Pestle Analysis Of Vietnam

Knowledge about PESTLE topic and expectations prior to the class

I understand that BE refers to external factors and that enterprises have to take into account to their strategic and operational planning processes for success. My business requires a good understanding of the BE elements that may create opportunities or threats to rural SMEs for the development of interventions to BE improvements. I also know that a good enabling BE will create competitive advantages of a country and interest to foreign investors for economic growth. I know how to use SWOT tool to stakeholders’ analysis. My understanding about PESTLE [1] factors is all about Vietnam only, below are summaries of my knowledge prior to the class.

For politics, Vietnam is adopting a mixed economy and government still plays a big role in planning and governing and many countries do not recognise the market economy for Vietnam yet [2] even its WTO’ adhesion since January 2006. The approved official documents of the 11th National Party Congress clearly stipulate that Vietnam continues to apply the market economy with socialist orientation, and the State Owned Enterprises (SOEs) still play the decisive roles of Vietnam’ economy. This may break the enabling BE and create threats to private SMEs.

For economics, Vietnam maintains a stable and high economic growth (7% in average for the last decade). Local enterprises are facing up to challenges in access to expensive credit and financial management due to high inflation (9-11%), high interest rates of saving (13-17%/year), and to currency devaluation (three times in 2010) [3] .

For social factor, Vietnam has a young population with 46% of population are in working age and around 1 million new entrants into labour market each year, but overall productivity remained extremely low and is only three-fifths the ASEAN average or around one-tenth the level in Singapore [4] . Vietnam is the only country in Asia to enter Top 5 of the 2009 Happy Planet Index (HPI), announced by the New Economics Foundation (NFF) in July 2009. Vietnamese peoples are very optimistic to their future thanks to stable political regime, peace and economic growth.

For technological factor, power shortage is now very current with increasing demand; internet is widely accessible with reasonable price; counterfeit and imitation, especially in software products, are widespread in Vietnam.

For Legal factor, Vietnam has available Enterprise Law, Investment Law and other global and regional agreements (WTO, ASEAN, APEC…), in theory, all kind of enterprises (SOEs, private enterprises, joint ventures) 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 (116/178 ranked countries) [5] .

For Environmental factor, Vietnam has a long coastal border (2500km) and is considered as one of the most vulnerable countries due to natural disaster risks, climate change and sea level rise. Enterprises in Vietnam have to take seriously into account the environmental factors to their business planning and operating processes. Vietnamese peoples do not tolerate easily to business practices that harm to environment. For example, the Vedan Vietnam Limited JSC, a wholly Taiwanese-invested firm has to pay a “high cost” for its pollution to Thi Vai River, the Coop Mart Supermarket System and retailers refused to sell Vedan’ products, promotional activities encourage the clients to say NO with Vedan and the company is facing to bankruptcy in 2007-2009.

My consultancy services support rural SMEs to access to opportunities and to prepare for threats. I also work with government authorities to improve BE for SME development, including:

Entrepreneurship Education. This intervention are to improve the entrepreneurship knowledge and skills to the youths, to develop their entrepreneurship mind set and finally to prepare them working productively in enterprises.

Public-Private Policy Partnership and Dialogue (PPD). These forums are to reflect on the PCI [6] ‘ results and to critically debate on BE’ improvements, administrative reforms and BDS’ supports in favour to SME development.

Making Market Works Better For the Poor. Such as business management training to business people in remote areas, the value chain analysis and upgrade in favour to poor producers, support for collaboration and coordination among poor producers for their greater bargaining power.

Recently, I have created my own enterprise named Initiatives and Informal Education Promotion Company, called as IIE Vietnam and I work as the company Director, providing technical consultancy services to national and international organizations working in the area of local socio-economic development. My expectations from the class are about the comprehensive academic approaches and tools for PESTLE analysis. I wish to be able conduct stakeholders’ analysis, the scenarios planning, taking into account of PESTLE issues in order to improve my business. I also wish to have a broader understanding to global BE, especially the good enabling BE of EU countries, USA, Japan, the improving BE in major BRIC emerging countries and the worst BE in Africa, Cuba, Venezuela. I expect to be able to identify and explain BE context in those economies.

