Vietnams Cultural and Ethical Analysis and Macro Environment - Cellarbrations - Case Study Example

Macro-Environment Analysis Name: University: Date: Table of Contents Macro-Environment Analysis 1 Executive summary 2 1.0 Introduction 3 1.1 Company background 4 1.2 Consideration for Overseas Expansion 5 2.0 Introduction to Vietnam 5 3.0 Economic Analysis 6 3.1 Economic Data 6 3.2 Trade Agreements and Barriers 7 3.3 Economic rankings 8 4.0 Political and Legal Analysis 8 4.1 Role of government in the Economy, Political Stability and Risk 8 4.2 Legal system 9 4.3 Property Tax 9 5.0 Culture Analysis 10 6.0 Ethics Analysis 11 7.0 Contemporary Issues 11 8.0 Conclusion 12 9.0 References 13 Macro-Environment Analysis Executive summary This Macro-analysis report examined the expansion of Cellarbration from Metcash into the Vietnam market. Recently, the food and beverage industry in Vietnam has rapidly advanced both in term of quantity and quality through investment in contemporary production line, machines for food processing, and modern techniques for drying, packaging and storing. As evidenced in the report, franchising is widely utilized by foreign brands to penetrate the Vietnamese market for the reason that it is viewed as the least risky and fastest alternative that avoids particular regulatory restrictions that are imposed on foreign brands. The economic sector structures in Vietnam are more and more focused toward the creation of a multi-sector commodity financial system functioning through a market mechanism that is managed by the state wherein private enterprises develop freely in scale as well as operational area in activities lawfully permitted. In was established in the report that the economic fundamentals are still weak, and were further worsened by the global financial crisis. The Vietnam economy is experiencing deficits, high inflation, stagnation in manufacturing processes, declining exports, weak consumption at domestic level as well as rising unemployment. The economy of Vietnam has widely gained from the open-door policy introduced by its government. Besides that, thanks to its economic potential and its stable political environment, Vietnam has turned out to be an attractive market for foreign companies. Even though the ruling Communist Party is pursuing economic reform, they are reluctant to surrender their political power monopoly. With regard to the macro-analysis, it was established that Vietnam is an excellent market for Cellarbration but its political suppressions, corruption, and trade barriers can lead to some challenges if not monitored. 1.0 Introduction The report will carry out an analysis of the macro environment, specifically bases on the economic, political, legal, cultural and ethical environment that Cellarbration from Metcash would need to be aware when expanding to Vietnam. In view of this, the report will offer a brief introduction to Vietnam with regard to its population and demographic profile. Then its economic situation will be analysed to establish whether the country is experiencing economic growth, to find out its GDP per capita, the overall size of the population, the state of the infrastructure, trade barriers facing the country, and trade agreements made by Vietnam and other countries. Subsequent to that the report will provide an analysis of Vietnam’s Political-legal environment to ascertain the type of government and its significance government role in the economy ; impact and level of corruption; political stability and risk; ownership, operating and transfer risk; and Vietnam legal framework. The report will also provide Vietnam’s cultural and ethical analysis, and then provide a brief conclusion. 1.1 Company background Cellarbrations is one of the four national independent retail brands of Independent Brands Australia (IBA), and it offers its customers a sincere alternative to other chains, with a brand identity that is exceedingly appealing. Cellarbrations has recently grown to be amongst the leading independent retail liquor brands within Australia, and has more than 500 local outlets in all Australia’s territories and states (Cellarbrations, 2014). Cellarbrations is recognized to be amongst the best Australian independent liquor brands and this can be evidenced by its fantastic Australia coverage, with outlets in almost all territories. In view of this, Cellarbrations has won four of the Australian Liquor Industry Awards in 2004, 2006, 2009 and 2013, and became the first independent group to win the retail banner group award four times (Cellarbrations, 2014). Cellarbrations is from Metcash Limited, a leading marketing as well as wholesale distribution company in Australia that specializes in liquor, fresh food, grocery, automotive parts, hardware as well as accessories. 1.2 Consideration for Overseas Expansion The company is considering expanding into the Vietnam Market mainly due to the extraordinary economic growth that has resulted in increased disposable income, which consequently, has led to increase in consumption as well as changes in drinking and eating habits amongst the Vietnamese. The rising skills of workforces and increased cost competitiveness have as well made the country very attractive investment destinations. Based on the liquor market, scores of Vietnamese can afford both locally and globally made liquors thanks to the the economic boom. The changing cultural and social factors have as well reinforced the potential of Vietnam’s market for food and beverages. The growing pub culture in Vietnam provides more avenues for Vietnamese to consume liquor (Juskalian, 2010). Additionally, the increased number of women consuming alcohol particularly especially wine has consequently expanded the Vietnam market. Generally, liquor consumers in Vietnam are more and keener to try new alcohol varieties from other countries; thus, creating a suitable market for Cellarbrations to expand into. 2.0 Introduction to Vietnam Vietnam the 66th largest country in the world is 1025 miles long and 372 miles wide bordering the Gulf of Thailand, China, Cambodia, Laos as well as the South China Sea (Department of Foreign Affairs and Trade, 2014). Based on 2014 estimates, Vietnam has 93,421,835 people, which is World’s 15th largest population and 3rd largest in the Association of Southeast Asian Nations. Currently, Vietnam is a developing country with a gross domestic product per capita of $1,900 as of 2013 and after Indonesia, it has the most evenly distributed wealth in ASEAN (Department of Foreign Affairs and Trade, 2014). Based on Purchasing power parity (PPP), Vietnam economy is ranked 42st in the world. 