MANAGING STRATEGY

Managing Strategy



Emerging Markets and Mergers & Acquisitions

SECTION 1: SAMSUNG IN VIETNAM

Introduction

Vietnam has moved on considerably since the Vietnam War ended in a communist victory in the mid-1970s. More recently, the determination of the authorities to implement structural and economic reforms in the buildup to the country's accession to the World Trade Organization (WTO), mixed with rising exports, contributed towards the economy recording a compound annual growth rate (CAGR) of 13% during 2001-06. However, the global financial crisis impacted upon the country, with the GDP growth rate dropping to 6.3% in 2008 and to 5.3% in 2009. The economy recovered in 2010, when growth of 6.8% was recorded. The 2010 index ranked the country 116th out of 178 countries with a score of 2.7 (0 equates to highly corrupt, and 10 equates to free from corruption). The country faces a serious challenge in that it lacks an independent judiciary. This paper examines the main external environmental factors that determine whether Samsung should decide to establish (or expand) their physical presence in Vietnam or not.

Discussion

Most foreign investors are fascinated by Vietnam's buoyant economy; other favourable factors are its low-cost labour force and stable political scene. Many foreign investors that are keen to diversify their investments view Vietnam as an appealing alternative to China.

1- Government Stability And Openness To Foreign Investment

In 2010, consumer electronics in Vietnam recorded stronger volume growth compared to 2009 as the economy started to show some recovery from the crisis. Vietnam preserves a strategy of supporting foreign investment. A vital part in its long-term growth strategy has been its persistent aptitude to utilize and attract comparatively big total foreign investment, in the shape of both ODA and FDI. (Jahn 2010, 237-240)

There are five main means available to a foreign enterprise like Samsung to start its operations in Vietnam. According to the United Nation Conference on Trade and Development, foreign direct investment inflows into the country dropped from $8bn in 2008 to $4.5bn in 2009. (Edmund, 2009)

2- Government Investment In Infrastructure

The state's involvement in the economy is gradually declining while the private sector thrives. Government officials had hoped to partially privatise 1,500 state-owned enterprises but the pace of reform has slowed as growth has slowed. Presently, state-owned enterprises account for 30% of the credit going into the economy. Corporate tax rates were cut by 30% in 2008 for small and medium-sized enterprises as part of the effort to stimulate the economy. The government also approved new laws on securities and the operation of enterprises which will improve the business environment. Corruption is widespread and the judiciary system is weak.

Vietnam needs a better balance between its inefficient state-owned sector and its rapidly-growing private sector. Private industry continues to expand much faster than the state-controlled sector. There have been improvements in access to credit and tax regulations. The government is gradually reducing fuel subsidies but the pace of withdrawal is slowed by fears of greater inflation. (Nguyen, 2009)

Driven by state investment in infrastructure, ...