Thomas Cook: International Expansion Analysis into Vietnam

Faculty of Business

U54073 : International Business Strategies in Hospitality & Tourism

Individual Coursework International Expansion Analysis

Semester 1, 2011/12 Submission Date

16 December 2011

2,264 words Module Leader: Dr Alexandros Paraskevas Dominic George

(08061629)

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Student No.

08061629

Module No. Seminar tutor: Essay Title:

U 54073

Student Name

Dominic George

e-Business Module Title 2,264 words Dr Alexandros Paraskevas Word Count: Thomas Cook AG into the Vietnamese Market – International Expansion Analysis

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16 December 2011

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Table of Contents

1

Market and Country Analysis ................................................................... 9 Country Attractiveness Assessment ........................................................................... 9 1.1

Market and industry opportunities ................................................................................ 9

Market Opportunities .................................................................................................. 9 1.2 1.3

Market size ...................................................................................................................... 9 Growth ............................................................................................................................ 9

Demand.....................................................................................................................10 1.4 1.4.1 1.4.2 1.4.3 1.5 1.6 1.7 1.7.1

Overall demand ............................................................................................................ 10 Macroeconomic correlation ........................................................................................ 10 Consideration of other factors .................................................................................... 10 Trend analysis .............................................................................................................. 10 Demand for consumer goods...................................................................................... 10 Quality of demand ........................................................................................................ 10 Demand characteristics of Vietnam ........................................................................... 11 Market growth, market size, segmentation, customer value curve, distribution, and competition ........................................................................................................... 11 1.7.2 Country life cycle cluster.............................................................................................. 11

Industry Opportunities Assessment ..........................................................................11 1.8 1.8.1 1.8.2 1.8.3 1.8.4 1.8.5 1.9 1.10

2

Quality of industry competitiveness structure ........................................................... 11 Power of suppliers – LOW ........................................................................................... 11 Power of customers – LOW / HIGH............................................................................. 12 Threat of new entrants – LOW .................................................................................... 12 Threat of substitutes – LOW........................................................................................ 12 Industry rivalry – LOW / HIGH ..................................................................................... 12 Resource availability .................................................................................................... 12 Government.................................................................................................................. 13

Challenges and Risks............................................................................. 14 Country Attractiveness Assessment .........................................................................14 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5

Country Risks ............................................................................................................... 14 Economic ...................................................................................................................... 14 Competitive .................................................................................................................. 14 Operational ................................................................................................................... 14 Political ......................................................................................................................... 14 Shareholders’ exposure............................................................................................... 15

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3

Proposal and Strategies ........................................................................ 16 Entry Strategy ............................................................................................................16 3.1 3.2 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5

Entry objectives ............................................................................................................ 16 Timing of entry ............................................................................................................. 16 Mode of entry ............................................................................................................... 16 Positioning Frameworks .............................................................................................. 16 Proposal (Brownfield Strategy) .................................................................................... 17 Greenfield Strategy ...................................................................................................... 18 Globalisation and Transactional Strategies ............................................................... 18 JVA / Co-Operative Strategies ..................................................................................... 18

A

Bibliography (Information Sources) ....................................................... 20

B

Appendices............................................................................................. 23 Appendix B1 (Inbound Tourist Volumes to Vietnam) ................................................. 23 Appendix B2 (Porter’s Diamond Model) ...................................................................... 24 Appendix B3 (Country Life Cycles) ............................................................................... 26 Appendix B4 (Porter’s 5 Forces) .................................................................................. 27 Appendix B5 (PESTE/SWOT Analysis) ......................................................................... 29

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1

Market and Country Analysis

Country Attractiveness Assessment 1.1

Market and industry opportunities Vietnam has emerged relatively recently as an important South East Asian visitor destination, recording large numbers of international arrivals, and significant amounts of Foreign Direct Investment (FDI) have been channelled into the tourism industry.

This report analyses the competitive environment of Vietnam including major dynamics and current state of the tourism industry within the country. The report outlines key growth opportunities as well as potential risk factors; concluding with an expansion proposal and strategy through the method of M&As (mergers and acquisitions).

