a market in the country. This takes off the burden of having to introduce the market to their products. It is also worth noting that the food processing industry in Malaysia is rather successful. In 2013, Malaysia exported roughly 6.7 billion US dollars’ worth of food products, to approximately 200 countries, all from its local food processing and production industry. This value was only 10% of the total output from Malaysia’s food industry, which is dominated by small to medium scale companies. Processing technology has also been advancing in the country, and TNA can tap into this wave, since there are more investors in the food industry now than ever before in Malaysia. Malaysia is a key trader with Australia, which is home to TNA. In 2013, in the Association of Southeast Asian Nations (ASEAN), Malaysia’s trade with Australia valued at about 14.1 billion Australian dollars, ranking as Australia’s third largest trading partner in the block. As it is, TNA has made a name for itself in Australia, being on the Fast 100 list in the BRW every year since 2007. The company has also won awards for processing and packaging machinery, and is on the Victorian Manufacturing Hall of Fame. Since TNA is already well established in Australia, its reputation puts in on the global scale; much more so on Malaysia’s radar, since the two countries are long standing trade partners. Therefore, most food processing and packaging industries in Malaysia have, at least, heard of TNA beforehand and this preceding reputation may come in handy as TNA tries to break into the Malaysian market. Malaysia has a skilled and energetic young workforce, which would provide ready local labor for TNA on moving to Malaysia. Employing the local youth would also be much cheaper for the company. It would also boost the company’s rapport in the country, as it would be recognized for providing a large number of youth with employment opportunities. The Malaysian government constantly offers training programs in training institutions like industrial training schools and technical schools (MIDA, 2015). Therefore, not only is there a large pool of young and energetic people, they are also educated and sufficiently trained. The institutions also provide courses on food technology, creating a workforce of exactly the people TNA would be looking for. For this, however, the company would have to be ready to make several changes so as to respect Islamic culture and traditions, to make it more appealing to the youth, a majority of whom are Muslims. Disadvantages Inasmuch as Malaysia has made great strides in the economic freedom, it still faces some challenges, the most pertinent being property rights and corruption (Heritage.org, 2016). As yet, there are no visible measures that show an improvement in the fight against corruption, and the perceived level of corruption keeps rising (Heritage.org, 2016). Property rights are impeded by the faulty judicial system, which is greatly affected by political interference. The lines between private and public businesses are not clear, and government officials constantly cause graft by their involvement with both public and private property. Even though the courts try to protect property rights the best they can, the executive branch regularly makes it difficult for the judiciary to function without bias. Another problem faced by businesses in Malaysia is government spending. The Malaysian government spends about 29.3 percent of the total GDP of the country. There are constantly large spending projects by the government, creating a deficit in the budget of about 3 percent of the GDP. This, coupled with the public debt that amounts to about 57 percent of the total domestic output (Heritage.org, 2016), may create a problem in the Malaysian economy. The middle class and upper middle class in Malaysia keeps growing, causing local and leading multinational mass grocery retailers to go an expansion drive. There is, further, a rise in the need for the sale of Halal certified food and beverages in Malaysia. Keeping in mind that Malaysia largely has a Muslim population, and one that is getting more particular about the Halal certification of the food they consume, this would form a key requirement for TNA to break into the Malaysian food processing and packaging market. The company would have to introduce something new to the Malaysian market, something that the population is begging for, in the form of a digital means of Halal tracking for the food factories. This might present a challenge for the company in coming up with a new product, but should the company be successful in enabling Halal tracking, then more food packaging factories would be more eager to purchase and use their products. Breaking into the Malaysian market could prove a little challenging because of the recent emphasis on Halal certified food. Food processing and packaging companies are becoming increasingly concerned with following Islamic regulations. According to a paper by Wee (2016), Muslim consumers would be more comfortable purchasing from companies that have respect for Islamic law and “have a strong ethical focus throughout the production process”. For instance, the production companies are not supposed to mix halal products with non-halal products at any point, right from the production process to the transportation to the retail points. While this may not affect TNA directly since all they make is the machinery and equipment