MGT507 Assignment2 (4,000 words)

Executive summary
KPB International Marketing is Thailand export and import company, established in
March of 2013. The first-focused product is the VITO oil filtration system that import from
Germany. At this time, VITO is the market leader in Thailand. The company have a plan to set
up wholly-owned subsidiary in Vietnam within next year.
The external environment analysis show that economic factor supports this investment,
while other factors in particular political factors challenge this investment. The protection
policy against import does not allow foreign investors to do the import business, if not having a
factory in Vietnam. Therefore, KPB International Marketing need to change its investment form
to invest in the form of contractual agreements with Vietnamese for distributing VITO product
instead of setting up subsidiary.
To control sales teams performance and after-sales service, KPB International
Marketing will send their employees from Thailand such as sales team representatives,
technical team representatives, and influential manager to work with Vietnamese business
partners employees. However, the difference of external business environment between
Thailand and Vietnam push KPB International Marketing for reform and driving the need for
change in order to be successful in cooperation with Vietnamese partner.
In change management plan, the change goal is to make make cooperation with
Vietnamese partner run smoothly and be successful. The success of cooperation with
Vietnamese partner can measure by these metrics 1) Zero unresolved conflict inside the
organization 2) Internal communication flows effectively 3) Sales meet companys target
In order to achieve the change goal, KPB International Marketing should implement
these strategies 1) Team building program 2) Conflict management program 3) Special
orienting and trainings on international cooperation assignment
Last, in change management process, I use John Kotters 8-step change model for
explaining this change.

Section 1: Introduction - brief description of the current situation

Company Introduction
KPB International Marketing established in March 2013 as a trading company, export
and import product. The company began with importing cooking-oil filtration from Germany
and granted the only exclusive dealer to sell VITO, leading innovative oil filtering system, from
SYS Systemfiltration, licensed innovator from Germany, in 5 countries in Southeast Asia;
Thailand, Laos, Myanmar, Cambodia and Vietnam (Sangsuwan, n.d.).
As of the middle of 2013, the company has started selling cooking-oil filtration system in
Thailand and also has been the first high quality oil filtration in Thailand. Most of companys
revenue was derived from luxury restaurants, hotels and airline companies (Sangsuwan, n.d.).
Current situation
Today, VITO products are offered in all provinces of Thailand. VITO possess 70 percent
of the cooking-oil filtering system market in Thailand. Since VITO become the market leader,
most of companys revenue change from selling oil filtering system to selling spare parts.
Hence, companys revenue has reduced significantly.
Future plan: Expansion plan
In order to increase its revenue, KPB International Marketing plan to expand VITO
products into CLMV market next year. The first countries that company will break into is
Vietnam. The entry mode is setting up wholly-owned subsidiary because company intend to
retain complete control and full ownership.

Section 2: Objective - what you hoped to achieve with the report

Objective of this report
- To explore the feasibility of setting up the subsidiary in Vietnam
- To evaluate change management efforts required to make the new operation successful

Section 3: External environment plan - analyze and justify the feasibility of your selected
country
External environment analysis is a systematic process by which all external environment factors
that can effect the business are identified. In change management, the analysis entails
assessing the level of threat or opportunity the factors might present. These evaluations are
later translated into the decision-making process. The analysis helps align change strategies
with the firms environment (Makos, 2015). The most accepted detailed analysis of the external
environment and justify the feasibility is the PESTLE analysis.
PESTLE analysis
PESTLE analysis a tool used to analyze and screen the external environment factors of your
business. The common factors are political, economic, socio-cultural, technological, legal and
environment. An analysis of the company is shown as following.
Political factors
The Socialist Republic of Vietnam is a single-party state. After lunching economic
renovation (Doi Moi) policy, which laid the foundation for a market-based system to replace
the planned economy model, in 1986, Vietnam began to open its door to the Foreign Direct
Investment. Since then, Vietnam policy concentrates on developing its policies to attract
foreign direct investment (KPMG, 2015).
However, Vietnam yet control the foreign investment in some business sectors. To
protect domestic producers, Vietnam practice the protection policy against imports. Under
anti-import protection policy, foreign investors are not permitted to operate import business
import product from aboard and sale in Vietnam neither in forms of 100 % foreign owned
enterprises nor Joint Venture companies, if not having a factory in Vietnam (Lorenz &
Partners, 2010). Although setting the representatives office is allowed, but it is forbid to
generate any revenues or profit (Establishing Representative Offices in Vietnam, 2010).
Therefore, KPB International Marketing should change investments form from setting
up wholly-owned subsidiary to Business Cooperation Contract, signing contractual
agreements with Vietnamese partners. The cooperation is on distributing VITO products.