Key learned ideas from this session

Organisational Form and Purpose. There are different types of organisations; each of these organisations has its relative vision, mandates, values, advantages, disadvantages and stakeholders. When making strategic decisions about the organization’s direction and scope, managers need to examine the organizational purpose, vision and stakeholders’ expectation for the future. Managers have to make sure that commercial organisations should be high accountable to the owners first, then that conflicts and different expectations from organizational stakeholders are properly responded. I am able to use the power/interest approach and tool for stakeholders’ mapping and analysis of my own company.

Understanding the Managerial Environment. Managers will need to evaluate the current context and trends of BE for organisational strategic planning and operating, it includes the evaluation of local, regional political stability, government’ commitment to business, main economic indexes, labour force, technological development and availability, legal documents and finally environmental issues affecting business. With the results of BE analysis, managers are able to identify main opportunities and threats of their company. I am able to interpret the PESTLE framework for identifying, evaluating the impacts of key external environmental factors and developing 2011 scenarios to my own business.

The Economy and the Role of Government. The Circular Flow of Income describes the operations of an economy; the consumers provide resources to firms for income, firms produce goods and services to consumers for margin, income and margin are used to pay living and operating costs, taxes for government spending, investments for productive capacity, technological development and savings. Government plays the role of policy maker and referee, ensuring the achievement of economic and social goals of a society, including high rate of decent employment, stable economic growth, low rate of inflation, trade surplus. Government use fiscal policy (taxes and public spending) and monetary policy (money supply and interest rates) as major tools of macro-economic management. Fiscal policy is a tool for managing demand, if government wants to increase the demand, it may reduce taxes and/or increase spending, if it wants to reduce the demand, it will do the opposite. Government has lot challenges in achieving simultaneously all the economic goals, an increase in demand may create high inflation. Government also use monetary policy for macro-economic management, an increase in interest rates will increase saving, reduce consumption and reduce investment spending, and thus reduce inflation. The interest rates affect exchange rates and banks/investors will spent their energy and efforts just to trade the money and not the production.

The European Environment. The rationale of reduction in trade barriers and mobility restrictions is for costumers’ rights protection, competitive and technological enhancement. The main benefits for countries in joining EU include access to a largest and fairly competitive market, with safe and predictive BE, well established infrastructure, social protection, education, research and development. The main challenges for EU enlargement includes different educational, technological, cultural, infrastructural and competitive level between countries, politics, human rights issues, especially the legacy of the Soviet economy. United Kingdom, Switzerland are considering their EMU member due to negative factors such as economic cycle, sovereignty issues, unique values, transition and employment costs.

Understanding the Global Environment. Globalisation is an inevitable trend of the World thanks to the development of ITC and education, to which countries and firms have to duel for success. The key globalisation’ drivers include politics, economics, market, costs and competition. Globalisation is bringing both opportunities and challenges to peoples. For competitive advantages in the global market, countries have to increase their political and social connections between peoples and states; firms need a good assessment of global costs. Globalisation allows firms not only to profit of better production factors, but also to gain market share and/or to access to growing market. Managers need to have strategic decisions on whether outsourcings, offshorings or insourcings for cost’ advantages. Government’ policy makers have to ensure the reasonable inequalities between rich and poor, the control of dominance and monopoly of biggest global firms, cultural degradation, global dependence and global crime.

Emerging Countries in Three Continents. The Japanese MITI with selective industrial policies, the keiretsu with alliance of firms with banks, manufacturers, suppliers, distributors and with the Japanese government, the kaizen with continuous improvement or change for success, the kanban with scheduling system, have created the economic and technical success of Japan in 1980s. The reforms with special economic zones, the gradual opening of economy, the calls and government supports to FDI have transformed China from a backward agricultural economy to the word’s major manufacturing centre in 1990s, but the political regime and human right abuse in China is not appreciated by the international communities, and the world is facing up to social and environment costs with rapid expansion due to poor governance of social and environmental responsibilities. The replacement of interventionist economic policy by the liberal economic reforms together with the good investment in high-tech education and research have made India become a modern economy, the rapid economic growth in a complex cultural legacy and Hindu caste system is also creating lot of social issues in India, including poverty, illiteracy, HIV/AIDS. The ASEAN with its regional cooperation, cultural diversify, high level of general and scientific education, high saving and investment ratios, young and dynamic population, rapid growth of technology, openness with interventionist industrial policies, is creating a high interest of international investors and politicians (10 Primer Ministers of ASEAN, plus Australia, China, India, Japan, New Zealand, S-Korea and Foreign Ministers of USA, Russia, and UN General Sectary participated in 2010 Hanoi East Asia Summit, 500 big local and international firms jointed the 2010 Hanoi ASEAN-BiZ Summit Conference) [7] . Even with rich natural resources, but the dependence on agricultural production and exports, the negative impacts of slavery, colonisation and socialism, the predominance of authoritarian regimes, poor access to education, public services, sanitation, water, poor governance with corruption, inefficient politicians, ineffective international development assistance and loans, uncontrollable internal rules, conflicts, diseases have left most African countries at the mercy of the world markets.