The following Section (1) utilises a PESTE analysis, incorporating the SWOT framework to identify opportunities in Vietnam. It also discusses the use of Porter’s (1985) Five Forces and (1998) Diamond Models.

Market Opportunities 1.2

Market size Vietnam has seen a 41% increase in inbound tourism to the country since 2006 (see Appendix B1). A majority come from other ASEAN and Far Eastern countries, with the greatest number of consistent inbound tourists coming from China. The 1997 Asian financial crisis affected a majority of the ASEAN states, as well as South Korea. Even though Vietnam was less affected, it did suffer a loss of demand and confidence throughout the region.

1.3

Growth Since the Asian financial crisis, Vietnam has continually expanded and is now considered to be one of the fastest growing economies in the world, and aims to be a developed country by 2020. Vietnam joined the WTO (World Trade Organisation) in January 2007, which has resulted in a massive growth in FDI within the country, equating to 4.1% of the country’s GDP, with the US being the country’s main trading partner, followed by Japan, China, and South Korea. Vietnam’s export growth is nearly two-and-a-half times greater than that of the ASEAN standard and only 1% less than that of China, the world’s largest exporter.

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Demand 1.4

Overall demand With the increase number of inbound tourists coming to Vietnam, there has been an increase in demand for the number of tourism and hospitality services within the country. International companies, such as the InterContinental Hotel Group and the Accor Group expanded their operations in 2007 and 2009 respectively, into Vietnam to meet with the ever increasing tourism demand. Vietnam Airlines in December 2011 began the only non-stop direct service between London (Gatwick) and Vietnam (Hanoi and Ho Chi Minh City) as it looks to attract business and leisure customers to the country and the surrounding Indo-China region. Up until that point, tourists had to transit in another country in order to get to Vietnam.

1.4.1

Macroeconomic correlation Because of Vietnam’s continually fast growing economy, this means that the country’s GDP is growing rapidly as well. Vietnam’s GDP is demonstrating the fastest growth out of all the ASEAN states. Vietnam has a young and abundant labour force, meaning that there is a fair ratio of labour force to GDP distribution.

1.4.2

Consideration of other factors Other factors also need to be considered. As shown in Porter’s (1998) Diamond Model (see Appendix B2), these include the large number of Internet users. Vietnam is third, only to Singapore and Malaysia, where there are more Internet users, a greater number of fixed broadband Internet subscribers and secure Internet servers, and an increased ICT expenditure. Another important consideration factor would include a stable population, with half of the country’s population being under 24.

1.4.3

Trend analysis Over the past five years, Malaysia’s inbound tourist numbers have doubled. Other country’s for consistent inbound tourist number increases are predominantly Far Eastern countries, such as Thailand and China, with increases of 80% and 75% respectively, since 2006. Outside of this region, Australia and France are the two largest countries for inbound tourist volumes, which have increased by 61% and 51% respectively. This can all be demonstrated by Appendix B1.

1.5

Demand for consumer goods Since FDI has grown and Vietnam joined the WTO, especially within cities, the consumer market is fuelled by the appetite of a young, middle class for electronic and luxury goods. The stems from half of the population being under 24, and also from the strong importation links with neighbouring technology and consumables countries, such as China (for clothing), and Korea and Japan (for technology).

1.6

Quality of demand Even though wages are low in some areas of Vietnam, especially those in rural areas, there is still a systemic growth in disposable income within the country. This, even though main disposable expenditure is spent, statistically, on electronics and luxury

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goods, such as imported food and other consumer goods, there is a demand for tourism products and services. Honda is the country’s number one brand, with Vietnam having the highest per capita motorbike ownership in the world. This demonstrates that there is a significant demand for transportation services in the country.

1.7

Demand characteristics of Vietnam As discussed in Section 1.6, Honda is the number one sought after brand, both domestically and internationally, in Vietnam. According to Nielsen’s top ten brands in Vietnam survey, other international brands such as: Nokia (telecommunications), Big C (French supermarket), Sony (technology), and Coca-Cola (drinks) are in clear demand.

However, other domestic brands, such as: the state-owned Mobifone (telecommunications) and Vietcombank (finance), Saigon Co-Op Mart (supermarket), and Vinamilk (drinks) are also mentioned as high-demand branded goods.