*Business Cooperation Contract (hereinafter referred to as BCC) is a form of cooperation

contract signed between investors, including at least one domestic partner. A BCC stipulates
rights, profit sharing and joint responsibility for risks to each business cooperation party during
the investment process without establishing a legal entity. Agreement between investors under
the BCC is one of the direct investment forms (Hai, 2015). However, the disadvantage of this
investment form is that the investors have unlimited liability for BCC's debts and lack of
freedom in management.

 Economic factors
Despite Vietnam is low-income country GDP Per Capita at $2052 while Thailand GDP
Per Capita at $5519, but Vietnam economic growth rate is a business magnet for foreign
investors (Country-facts.findthedata.com, 2015). The Vietnamese economy is expected to
outperform among other countries in ASEAN region this year and in the next five years. The
Vietnam Prime Minister stated earlier of December 2015 that GDP growth for 2015 is expected
to be 6.5% the highest since 2007. He also revealed that the economy is expected to grow like
this until 2020.
Moreover, the number of Vietnam Foodservice outlets, VITOs target customer, is 4
times higher than Thailand Foodservice outlets and its number is also expected to grow double
digit in the next three years (Euromonitor International 2014). Not only increase of Vietnamese
purchasing power and Vietnamese prospect customers that support this investment, but cheap
labor and huge labor force also support this investment. Vietnam has a large base of labor
force, with roughly 1 million new youths entering the labor market every year. The Vietnamese
labors are highly valued for their easiness to adopt and apply new technology, resilience and
diligence (Vietnamonline.com, 2014). However, many business firms in Vietnam, both
domestic and international workforce, find that Vietnamese workforce is more advantageous in
terms of number and cost, but the quality of labor is not as good and high skilled as other
countries in the world. Vietnamese middle-level managers especially who are educated and
able to communicate in English well are shortage and paid very high. Land and office rental free
is also very high as a result of foreign investors are not allow to buy land in Vietnam, foreign
investors could only lease land use rights for a lump-sum payment or an annual rent. The
duration of the lease could not exceed 50 years or 70 years in some special circumstances
(Lewis, 2015). Hence, KPB International Marketing have to prepare enough money for
investment in new employees and office rent.
Socio-cultural factors
Many foreign investors face the conflicts with Vietnamese business partner duo to
different way of management. Most of Vietnamese company is family-owned company with
highly-concentrated ownership, poor transparency and absence of accountability and fairness
principles that led to abuse of minority shareholder rights (Deloitte, 2010). To avoid this
problem, all related detail in Business Cooperation Contract should be draw carefully and
concisely.
In additional, although Vietnamese is the official language, there are different accents
and tone in each area. There are six different tones that can be used, which change the
definition and it often make it difficult for foreigners to pick up the language
(Kwintessential.co.uk, 2015). KPB International Marketing should have interpreter or
Vietnamese language expertise within its company to defend the incorrect use of Vietnamese
language.

