This report conducts researches and analyzes the opportunities and risks of developing chocolate business in Vietnam in the respect of economic, political, legal, social, cultural, geographical and climatic environment. Moreover, the report evaluates the conditions by rating them as low, medium and high level. After analyzing the detailed factors in Vietnam, the opportunities outweigh risks to a large extent, especially the open trade policy including supporting foreign investment, which leads to further recommendations that Vietnam should be reflected as the potential market to expand chocolate business for Swiss manufacturer and it is feasible to set up factory.
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Vietnam has experienced market-oriented economic reforms since 1986, which gave rise to speedy economic development. Over the period of 1991 to 2005, GDP growth rate in Vietnam achieved around 7.9% (Consumer Lifestyles in Vietnam, Euromonitor International, 2008). In the mean time, Vietnamese economy has become one of Asian largest economies with nominal GDP of $ 436 billion and $92.439 billion in 2009.
“According to the Vietnam Living Standard Survey (VLSS) conducted by the GSO every two years, the average income per person in Vietnam in 2006 was VND636,000 per month or VND7.63 million per year, an increase of 31.3% from 2004” (Consumer Lifestyles in Vietnam, Euromonitor International, 2008), which was on account of the country’s excellent economic performance. On this condition, the Vietnamese are able to buy more consumer goods even high-priced products like fair trade chocolate because increasing disposable incomes mean advancing purchasing capability to a certain degree.
Over the past ten years, there were a serious of new trade policies issued to intensify trade liberalization atmosphere and the key aspects are as follows: Firstly, restrictions on quantitative import products have been dismantled to a large extent (on all products except sugar and petroleum products); secondly, due to meaningful cutback in tariffs, the level of regional protectionism has been reduced; thirdly, the obstructions on foreign direct investment (FDI) has been released; finally, government inspired private-sector to take part in foreign trade and set up business ventures (Athukorala, P-C, 2006).
Moreover, on November 7, 2006, Vietnam joined the WTO being the 150th Member of the WTO with primary trading partners such as China, Japan, Australia, ASEAN (the Association of South East Asian Nations) countries, the U.S. and Western European countries. There are improvements in two main areas: “In service, Vietnam is committed to removing the limits on foreign ownership in most sectors but this can be phased out in different stages; in trading rights, the WTO commitments declare that all domestic and foreign firms have full rights to import and export under the same registration procedures. Trading rights also include the right to distribute imported products in Vietnam’s territory and the right to choose local distributors” (Tien Quang Tran, T. Q., 2008).
Consequently, there are less obstructions for Swiss chocolate manufacturer to build manufactory and extend services in Vietnam. More significantly, Swiss producer is able to cooperate with local private-sectors like material suppliers, which endows it with more bargain power due to the favourable trade policies.
2.1.3 Encouragement of foreign investment (high level)
Since the early stage of renovation reforms, the Vietnamese government has realized the significant role of FDI for economic transition and development. In recent years, the government is collecting helpful information to bring down the barriers weakened the attraction of FDI and make further step to improve Vietnam’s investment climate by leading regular semi-annual meetings,.
On 1 July 2006, a new law called “Investment Law” issued by the National Assembly came into effect. The law was put forward with the view of “treating the investment activities of both foreign and domestic investors uniformly” and inducing “a new wave of foreign investment” (Tran, T. Q., 2008). Furthermore, the Investment Law is essential to establish more open investment climate and integrate into the international market to meeting WTO principles such as the most-favoured nation, and publicity and transparency principles.
Over the past three years, foreign investment in Vietnam grew approximate threefold than the past (Tran, T. Q., 2008). For example, Microsoft and Intel invested 10 million in Vietnam respectively, the Swiss Banks developed shipping industry by financing one billion U.S. dollars, and Taiwan’s Hon Hai Group contributed 5 billion U.S. dollars in Vietnam to create “Hong Haidi country”. According to statistics from Vietnam’s foreign investment administration department, the scale of FDI has reached 160 billion in 2007, with growth rate of 57% compared with 102 billion dollars in 2006. Under these circumstances, there could be more space and opportunities for Swiss fair trade chocolate manufacturer to open up new market in Vietnam on account of less legal restrictions and more encouragement from local government. In addition, when Swiss manufacturer comes up against difficulties, it is necessary for local government to spare no effort to stretch support hand.