1.7.1

Market growth, market size, segmentation, customer value curve, distribution, and competition As demonstrated by Appendix B1, a distinct trend in inbound tourists can be seen. All countries are in double-figures in terms of growth since 2006, but all were hampered by the global recession of 2008/2009. China and Korea, where exports account for a large proportion of their GDP, saw the biggest tourist declines over that period.

1.7.2

Country life cycle cluster As demonstrated by Appendix B3, the country life cycle of Vietnam is much the same of other ASEAN countries. By being on the extreme-left of the chart, it shows that Vietnam is still a developing country. As mentioned in Sections 1.3 and 1.4.1, Vietnam’s GDP is growing rapidly, with the country hoping to become a developed country by 2030. Other countries characterised by this extreme-left positioning, include: Laos, The Philippines, Indonesia, and Cambodia. All, however, including Vietnam, are higher than the world average.

Industry Opportunities Assessment 1.8

Quality of industry competitiveness structure Appendix B4 analyses the competitive nature of the industry through Porter’s (1985) Five Forces model for this next section, explaining the power of supplier and customers, whilst highlighting whether there are any threats posed by new entrants into the industry, or potentially substitute products or service. It will finally conclude with final overview of competitive industry rivalry.

1.8.1

Power of suppliers – LOW There are a good number of undifferentiated tour operators in Vietnam, that all offer a similar range of different products and services dependent on locality. However, there are no international tour operators in the country. Each tour operators is known for their individual regional knowledge, rather than an overall synopsis of the entire country.

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There are, however, international branded hotels, but these do not pose a direct threat to Thomas Cook in terms of accommodation services, mainly because of the pricing level they are on compared to the company.

1.8.2

Power of customers – LOW / HIGH As discussed in Section 1.4, there is only one direct flight (Vietnam Airlines) that connects the UK to Vietnam. Other carriers that fly to Vietnam all include at least one international transit point, usually within the Far East. This provides Thomas Cook with the opportunity to connect directly with new markets in Vietnam through effective utilisation of these direct flights (further analysis and explanation in Section 3.3).

1.8.3

Threat of new entrants – LOW Any new company wishing to establish itself within Vietnam would have to compete with the already well-established ‘Big Four’ of: Vietravel, Saigontourist Travel Service, Fiditourist, and Ben Thanh Tourist. This, as well as the high start-up costs, the length of time taken to register and open a new company, and the amount of communist ‘red tape’ that would have to be negotiated, could potentially deter new international companies from expanding into Vietnam, registering and operating their company in the country.

1.8.4

Threat of substitutes – LOW There are other tour operators in the region, some better than others, but all offer very similar products and services. However, this is not the same in the airline sector, where all airlines market themselves differently depending on how they perceive the consumers’ needs to be. Cruises still available and another alternative, but (a) cruises usually include Vietnam as a stopover, not a country cruise, and (b) passengers still need to fly to the Far East (usually Hong Kong or Singapore), rather than cruise all the way to the Far East.

1.8.5

Industry rivalry – LOW / HIGH Because of the geographical scale of Vietnam, each region is competing for tourism numbers; especially the main ports of entry are Hanoi (capital of Vietnam) in the North, and Ho Chi Minh City (Saigon) in the South. Other regions are accessible by road, train, rail, and air. Travel and tour operators compete competitively over price; however you cannot compare direct flight prices because there is only one. Indirect flight prices vary, but Thai Airways is usually cheapest, with other carriers, usually Far Eastern carriers, being roughly around the same price.

1.9

Resource availability Even though the transportation infrastructure in Vietnam is very poor, future expansion of the country through use of its ‘hubs’ as a geographical location would enable access from new markets to come and experience the country; providing an increased level of accessibility for tourists.

As mentioned in Section 1.4.1, there is a young and abundant work force in Vietnam.

However, as stated in Section 1.6, wages are low in Vietnam. This presents an

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opportunity to capitalise on the young and abundant work force that may have specialist local knowledge, and prove to be valuable asset to the company.

1.10

Government Due to Vietnam being a communist state, this means that governmental incentives are few-and-far between. However, in order to stimulate the economy, the Vietnamese government introduced a 10% tax, and also permit up to an 8-year tax holiday for new companies starting out in the country.