 Technological factors
Transport and communication infrastructures in Vietnam is underdeveloped and
insufficient, especially electricity. Spotty electricity power supply forces occasional brown-outs
on local manufacturers, who often have to halt production while local government officials
divert whatever power there is to residential areas (Eiu.com, 2013). Electricity power
problems may cause damage to VITO oil filtration system that consist of high-speed motors.
Moreover, piracy and Intellectual property infringement in technology product are still
widespread in Vietnam and law enforcement remains ineffective. In Vietnam, when products
find public favor, it is likely to be copied or counterfeit (Intellectual Property Rights in the
Socialist Republic of Vietnam, 2013). Even though trade mark and patents are protected
under Intellectual Property law and control of the National Office of Intellectual Property of
Vietnam, but legal proceedings in Vietnam is rather complex and high fee.
Because copied and counterfeit product could reduce VITO core competency, KPB
International Marketing therefore have to put a lot of effort in protect VITO intellectual
property.
Legal factors
Although Vietnam has available Enterprise Law, Investment Law and other global and
regional agreements (WTO, ASEAN, APEC), but their law is lack of clarity and modernity. So,
many foreign investors face the legal problem when do the business in Vietnam. Moreover, in
theory, all companies have to play the game with the same rules, but in practice, the
implementation of Laws is a real challenge due to poor quality of human resource in public
service and corruption issues (119/174 ranked countries) (e.V., 2014). In order to evade legal
problem particular in the contract with Vietnamese business partner, all business contract
should engage with Vietnamese law expertise.
Environmental factors
Vietnam has long coastal border (2,500 kilometers) and is consider as one of the most
vulnerable countries due to natural disaster risks, climate change and sea level rise.
Transportation in Vietnam troublesome and uncertain. Enterprises in Vietnam have to pay a
high logistic cost and consume a lot of transportation time.
Thus, KPB International Marketing have to take seriously into account the
environmental factors to the business planning and operating processes.

Section 4: Change management plan - propose required interventions for key stakeholders
KPB International Marketing plan to set up whole-owned subsidiary in Vietnam.
However, the protection policy against import does not allow foreign investors to do the import
business, if not having a factory in Vietnam. Therefore, KPB International Marketing need to
change its investment form to invest in the form of contractual agreements with Vietnamese
for distributing VITO product instead, the example of Business Cooperation Contract is shown in
Appendix A.
Furthermore, to control sales teams performance and after-sales service, KPB
International Marketing will send their employees from Thailand such as sales team
representatives, technical team representatives, and influential manager to work with
Vietnamese business partners employees. However, the difference of external business
environment between Thailand and Vietnam push KPB International Marketing for reform and
driving the need for change in order to be successful in cooperation with Vietnamese partner.
Organization change goal
To make cooperation with Vietnamese partner run smoothly and be successful.
Organization change metric
The metrics that can use in indicating the success of cooperation with Vietnamese partner.
1. Zero unresolved conflict inside the organization
When you work with others especially from different countrys or companys background,
conflict is pretty much inevitable. People from different background have differing styles of
communication, ambitions, political or religious views and culture. Conflict involves an ongoing
situation, unlike a dispute, which is a one-off incident. If a dispute goes unresolved, it can cause
a conflict situation. The conflict, if left unresolved, can escalate quickly and create a potentially
dangerous workplace situation (Managing Conflict in the Workplace, n.d.). This metric will
incite employees to avoid and exterminate where potential for conflict exists.
2. Internal communication flows effectively
To keep your business running smoothly in particular with businesss partnership, company
need to ensure that the internal communication is flowing seamlessly and efficiently (Leung,
2015). Communicating effectively mean being able to send a message across the organization
that is easy to understand and accurate (Peoplepulse.com.au, 2013). When communication
flows accurately and effectively, the organization will run smoothly. However, if communication
flow is impeded or the message is not accurate, the organization is likely to encounter
performance problems.