2.1.4 Expanding distribution channels (medium level)
Since Vietnam entered into the WTO, supermarkets/hypermarkets turn to be principal distribution channels with wide variety of products and a pleasant shopping experience instead of small grocery retailers. For instance, a company called “Saigon – Nguyen Kim” (Sai Gon-Nguyen Kim) opened one shopping center “CMC Square” in Ho Chi Minh City. CMC Square covers an area of 4,000 square meters, which is able to receive tens of thousands of customers per day. It will be the flagship store among the existing 9 branches which located in the capital Hanoi, Can Tho, Da Nang and Binh Duong Province and other cities. At the moment, the investigation shows that “the sales of chocolate confectionery were increasingly sold via supermarkets/hypermarkets” (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.2). More importantly, chocolate is one kind of food which has high requirement for temperature, therefore, the advanced storage condition such as operating air-conditions will contribute to prolong its storage period and ensure its delicious taste.
2.1.5 Labour cost (medium level)
The labour cost in Vietnam is in low level compared with other Asian countries like China. On the one hand, this is an advantage for Swiss chocolate producer to set up manufactory, which is an important factor in saving cost and enables Swiss manufacturer to invest more in promote technical equipments and personnel training.
2.2 Liberalisation in Political Environment (medium level)
Until December 2007, Vietnam had established diplomatic relations with 172 countries. In recent years, “the government of Vietnam has taken initiatives to ‘locking in’ domestic (unilateral) liberalisation reforms by committing itself to play an active role in regional, bilateral and multilateral trade liberalisation initiatives” (Athukorala, P-C, 2006). This kind of political environment with freedom and open-mind creates democratic business atmosphere for Swiss chocolate producer. Besides, as shown in a enterprise survey conducted by World Bank, it seems that Vietnam has a better ranking compared to all other Asian countries like China and Thailand (Tran, T. Q., 2008, p. 1193). In a word, the stable political situation and high level of security help to bring about low risk for Swiss manufacturer.
2.3 Social and Cultural Aspect
2.3.1 Open attitude to foreign cultures and brands (high level)
Beginning from the 1990s, Vietnam has been exposed to foreign cultures like Southeast Asian, European and American culture. Under this influence, local customers are prefer to purchase foreign brands and they consider that international goods own higher quality than local brands with their established names (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.2). In recent years, many famous foreign brands have entered the market, including Giordano, Levi, Valentino, Chanel, Louis Vuitton, Calvin Klein, L’Oreal and Shiseido. “Clothes, handbags, perfumes and cosmetics have enjoyed an annual growth rate of 30% in the Vietnamese market”. At the same time, “the number and value of imported cars and motorbikes in Vietnam has increased significantly as a result of a decrease in the import tariff on cars from 90% to 60%. Vietnam imported 28,000 cars in 2007, of which 5,000 cars were imported in December at a value of USD73 million” (Consumer Lifestyles in Vietnam, Euromonitor International, 2008, p.2). In view of the current tendency, Swiss fair trade chocolate is able to seize market share due to its high reputation with long history and fantastic taste.
2.3.2 Promotion by public media (medium level)
Public media especially TV play important role in transmitting foreign culture and increasing awareness of international brands. “Almost 95% of Vietnamese households now have electricity connections compared to only 50% in the early 1990s. Vietnamese people like to watch television in their spare time. In rural areas, people usually visit each other after work to have dinner, talk and enjoy television programs” (Consumer Lifestyles in Vietnam, Euromonitor International, 2008, p.17). Vietnamese can acquire sufficient information regarding the advantages of chocolate. As the promotion by public media, Vietnamese “consumers normally purchased chocolate as a gift for a special occasion such as Tet Holidays, birthdays and especially Valentine’s Day” (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.2). Moreover, it is more popular that they even consume chocolate as daily consumption goods.