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2

Challenges and Risks

Country Attractiveness Assessment 2.1

Country Risks Questions have been raised about the extent to which tourism development and an influx of travellers from radically different backgrounds will spoil the very culture and land that attracts them. Vietnam is having to compromise by relegating in priority its agriculture sector and so upsetting a centuries-old way of life, in order to keep up with demand (see Appendix B5).

2.1.1

Economic Standard office hours in Vietnam are from 08:30 to 16:30. Now in comparison to that of the UK, it is not bad. However, if the company was to operate late-afternoon or evening tours, and wish to contact a representative, it may make it difficult for consumers to get in touch with someone.

Vietnam also has very high raw material prices, such as coffee beans and rice, and struggled to retain its trade and budget deficits, mainly due to its strong agricultural economy.

2.1.2

Competitive Vietnam was shown to continue to struggle with bribery and corruption with most evidence suggesting bureaucratic or organisational corruption to be most prevalent.

Efforts by the Vietnamese government to curb corruption were also identified however these lacked an enforcement regime that undermined their effectiveness.

2.1.3

Operational When it comes to business administration, the country’s rated as being inefficient and to have a weak business environment. Vietnam is a Confucian society with business practices similar to those of China, Japan, and Korea, than those of its ASEAN neighbours. Adaptions may need to be made to business practices in order for the company to adapt to a non-Western business management style. This leads to increased competition between companies, mainly over price, and a weak competitive positioning against other international companies, outside Vietnam.

2.1.4

Political As discussed in Section 1.8.3, there is a lot of red tape to be ‘crossed’ in business negotiations. Starting a company up in Vietnam will take up to 44 days, and costs 12.11% GNI per capita. This is mainly put down to the country being a communist state and some communist leaders worry that too much economic liberalisation will weaken

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their power base. The communist party, however, shows little willingness to give up its monopoly on political power, and has been accused of suppressing political dissent and religious freedom; singled out Hanoi’s treatment of ethic-minority hill tribe people, known as Montagnards.

2.1.5

Shareholders’ exposure Vietnam has emerged from long periods of colonisation, wars, and ideological conflicts to become an important economic force within Asia. However, shareholders’ exposure in Vietnam is deemed to be low. This is because of the low risk of asset destruction, spoliation, or lock-in. However, as Vietnam is still a communist state, it should be considered that the situation might chance at any time and without warning.

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3

Proposal and Strategies

Entry Strategy 3.1

Entry objectives 1.

2.

3.

4.

5.

3.2

To gain market presence and obtain market share in Vietnam to generate a profitable return on investment.

To assist in the contribution to a competitive advantage through the effective utilisation of a high-skilled, low-cost labour force, without the requirement for massscale product and destination training.

To gain knowledge and competencies of a new working environment through the access and efficient use of the Vietnamese business network and its suppliers to expand further internationally (than the US, Africa, and India).

To improve processes and working best practices through efficacious utilisation of effective ICT resources and technical knowledge.

To assist in the successful expansion of transport hubs in the country, to enable good connections and accessibility for the wider market.

Timing of entry A lot of tour operators within Vietnam are at the ‘competitive growth phase’ as most companies are ‘jockeying’ for position in an already competitive market. New entry at this stage is deemed to be hazardous and requires either massive resources or a highly differentiated competitive strategy. Based on the acquisition of InTourist in Russia and Jet Tours in France, it would be best to wait until either this phase or the ‘mature phase’ before making an offer.

3.3

Mode of entry The following section will discuss the relevant positioning of Thomas Cook in the context of academic models, and how best for it to expand. A number of international expansion models are noted to offer the best possible chance of success within the new market.

3.3.1

Positioning Frameworks EPRG Framework Thomas Cook, because of the diversity of its operations, fits into the geocentric orientation of the EPRG framework (Perlmutter, 1979). This is because the company attempts to ignore national boundaries. They develop policies and organise activities on a worldwide basis, but attempt to standardise the product as much as possible, as it does the price, for worldwide markets. Marketing staff include people from the region and from the different placed in the world, and is developed rationally on a globally to protect the uniform image of the company and its products.