3. Sales meet companys target

Achieving sales target is a primary goal of all companies. In the same manner, the success in
achieving sales target can indicate the success of organizational change.
For the new business that just opened up, business owners should be able to tell their
employees how many prospecting customers theyll be expected to make in their first month,
how many customers theyll be expected to go on during their first business quarter and how
long before the new sales representative is expected to start selling. Anyone charged with
managing a sales force needs to be able to answer those questions (Paling, 2010).
Proposed strategy
1. Team building program
For any business cooperation to be successful and smooth, team work is an essential. The
excellent teamwork normally comes from having a shared vision and goal. Having a shared
vision and goal will make all leaders and employees commit to achieve the same objective and
understand their roles in achieving those objective (Etu.org.za, n.d.). The company should give
an opportunities and facilitate the resource to develop team work in the cooperation by
provided team building program.
Initiatives: Team building program
Initiatives
Icebreaker for team and staff meetings
Field trip together. For example, visit the office and
distribution network in Thailand, and tour the VITO
production factory in Germany.
Sharing the knowledge and strength of each other
and co-create the program to develop the highperformance team.

Impact

Budget

Low

$ 5,000

Medium

$ 50,000

High

$ 100,000

Timeline
1 day
period
1 week
period
3 month
period

2. Conflict management program

Besides the team building program, the company also need the ways for managing and
resolving the conflicts in their operation. Conflict management program can equip all leaders
and employees the skill in resolving and minimize the conflict problems before conflict becomes
a major hindrance of cooperation.
Initiatives: Conflict management program
Initiatives

Impact

Budget

Conflict minimize course. For example, conflict

mediation
Conflict resolution course

Medium

$ 15,000

Medium

$ 15,000

Timeline
3 day
period
3 day
period

3. Special orienting and trainings on international cooperation assignment

In business cooperation between two companies from different countries, the problem of
internal organization communication, adaption to unfamiliar culture, and working and
management aspect generally happens. Providing the employees special orienting and training
course can help reduce those problem. This strategy can bring the smooth flow of organization
information, conflict reduction, performance increase and finally lead to the change success.
Initiatives: Special orienting and trainings on international cooperation assignment
Initiatives

Impact

Budget

Timeline

Pre-cooperation: Orientation course about the basics

of the countrys history, politics, law and regulation,
business norms, and etc.
Pre-cooperation: Orientation course about the basic
language and culture

High

$ 200 per
employee

High

$ 200 per
employee

Pre-cooperation: Training course for understanding

why communication barrier happen and how to solve
those problem
During the early stage of cooperation: Training for
skill-oriented development that related to their
cooperation assignments

High

$ 100 per
employee

Medium

$ 80 per
employee

6 month
before the
cooperation
6 month
before the
cooperation
3 month
before the
cooperation
During the
first 3
month of
cooperation

Change management Process

Change process
1. Sense of urgency

2. Guiding coalition

3. Vision and strategy

4. Communicate

5. Empower employees

6. Short-term wins
7. Product more change

8. Culture

Process detail
KPB international Marketing accompany with Vietnamese partner
set up the board meeting presentation to make sure that the
management team know need need and important to
cooperation with Vietnamese partner and then set townhall
meeting make sure that everyone else in the orgsanition know as
well.
Leaders of both companies form a cooperation management
committee that involve employees and managers from both
companies to bring about the smoothness and success of
cooperation.
The leaders of both companies and keep together to set up the
change vision and detail the change strategy plan.
The cooperation management committee lists all stakeholders
and then communicate the vision, metric to measure the success
and proposed strategy to them.
The cooperation management committee create the reward and
recognition plan to encourage employee to make the change as
well as implement all proposed change strategies to help remove
the obstacles in the change process.
The cooperation management committee announce short term
project and celebrate the short term results.
The cooperation management committee launch more projects
and drive orgsanition to product more change.
Do a survey to show how well employee accept the change as
well as create the policy change.

Section 5: Conclusion - major findings and recommendations

After studying the feasibility of setting up the subsidiary in Vietnam, it found that the
prominent economic growth and cheap labor in Vietnam make this expansion be attracting. But
because of Vietnamese anti-import protection policy that does not allow foreign investors to
set up the import enterprise, if not having a factory in Vietnam. Therefore, KPB International
Marketing need to change its investment form to invest in the form of contractual agreements
with Vietnamese for distributing VITO product.

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