3.0 Economic Analysis 3.1 Economic Data In the last two decades, the economy of Vietnam has achieved extraordinary growth, definitely profiting lots of Vietnamese considering that the improved economy has lifted more than 30 million people out of poverty. Currently, the rate of poverty in Vietnam stands at 7.8% in comparison to 58% in 1993. The Vietnamese dong (VND) is the main currency in Vietnam, and since it cannot be converted easily it relies heavily on gold as well as United Sates dollars (USD). Whereby, USD is utilized widely for business purposes and gold for hedging against inflation as well as for protecting VND from depreciating. The currency is stable considering that the Vietnam’s is ranked the third most stable currency in Asia having depreciated only by 1.5 per cent against the U.S. dollars (Thong, 2013). Having a population of 93.4 million and being ranked as 15th largest populated country in the world; Vietnam has an ideal age structure: young population (under 35 years) making 63 per cent of the population, the literacy amongst the adults is almost 4 per cent, and the rate of population growth is one per cent. Even though Vietnam is a developing country, the rate of development has been remarkable changing from to an industrialized and market-based country from agrarian and centrally planned country. Moreover, the GDP growth of Vietnam was 5.4 per cent in 2013, which is a slight increase in contrast to 5.2% per cent in 2013 (Vaughn, 2014). Still, the country’s GDP is improving, and is currently 6.03 per cent. The Vietnam’s infrastructure is considered weak after years of wars, but is improving steadily. Currently, Vietnam has 14,494 miles of paved highways, while 43,483 miles of highways are not paved. Still, the conditions of the paved roads are in exceedingly poor (Encyclopedia of the Nations, 2007). Some of developed countries such as U.S are offering economic assistance to Vietnam in its quest to upgrade its weak road infrastructure. Besides that, Vietnam boasts two international airports as well as more than thirty local airports. The energy demand in Vietnam increases by 20 per cent annually, and this often outstrips the electricity supplies (Encyclopedia of the Nations, 2007). The telecommunications system of Vietnam has progressively improved, but remains insufficient. 3.2 Trade Agreements and Barriers Free Trade Agreements (FTAs) has been utilized by Vietnamese Government to open up foreign markets to Vietnamese exporters, and the agreements have substantially reduced barriers to Vietnam exports, as well as protect the interests of Vietnamese. Evidently, considerable progress has been made by Vietnam in getting rid of non-tariff barriers (NTBs) as stipulated in the United States- Vietnam BTA (Bilateral Trade Agreement). Vietnam has devoured to improve its economy through global economic integration made possible by participating in Asia-Pacific Economic Cooperation (APEC), the WTO, the ASEAN Free Trade Area, as well as a growing free trade agreements network such as AANZFTA (ASEAN-Australia-New Zealand Free Trade Agreement) (Department of Foreign Affairs and Trade, 2014; PWC, 2015). Some of the barriers include the prohibition of documenting the tax obligations discharge when remitting, purchasing, or conveying foreign currency overseas for purposes of currency transactions. In this regard, foreign investors are expected to utilize use Vietnamese currency in their normal business activities as well as portfolio investments, save for authorized practices, like in tourism-associated businesses such as airlines and hotels (GlobalTrade, 2011). 3.3 Economic rankings The economic freedom score of Vietnam is 51.7; so, the country’s economy is ranked as the 148th freest based on the 2015 Index. This score according to reference is a 1.0 point increase from the previous year score. This has been attributed mainly by major reductions in government spending, decrease in corruption, as well as economic freedom balancing declines in business freedom as well as labor freedom (Heritage Foundation, 2015). Besides that, Vietnam economy is ranked 6th in Southeast Asia, 32nd in the Asia-Pacific region, and 42nd in the world. 4.0 Political and Legal Analysis 4.1 Role of government in the Economy, Political Stability and Risk Vietnam has been a one part state ruled by Communist Party of Vietnam (CPV), wherein the CPV politicians decide the country’s strategic direction in terms of stability, international integration, and domestic economic development. Without a doubt, the government plays a crucial role in guiding the overall economic activity pace in Vietnam by trying to maintain a steady growth, improving employment levels, as well as price stability. Evidently, corruption is still a problem in Vietnam. Foreign investors often experience corruption in practices like bribes, facilitation payments, and offering costly gifts to create business relationship (Martini, 2012). In 2014, Vietnam scored 31 out of 100 in the Corruption Perceptions Index, ranking 119 in the world as well as 18 out of 28 territories and countries in the Asia-Pacific region. The government is putting some effort to reduce corruption and this can be evidenced by the introduction of first Anti-corruption Law in 2005 which was recently amended in 2012 (GOV.UK, 2014). Vietnam is politically stable since internal conflicts are rare and