thus do not deal directly with the consumers, there could be a blowback from the production companies as they seek a supplier of equipment. Breaking into the Malaysian market will require TNA to navigate the Islamic requirements very carefully while gaining the trust of their potential market. They will also, however, have to strike a perfect balance with the non-halal market, so as to reach as broad a market base as possible (Wee, 2016). Vietnam The food and beverage processing industry in Vietnam accounts for about 37% of the country’s GDP. The country exports foodstuff to several countries around the world, increasing its export revenue and improving diplomacy between Vietnam and other countries by fostering strong trading links. The industry continues to grow exponentially, creating employment opportunities to the citizens and boosting the economy in general. Vietnam also currently has foreign recognition for the packaging and style of their processed and packaged foodstuff (Vietbiz, 2008). Advantages Vietnam has a slow but steady improvement in economic freedom. The improvement in trade freedom is a particularly notable success. There have been several reforms in the economic sector that have made the market better. For instance, some state-owned enterprises have been privatized, though partially, over the years. The financial sector has also been modernized greatly, which is an advantage since majority of the population of Vietnam is comprised of the youth. The trade and investment regimes in Vietnam have also been liberalized (Heritage.org, 2016). Vietnam produces a wide range of processed food, among them meat and meat products, vegetables and fruit, and milk and milk products, among others (Vietbiz, 2008). In fact, Vietnam ranks top ten on the global processed foodstuff list, and has managed to reach markets in the United States, the European Union and Japan, which are the top three largest markets in the world. In opening up shop in Vietnam, TNA would tap into Vietnam’s great reputation, and as such, have a higher chance of breaking out on the global scene. Since Vietnam already has a flourishing food processing industry, TNA would find a large and ready market for its products in the country. Production in Vietnam is kept local in all ways possible, from the acquisition of raw materials by growing seeds, to the processing and packaging of the foodstuff, in an attempt to attain the most competitive price (Vietbiz, 2008). TNA, therefore, on setting up in Vietnam, would have higher chances of supplying to Vietnamese food factories, than waiting for Vietnam to import machinery and equipment from Australia. By providing the country with the products from within, TNA would help further Vietnam’s agenda of total local production, thus allowing the company to land a bigger and more loyal market base in the country. Much like Malaysia, Vietnam also sends people from its food related industries to attend training courses locally and internationally. This created a large pool of highly qualified individuals in Vietnam, who would provide ready labor for a budding TNA factory. The country also has scientific laboratories set aside for food related research. This gives TNA room for growth within Vietnam, as the company, with employed Vietnamese citizens, would be in a position to make use of these facilities to further their research. Vietnamese citizens are also more inclined to purchase locally processed foods than imported products. Therefore, this creates a great market for Vietnamese food production and packaging factories. The increased demand increases the pressure on the local companies for increased production, which means there is an even greater need for improved quality and increased quantity of machinery and equipment for production; and this is where TNA would benefit from Vietnam’s vast market potential. With the country’s large population of more than 86 million and an ever increasing population because of improved living standards (International Markets Bureau (IMB), 2011), TNA would find a reliable and ever growing market in Vietnam. Vietnam has a great young population. About 60% of the population of Vietnam is comprised of people 30 years of age and younger. This is an advantage for TNA for a number of reasons. First, a younger population means an inexhaustible workforce. Second, more young people are becoming concerned with the quality of the food they consume. Young people are also more involved and interested in technological advancements. This, merged with the great food potential in Vietnam, gives TNA a great place to grow in technological potential and research. Furthermore, young people prefer to shop in supermarkets and department stores, rather than the traditional markets, which creates endless market for processed foodstuff. A young population in the food production industry gives TNA a greater chance of being allowed into the Vietnamese market. Younger people are more inclined to try new equipment than the older generations. Therefore, with majority of the food factories in Vietnam being run by young people, it will take much less convincing to try TNA’s products than it would with the older generations. The Confucian culture in Vietnam also places great emphasis on education, which means a majority of the population of Vietnam is educated (Zurhelle, et al., 2015). Vietnam is also part of many Free Trade Agreements as a means of boosting business, trade