Market Structures and Industry Analysis. Monopolists are able to control both production and purchase rights. In a high competitive market, specialism and location allow operators control over price. In the oligopoly’ market, competition of non-price methods such as advertising and sales promotion is appropriate. But the greater competition makes companies more efficient and the consumer has a bigger choice of good and services, policy makers have to build rules for fair competitiveness and anti-monopolistic competition. I am able to interpret the Porter’s Five Forces (current competitors, new entrants, buyer’s power, substitutes, and supplier’s power) to market and competitive analysis of my business. The results will be used to defining and positioning my business, including the development and implementation of key success factors.

Delivering Customer Value and Managing Marketing Performance. Firms need an appropriate targeting strategy due to different needs of customers. Customer’ segmentation allows firms to critically analyse characteristics of customer’ groups for the provision of relevant services and goods. Appropriate promotions with segmentation’ approach help firms not only to save costs, but also to provide desirable products and enjoyable prices. A good understanding of existing and potential markets through assessing current and potential market attractiveness, evaluating company and competitors’ current and potential strengths and weaknesses in serving a particular market, allow firm to take competitive advantages. Company’ brands are built from knowledge, esteem, relevance and differentiation. I am using the gained knowledge from these sessions to develop my business strategy with demand-driven and non-price competitive approaches such as owner’ branding, expertise enhancing, attitude improving for differentiation and success.

Making sense of Uncertainty. In a stable BE, forecasting works well to develop company’ future directions, but peoples are living in a fast changing environment with many unpredictable events; scenarios building is good tool to manage uncertainty. Scenarios building should be credible and includes PEST analysis. Companies need to build more than one scenario with both optimistic and pessimistic context to predetermine a list of trends and key success factors.

Difficult concepts and Improvement plan

Scenarios building, Brands building are two most difficult concepts with me, my improvement plan includes:

Further reading: Due to time constraints for both learning and working activities, annual review and planning processes, I haven’t much time to do extra reading of suggested documents from the class; I planned time for further reading after Lunar New Year.

More exchanges with colleagues, friends and experts: Informal discussions, exchanges through emails, chats with them will enable me to gain more knowledge.

Participation in short and intensive workshops: The VCCI is organising short and intensive workshops on scenarios and brands building to support the entrepreneurs of SMEs, I will register for my participation to knowledge improvement.

Learning from doing my works. I am the owner cum director of my small company; I am building scenarios and brands to my company and will learn from both success and failure.

Extra reading and key learning points.

I have visited the http://www.forbes.com and read the summary of the special report named “Best countries for Business – 2009”, published at http://vneconomy.vn and have drawn the following key learning points:

Vietnam dropped from number 113 to 118 in 2009 list of “Best Countries for Business”. Due to its weak export’ capacity, high trade deficit, weak protection of foreign investors.

Denmark was ranked as the best place to do business. Thanks to its high per capita (36.000 USD/year), surplus trade (+2,9%), good ratio of public debt/GDP (41,6%).

The US saw the biggest fall in 2009 ranking, falling to number 9 from the second position in 2008. Due to long-term issues such as lack of investment in infrastructure, increase of costs in health and retirement, high trade deficit.

Venezuela is the worst country. Due to its robbery (nationalisation) of foreign firms.

The top 10 of weakest countries of 2009 business environment are in Africa. Due to poor governance, abuse of human rights and democracy, poor investment in education, pubic services, basic human needs and imperviousness of international values.

Annexes

Reference’ sources:

Much above information is summarised from the follow sources:

Harrison A., Business Environment in a global context, Oxford University Press, 2010, New York, USA

University of Gloucestershire Business School, Global Organizational Environment handouts