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Integration / Responsiveness Framework By utilising Barlett and Ghoshal’s (1989) Integration/Responsiveness framework, Thomas Cook, for the purpose of expansion would position itself within a global strategy context. This is because the company views the world as a single marketplace and thus offers standardised products, whilst serving multiple host country markets with internationally branded goods that are produced from a single location. By adopting this approach, it means that the company can make use of economies of scale, therefore, potentially reducing overall overhead costs. However, it can be argued that by adopting the global strategy it implies that the company is counteracting on the country-specific advantages and/or opportunities.

3.3.2

Proposal (Brownfield Strategy) Because of Thomas Cook’s position within Far East, and Vietnamese mass tourism not having yet fully developed, it would be an unwise idea to go it alone. There are two suitable modes of entry: a JVA (Joint Venture Agreement) or an M&A (merger and acquisition).

It is worth understanding which companies would be best suited for M&A agreement takeover bids; which ‘strategic fit’ they fit into. As demonstrated in Section 1.8.3, the ‘Big Four’ of Vietravel, Saigontourist Travel Service, Fiditourist, and Ben Thanh Tourist should be considered, because they are all national, not regional, companies. All these companies are well-established within Vietnam, however, because of the opportunity of international expansion (outside of Vietnam), the best suited company for a possible acquisition of Vietourist. This is not only because it is the strongest and best suited partner, but also because of their governmental links, strong e-business, e-marketing presence online, and corporate portfolio. With this sort of profile, theoretically speaking, it would put Vietourist within the ‘capabilities fit’ of the partner selection. However, due to the fact that limited companies file their tax returns or financial reports, it is very difficult to put a price on the company, without a trained assessor.

By utilising Dunning’s (1988) eclectic theory, you can analyse Vietourist for their microeconomic advantages. The human capital will play a major part for the ownership advantages in the acquisition of the company, because it can be easily replicated in other countries, without losing its value; considering the tours that are offered by the company. On a locational front, the range of locations in which Vietourist operates, will ensure that the final product is never too far away from the final consumer.

Furthermore, internalisation advantages include the internal operations of the acquired company. Outsourcing can be risky, and this minimises the risk of having to reveal proprietary information. Finally, Dunning suggests that the greater the ownership and internalisation advantages, and the more location advantages, the more internationalisation activity will be undertaken.

Because of the corporate history of Thomas Cook, it would be prudent to acquire the company, and integrate it into the company through the Haspeslagh and Jernison’s (1991) ‘preservation’ mode. This would ensure that both companies would be kept separate, but it would stimulate business development through the accumulation of learning and organisation of competencies transference.

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M&A Taking into account the type of company that it is hoped Thomas Cook will merge with, this would be deemed as a vertical acquisition. The most appropriate form of entering the market through mergers or acquisitions would be through either the ‘Friendly Takeover’ or ‘Tender Offer’.

The Friendly Takeover would that both management parties are happy. This could be done through an increased monetary value being offered, or through gaining of Thomas Cook’s already global business and its networks. However, by going through the company’s management, the company might ask Thomas Cook to acquire them through shares, therefore devaluing the amount of shares in which the shareholder owns in the acquired company.

The ‘Tender Takeover’ is a most likely form of acquisition that company could adopt.

This is because the acquiring company’s shareholders would be contacted directly by Thomas Cook, asking to purchase their shares in the company. This method was adopted during the acquisition of InTourist in Russia. By contacting the shareholders directly, this means that the shareholder is left with the power of whether they wish to sell their shares or not. However, a higher than expected value might need to be offered in order to acquire the shareholder’s shares in the company.

A part-cash part-shares agreement might be a more mutually beneficial offer for both parties.

3.3.3

Greenfield Strategy If Thomas Cook wished to sell directly to the Vietnamese market, by means of having a store(s) in Vietnam, the purchasing of land to build the store would be required. On this site, new modern, contemporary, facilities would be built. However, by going through the Greenfield strategy would mean having to register the company in Vietnam. This would, as discussed in Section 1.8.3, take around 44 days to complete, and a lot of ‘red tape’ would cause start-up challenges.