and international diplomatic relationships. The Vietnamese economy has also been on a steady rise since the financial crisis in Asia. The stable government in Vietnam is also an additional advantage for any business trying to set up shop in Vietnam (Zurhelle, et al., 2015). Disadvantages Vietnam only has an economic freedom score of 54.0, having improved by only 2.3 points. The status is “mostly free”, and the country ranks 131st in the world in economic freedom. The country has been transforming into a friendlier economy, but the reforms are rather slow (Heritage.org, 2016). Vietnam’s judiciary is greatly marred by corruption and graft. Nepotism and factionalism affect the delivery of the most basic and fundamental services to the citizens of Vietnam, among other problems such as bureaucratic rivalries (Heritage.org, 2016). Vietnam is a one-party state, and the Communist Party lacks accountability and is corrupt, causing many agencies to be run down by the government. The government spends about 28.8 percent of the country’s GDP without accountability, causing large deficits in the budget every year (Heritage.org, 2016). Unfortunately, starting a business in Vietnam can be very hectic. There are ten steps to starting a business. These steps could be easier for local business starters, but would be rather cumbersome for overseas companies. For instance, most local companies would not have to announce the formation of the company in a local newspaper, but this step has to be completed by international companies setting up (TMF Group, 2016). Once the business has been set up in Vietnam, there are several other challenges to be overcome. First, construction would present a challenge because one has to get a construction permit from three different institutions, each with its own set of requirements. It is also very difficult to get electricity connected to business in Vietnam. These are but a few of the challenges faced when starting a business in Vietnam. Others include property registration, which takes about 57 days to finish, getting credit, among others (Trankiem, et al., 2000). In short, there are a lot of hoops to be jumped over before setting up shop in Vietnam. Comparison of Malaysia and Vietnam Economies (Country-facts.findthedata.com, 2016) Malaysia Vietnam GDP $296 billion High GDP of $194 billion GDP ranking in the world 36th 48th GDP growth rate 4.95% 6.68% GDP per capita About $10,000 About $2,000 GDP Deflator -0.39% -0.19% Unemployment rate 2.0% 2.3% CPI Based Inflation Rate 3.14% 4.09% Inflation Rate Malaysia has an almost constant inflation rate of below 5% over the years, currently standing at about 3%. Vietnam has a highly unstable inflation rate over the years, having reached about 23% in previous years, but currently at about 4%. Currency and Exchange Rate (USD) Malaysian Ringgit- 0. Dong – 20,000 Population 30.3M 91.7M GINI Index (income distribution) 46.26 – A higher score indicates higher inequality in the income distribution 38.7- A lower score indicates higher equality in the income distribution Population Below Poverty Line 0.6% 13.5% Food deficit per person, per day 23 kilocalories 99 kilocalories Internet Usage 67.5% 48.31% 2016 Economic Freedom Score 71.5 54.0 Global Ranking 29th 131st Overall Score Change Since 2012 +5.1% +2.7% Recommendations From the advantages and disadvantages of the market potential in Malaysia and Vietnam, it would be more profitable for TNA to explore Malaysia than Vietnam. Malaysia’s ever- improving economic freedom makes it a prime area to be tapped into by businesses of any kind, more so by TNA. Moreover, the country’s labor freedom keeps improving. In spite of the problems still associated with the economic potential in Malaysia, the great strides that it has made over the years are a good sign that the government is doing something to make business conducive in the country. Market Entry Strategies The company would be better off starting with indirect exporting (Czinkota, 2009). TNA could set up export houses in Malaysia, and then export some of their products to the houses from Australia. These few products will be sold and marketed as they get the market feel in Malaysia. This will give the company enough time to decide whether the market in Malaysia is a good fit. It also gives the Malaysian companies some time to test TNA to establish their reliability as a supplier. Upon establishing a good rapport with the companies in Malaysia, TNA could then open a factory in the country. The company could also employ acquisition (Czinkota, 2009). This involves TNA having a list of the customers it has already secured in Malaysia. This way, the company knows that their presence is already known in Malaysia. The only challenge here would be to market widely so as to cement their position in the Malaysian market. Perhaps the most appropriate strategy for TNA to enter the Malaysian market is the Greenfield development method. The Greenfield method involves starting afresh (Czinkota, 2009). The standing reputation would come in handy for the company. However, considering they are entering a completely new market with rules and expectations completely different from the markets they are used to; TNA would have to reinvent itself in Malaysia as a company that respects the laws of Islam and all its tennets. Marketing Strategies to Employ TNA can employ a number of methods to aid in marketing the company in Malaysia. For instance, the