2.3.3 Customers’ preference of luxury goods (medium level)
Some of Vietnamese consumers often shop expensive products even unnecessary to their daily life to define their role and social class in the community to distinguish from other people (Consumer Lifestyles in Vietnam, Euromonitor International, 2008, p. 2-2). Especially, “the newly emerging affluent classes in Vietnam want to establish themselves as connoisseurs of fashion and use the ownership of foreign brands to show off their wealth and status” (Consumer Lifestyles in Vietnam, Euromonitor International, 2008, p. 2-1). This phenomenon is beneficial to Swiss chocolate to become popular consumer items.
2.3.4 Majority of teens (medium-high level)
As shown in Table 2, people aged 10-24 years are in the majority for many years with approximate 30-31% of the total population due to the uncontrolled birth rate of the 1970s and 1980s (Consumer Lifestyles in Vietnam, Euromonitor International, 2008, p. 3-1). In 2007, there were 12.7 million teens in Vietnam.
Table 2 Population by Age and Gender (% analysis and % growth): 1995/2007/2015/1995-2007/2007-2015
Source: National statistics, UN, Euromonitor International
This teens group are more sensitive to external factors such as fashion trends from other countries which will exert great effect on their choice of clothes, hairstyle and snacks. One the one hand, some of them are still students whose parents give pocket money to, hence, they can make some of their own decisions on what to buy or what to eat. On the other hand, some of them may have started to work to earn their own income and already have adequate purchasing power to decide what to buy. Therefore, this target customer group will be the limitless resources for Swiss chocolate producer to explore.
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2.4 Proximity to China and Thailand (medium level)
It is bordered by China to the north and close to Thailand as well. The geographical position could attract large numbers of tourists especially those are from China and Thailand. On the situation, there are huge potential customers who may purchase Swiss fair trade chocolate when they are appealed to the exquisite design combined with local specialty.
3 RISKS IN VIETNAM
3.1 Incomplete Tariff Structure Reform (medium level)
Over the past years, although Vietnamese government has made significant development in market economy such as rationalizing the tariff structure, the tariffs are still at high level and non-uniform (Athukorala, P-C, 2006), which means that if Swiss manufacturer produces chocolates offshore and transports them to Vietnam, it may take higher cost than producing in Vietnam.
3.2 Legal Aspect
3.2.1 Insufficient protection of intellectual property rights (medium-high level)
Vietnam has devoted to protect intellectual property rights (IPR) in these years including integrating itself with APEC cooperation activities in the intellectual property area implemented through the APEC Intellectual Property Rights Experts Group (IPEG) (Nha Trang, 2007, p.5). Nevertheless, as shown in Table 3, there is still inadequate emphasis on the protection of IPR and the number of companies which have registered industrial property only account for 25% over all of operating companies. In addition, the activities of IP infringement are turning more frequent and increasingly complex. Under this kind of circumstance, there are almost no Vietnamese companies to set up IP departments or appoint commissioners to take charge of managing companies’ IP assets. As a result, when Swiss producer enters into Vietnam market, it is inevitable to be in the face of the risk of tort and possible that there is no enough legal support.
Table 3 Software Piracy Rates by Countries
Source from: Business Software Alliance (BSA) and IDC Global Software Piracy Study, 2005
3.2.2 Less corruption than other Asian countries (medium level)
In Vietnam there are about 50% of companies are likely to bribe such as giving gifts to tax inspectors. However, corruption is less and the amount and value of bribe is lower than other Asian countries including China and Thailand. “In particular, senior managers in Vietnam have to spend about six percent of their weekly time in dealing with the requirements of government regulations” (Tran, T. Q., 2008). What’s more, there is high confidence for enterprises paying lower costs for security and crime owning to the advanced legal system in Vietnam. Consequently, this corruption may not impose too much negative influence on the businesses and investments of Swiss chocolate manufacturer.