terrorism threat is low’ 4.2 Legal system Vietnam has sound legal frameworks for protecting Intellectual Property Rights (IPR), and is also a member of the World Intellectual Property Organization (Mayer Brown JSM, 2014). Almost 15 per cent of Vietnamese are skilled or trained workers with higher or elementary qualifications. The Vietnam’s 1994 Labor Code that was amended on 2007 generates a legal framework that sets out obligations as well as rights of employees and employers in regard to labor agreements, working hours, social insurance payment, strikes, overtime, as well as employment contracts termination (PWC, 2015). Moreover, unemployment insurance and social insurance contributions are valid only to Vietnam citizens with contributions for health insurance needed for foreign and Vietnamese individuals. The Intellectual Property Law in Vietnam was passed in 2005, and it protects various intellectual property rights, which includes trademarks, copyright, and inventions. 4.3 Property Tax In Vietnam, Land is a state property, so, land users are expected to rent or acquire land use rights from the Vietnamese government. In this regard, foreign investors who need land for their business activities in this country will have to pay the government a rental, which according to reference is a type of property tax (PWC, 2015). The property tax differs in terms of infrastructure, location, as well as the industrial sector wherein the business will operate. 5.0 Culture Analysis Vietnam population is composed of almost 90% Vietnamese, and the remaining 10% include the Hmong, Chinese, Khmer, Thai, Cham, as well as other mountain groups (Kwintessential, 2004). There are various religions in Vietnam they include:  Hoa Hao, Buddhist, Cao Dai, Christian, Muslims, and indigenous beliefs. The official language is Vietnamese, and other languages include Chinese, Cham, Khmer, and indigenous language spoken by the mountainous tribes.  The face custom in Vietnam is the teachings of Confucius, which influence the Vietnamese description of the individual position within the society. Basically, Confucianism emphasizes loyalty, duty, honor, respect for seniority and age, as well as sincerity. Generally, Vietnamese are collectivists, wherein there is strict social interaction guidelines intended for protecting the face of a group. In Vietnam, the hierarchy is much based on status and age (Hofstede, 2011). With regard to masculinity, Vietnam is a low scorer, and so is considered a feminine society due to low score in masculinity. Therefore, the focus in Vietnam is to work so as to live, and Vietnamese managers go for consensus, equality, quality, and solidarity is valued by all. Vietnam’s preference for avoiding uncertainty is low, and so practice in this country counts more as compared to deviance and principles (Hofstede, 2011). The country is a high scorer in long term orientation, so, Vietnam has a pragmatic culture, wherein the truth is associated with the context, situation and time. Vietnam is low scorer in indulgence, so its culture is typified as restrained, and so people are likely to be cynics and pessimists. Vietnam is a high-context culture and so developing interpersonal relationship and trust is considered imperative. 6.0 Ethics Analysis Based on ethics, Vietnam has exhibited its commitment to fight corruption by approving the he United Nations Convention against Corruption (UNCAC), though with particular hesitations. Besides that, Vietnam joined the ADB/OECD Anti- Corruption Initiative for the Pacific and Asia (VILAF, 2014). Besides that, numerous bilateral agreements such as Development Partnership Agreement with UK have been signed by Vietnam for exchanging experience, sharing information, as well as improving the anti-corruption programs effectiveness. In general, the anti-bribery laws in Vietnam have failed to criminalize bribery, especially within the private sector. However, the Penal Code has been revised and the government is considering new bribery criminal liabilities within the private sector. Different, from Vietnam, Australia’s record of domestic, regional, and global action for preventing and exposing corrupt activities is very strong. That is the reason why Australia is ranked amongst the least corrupt countries globally. In Vietnam, corruption is ethically wrong and is covered in the Penal Code, but only for public sector (VILAF, 2014). Besides that, Vietnamese law has failed to specifically cover bribery from foreign officials, and so Vietnamese bribed by a foreign investor cannot be charged, which is ethically wrong. 7.0 Contemporary Issues There are numerous contemporary issues facing Vietnam such as increased population density, poor infrastructure as well as climate change. Although, the growth in population has slowed, the previous high population growth rate leaves most serious problems strains on the labor market as well as education system. Besides that, the level of poverty is high in rural areas, resulting to rural to urban migration and so, increasing the rates of unemployment and crime. Other contemporary issues include technological advancement, religious practices, and the prevailing corruption. 8.0 Conclusion To promote economic development, the government of Vietnam has been trying to develop an environment favorable for investment through continuous revision of its legal system as well as introduction of crucial incentives for foreign investors. Vietnam has a poor record on corruption, but the situation is gradually improving after the introduction of anti-corruption regulations. However, media and religious freedoms are strictly controlled, and the country is yet to accept political pluralism. Political suppression and prevalent corruption has increased the gap between the rich living mostly in urban areas and the poor living in rural areas. This has mainly been attributed to leaders of the Communist Party who worry much about their power base, rather than economic liberalization. 9.0 References Read More