internet would come in handy in several ways. First, TNA could upload a data file to Google Base, which is a free way to ensure the company is recommended to all people searching for their products and services. TNA could also do search engine optimization, a method to ensure that the company pops up top of the search results in all internet searches related to their products. TNA could also make use of other social media platforms such as Facebook and LinkedIn (Kelley, 2014). In this highly technological age, a lot of business is conducted over social media. Having a page on Facebook not only ensures greater outreach, but also paints the company as modernized, and as such, more appealing to the young population of Malaysia. LinkedIn is a very professional social media site, and is a great place for business recommendations. The company could also use YouTube for marketing. YouTube videos can be very informative, and the company needs to make sure that their videos provide as much information as possible. The company could also liaise with YouTube so that their videos are played as advertisements at the beginning of select videos when related material is searched on the site. Upon setting up the internet advertisements, the company must have a very detailed website that outlines its roles and information, and list the company contacts for easy communication. It is also very important for the company to ensure that their website has a translate option. First, it would be necessary for the website to be in English, since it is the most common language and is studied all over the world, but they must not stop there. There should be a widget that translates the whole website to any number of languages of choice. This way, people from all over the world can get help and information from the website. Upon venturing into Malaysia, the company must also research the relevant Malaysian culture and business trends, then strive to participate in events and activities related to the company’s business. For instance, the company should know if and when Malaysia holds food and technology expos and Trade Fairs, and then be sure to register for and attend such events. This way, the company is sure to reach the relevant target market fast and in a memorable way. If possible, they can give demonstrations at such trade fairs, so the public is exposed to their products much faster. This would certainly be much easier and faster than going around factories insisting on demonstrating the use of the products. Further advertising could be done on online trading platforms. Forums like eBay can be used to advertise businesses, not just for online shopping. The company would therefore do well to carry out in-depth research on shopping trends in Malaysia, and establish how to place their products and services on whatever forums are popular in the country. Another way could be to make use of the existing customers to market further. People prefer to use products that have been tried, tested and approved, preferably by people and institutions they trust. The manufacturing industry can be close knit, and as such, recommendations are a reliable method of marketing. TNA would, therefore, have to ensure that their existing customers are pleased with their products and services through surveys to measure their satisfaction. Since Malaysia is a large trader with many other countries in the world, it would do well for the company to dominate, say, the European Union market. This way, should Malaysian companies seek recommendations from other companies in the world, TNA would come highly recommended, and creating a reputation that speaks for itself. Other Risks Before setting up in Malaysia, there are a number of other risks that TNA should take into consideration. For instance, Malaysia still ranks highly on the list of countries with corruption. The legal system can be unreliable, and there are many procedures that are flawed with corrupt acts. This has, in the past, prevented many foreign investors from starting businesses in Malaysia, and may still present a problem. Due to corruption in the country, many institutions that need to be developed are not being developed. This leaves the country with many qualified professionals, but they are overqualified to work in their own country. Therefore, a majority of the qualified professionals in Vietnam are moving to other countries to practice, which leaves a small pool of qualified elite to develop Vietnam. Being a developing nation, Malaysia still does not have infrastructure that is good enough. Therefore, working with the below-par infrastructure in Malaysia could present a problem to TNA. It could be difficult to settle down and get used to the environment. The lower levels of infrastructure could also frustrate the production of the company for a while. . Conclusion It would be easier to set up a new TNA factory in Malaysia. Despite the issues that may be present in the country, the economy is generally friendlier to international companies. The biggest challenge in Vietnam would be the low economic freedom. The biggest challenge in Malaysia would be the corruption, which could spill over to most other processes in the country. TNA may find it challenging to acclimatize to the Malaysian religious rules and culture. However, this is but a social problem, a situation that is easier for the company to work on. 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