3.3 Social and Cultural Aspect
3.3.1 Customer with price-conscious (medium level)
Some of Vietnamese consumers were very price-conscious and they may cut back expenditure when they are against recession period. More important, fair trade chocolate is more expensive than normal one, which may be labeled as an unessential luxury goods. Accordingly, they may ignore the high-price goods to save their money (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.1).
3.3.2 Intensive competition (high level)
Currently, there are two dominant chocolate companies in Vietnam – Nestlé Vietnam Ltd and Mars Vietnam Inc, which has set up stable prestige with well-known chocolate brands such as M&M’s, Mars, Goplana and KitKat. In 2008, Nestlé Vietnam Ltd took up 10% share of value sales in chocolate confectionery, and Mars Vietnam Inc took second position with only 0.1% behind Nestlé. “They enjoyed the advantages of first mover, and are more experienced than local manufacturers in this category” (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.2). Moreover, Belcholat JSC experienced the largest increase in actual value sales at VND8.1 billion in 2008. On the fact of this, it is difficult for Swiss manufacturer to occupy adequate large market share compared with its competitors, especially Nestlé is from Switzerland as well.
There are various local sweet and savoury snacks and sugar confectionery such as chips/crisps, snack bars and fruit snacks in Vietnam, which means that Swiss producer faces high threat of substitutes. Local manufacturers have more experience in making appetizing snacks with diversified taste, sizes and prices satisfying different customers (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.2). On this condition, it is possible for fair trade chocolate to lose large market share to these snacks in the niche segment due to its high price and the demands for alternatives options will increase more than chocolate (Chocolate Confectionery – Vietnam, Euromonitor International, 2009, p.3).
3.4 Unstable Weather (medium level)
Vietnam’s climate is Subtropical monsoon with large rainfall and high humidity, and the weather is unsteady especially in the mountains and plateaus which may be 5 °C in December and January and 37 °C in July and August, and the average annual temperature is higher in the plains and in the south. In particular, in recent period, the temperature in winter is higher than before. The changing weather exerts negative impact on producing and storing up chocolate for manufacturers.
4 RECOMMENDATIONS AND CONCLUSION
After the first step of analysis of Vietnam, firstly, at the aspect of economic environment, on the one hand, it is visible that the open economic environment with increasing disposable incomes and expanding distribution channels will give positive influence on building chocolate market for Swiss enterprise. In particular, the increasing relaxed and open-minded trade policies including encouraging foreign investment illustrate that there is less unfair treatment for foreign companies and when they face such one they could ask help for government and law with more opportunities to solve problems. On the other hand, the tariff structure reform is still on the way and there are a lot of disadvantages and irrationality. By measuring the pros and cons, it is considered that the opportunities in economic aspect have great weigh than risks.
Secondly, in terms of social and cultural surroundings, Vietnam culture is affected by foreign culture largely in recent years, especially the teenagers accounting for the majority of Vietnam population are willing to accept international fashion and brands, with the aid of public media’s propaganda. Although there are some Vietnam are still traditional price-conscious, more and more people could afford and be glad to purchase luxury goods to orientate their social position. However, the fierce competition in Vietnam chocolate business is a huge risk for Swiss manufacturer who is later mover because it should take long period to set up its social prestige and be difficult to compete with these first movers. As a result, it is necessary to weigh the opportunities and risks further.
Thirdly, the dramatic weather exert negative impact on setting up manufactory because chocolate is one kind of the temperature-sensitive snakes. It will take more costs to produce chocolate and keep them in storage. Nevertheless, combined with other factors such as tariff and labour cost, it may be cost-saving in Vietnam than in other Asian countries. Hence, after doing research on Vietnam climate and geography, it is advocated that Swiss chocolate company could establish factory in north of Vietnam and in plain and it should take more effort to consider the exact position of manufactory in the next step.
In a word, by weighing the opportunities and risks mentioned above, Vietnam is still a potential market for Swiss chocolate enterprise to expand service and set up plant. Certainly, it should make further effort to explore the feasibility by conducting more marketing investigation.
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