RSK Pty Ltd

To: Amir Ghazinoori CEO

From: Rahul Kapadia CFO

Date:

Re: Attractiveness and risks of doing business in Vietnam

Memorandum

I recommend that the company expand into Vietnam through a manufacturing joint

venture, as part of a shift of our manufacturing operations for our cotton garments.

Summarily this is because Vietnam continues to be one of the most attractive countries in

South-East Asia to do business, with numerous reforms making it an attractive destination

for FDI (Breu et al. 2012). However, as a transition economy, there are certain aspects of

Vietnam that requires the company to be cautious (Hill et al. 2013).

At the meeting we discussed shifting our manufacturing base to Vietnam due to its skilled

workforce and relatively low labour costs (ANZ, 2016). As it has not only emerged as a

successful manufacturing nation, but is shifting from a centrally planned to a market based

economy (EY, 2013). With a young workforce, rapid economic growth, and increasing global

economic integration, the potential for foreign businesses in Vietnam is immense (EY, 2013).

However according to the World Bank and IFC, Vietnam is ranked 99th in the world with ease of

doing business, indicating that entry into the Vietnamese market requires in depth analysis

(TMF, 2016).

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Although politically Vietnam adheres to being a communist nation, the Doi Moi reforms saw a

shift towards a more market based economy supporting private enterprise, which has allowed for

an increasingly improved business environment (Hill et al. 2013). The average GDP per capita

growth rate since the reforms has been second to only China in Asia, with also greater levels of

FDI, with an increase of 17.4% in 2015 (DFAT, 2016). Acceptance with the WTO in 2007 and

being part of ASEAN and the Trans-Pacific Partnership indicates greater regional and global

integration but also a strong relationship between Australia and Vietnam (DFAT, 2016). The

legal system has also undergone major changes such as the Enterprise and Investment Laws

which has seen greater transparency regarding investments and intellectual property and has

removed many administrative obstacles for foreign businesses, also allowing entrepreneurship to

grow (EY, 2013). For the company, Vietnam serves to be a very attractive destination to shift our

manufacturing operations because of its relatively low labour costs, location and political

stability, increasing disposable income, relationship with Australian businesses, as well as the

potential Vietnam has an exporter of global apparel (PWC, 2014).

The recommendation for the company to expand to Vietnam is made assuming that adequate

assessment is made about the potential prospects. Vietnam has one of the most complex business

start-up procedures in the world, with many aspects being unfamiliar to the company (TMF,

2014). Although the legal system is improving with several reforms, a negative with constant

changes, is that it can create ambiguity in understanding and applying these legal concepts to the

business model (ANZ, 2016). In a 2005 survey, companies found corruption to be the most

significant hindrance in doing business in Vietnam, especially for foreign firms that are less

likely to have knowledge of local procedures (ACRC, 2008). As with any expansion, the entry

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mode is crucial, and I believe many of these issues can be mitigated by having a local partner

that can provide the know how in doing business in Vietnam.

References

1. Hill, C.W.L., Cronk, T. and Wickramasekera, R. (2013) Global business today. 3rd
edn. Australia: McGraw-Hill Education (Australia).

2. Department of Foreign Affairs and Trade (2016) Vietnam Country bried. Available at:
dfat.gov.au/geo/vietnam/pages/vietnam-country-brief.aspx (Accessed: 7 October
2016).
3. TMF group, Top 10 challenges of doing business in Vietnam. Available at:
https://www.tmf-group.com/en/media-centre/resources/top-challenges/apac/vietnam
(Accessed: 05 October 2016)
4. Breu, M., Dobbs, R. and Remes, J. (2012) Taking Vietnams economy to the next
level. Available at: http://www.mckinsey.com/global-themes/asia-pacific/taking-
vietnams-economy-to-the-next-level (Accessed: 8 October 2016).
5. Ernst and Young (2013) Doing Business in Vietnam. Available at:
http://www.ey.com/Publication/vwLUAssets/Doing_Business_in_Vietnam/
%24FILE/Doing_Business_in_Vietnam_16000319.pdf (Accessed: 8 October 2016)
6. ANZ (2016) Doing Business in Vietnam. Available at:
http://www.anzbusiness.com/countries/vietnam.html#.V_mKgeB97IU (Accessed: 03
October 2016).
7. Corruption in fast-growing markets: lessons from Russia and Vietnam (29th April
2008) Available at: http://www.u4.no/publications/corruption-in-fast-growing-
markets-lessons-from-russia-and-vietnam/ (Accessed: 05 October 2016).
8. PWC (2014) Doing Business in Vietnam. Available at:
https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-vietnam.pdf
(Accessed: 04 October 2016).