3.3.4

Globalisation and Transactional Strategies Thomas Cook is continually pursuing global integration by seeking to control country operations through acquisitions of other tour operators in that market. This helps minimise duplication, and maximise efficiency, effectiveness, and learning worldwide.

Through this, management view the world as one big marketplace. By utilising the globalisation strategy, there is a centralised co-ordination of research and development, production, marketing, and after-sales service. This ensures standardisation of the products and services that Thomas Cook is selling. This ensures that the main advantages are that standardisation lowers costs and makes operations easier to manage.

3.3.5

JVA / Co-Operative Strategies The use of a JVA or co-operative strategy would enable the new merger between Thomas Cook, the Co-Operative, and the Midlands Co-Operative to strengthen their Group positioning. This would mean that they could utilise each other’s resources for joint growth within a new industry. This strategy provides an opportunity to learn about

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the new environment, and acquire contacts (i.e. governmental officials, and suppliers).

However, as Thomas Cook now owns the Co-Operative Group (including the Midlands Co-Operative) means that Thomas Cook can stay firmly in control over business decisions, whilst utilising the network and markets of the Co-Operative Group.

The co-operation between two or more companies that includes non-equity ventures (strategic alliances), equity joint ventures (partnerships) and contractual ventures, are also types of modes of entry. The co-operation between Thomas Cook and the CoOperative Group is an equity joint venture, and is an ‘X’ or ‘closing gap’ co-operation.

This means that both companies are benefiting from complementary strengths, for example: the strong brand and know-how from Thomas Cook.

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A

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Rowley, C., and Truong, Q. (2009) Working in Asia: the changing face of Vietnamese management. Abingdon: Routledge.

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Rugman, A., and Verberke, A. (1992) A note on the transactional solution and the transaction cost theory of multinational strategic management. In: Fan, D., Nyland, C., and Zhu, C. (2009) Integration-Responsiveness Framework for Chinese MNCs: an area for future study, Working Paper. MONASH University.

Sadi, M. A., and Henderson, J. C. (2001) Tourism and Foreign Direct Investment in Vietnam, International Journal of Hospitality & Tourism Administration, 2 (1), pp. 67-90.

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Segon, M., and Booth, C. (2010). Managerial Perspectives of Bribery and Corruption in Vietnam, International Review of Business Research Papers. 6 (1), pp.574-589.

Thomas Cook (n.d.a) Arrival airport and resort information [Online]. Available at: http://bit.ly/7WNHN [Accessed: 14 December 2011].

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B

Appendices

Appendix B1 (Inbound Tourist Volumes to Vietnam) Inbound Tourist Volumes to Vietnam 1,650,000

1,450,000

Number of Tourists

1,250,000

1,050,000

850,000

650,000

450,000

250,000

50,000

China USA South Korea Japan Taiwan Australia France Malaysia Thailand Others

2006 516,286 385,654 421,741 383,896 274,663 172,519 132,304 105,558 123,804 1,067,061

2007 558,719 412,301 475,535 411,557 314,026 227,300 182,501 145,535 160,747 1,283,343

2008 650,055 417,198 449,237 392,999 303,527 234,760 182,048 174,008 183,142 1,266,767

2009 527,610 403,930 362,115 359,231 271,643 218,461 174,525 166,284 152,633 1,135,927

2010 905,360 430,993 495,902 442,089 334,007 278,155 199,351 211,337 222,839 1,529,822

Appendix B1 (Inbound Tourist Volumes to Vietnam) Source: Vietnam National Administration of Tourism (2006-2010)

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Appendix B2 (Porter’s Diamond Model) Vietnam 'Country Diamond' Strategy 5 4 3 2 1

Factor Conditions

0

Demand

Supporting Industries Appendix B2 (Porter’s Diamond Model) Adapted from: Porter (1998)

 Ranked as the 4th most competitive ASEAN nation (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam)  Demonstrate that Vietnam has tried to develop its country a lot of the last decade Context for firm strategy and rivalry  Growth in ICT capital service  High gross domestic investment  Good export and import levels Demand conditions  GDP growth  Large number of internet users  Labour force to GDP ratio  Stable population  Good quantity of Internet users Related and supporting industries  Industry growth  Large number of industrial estates  Large labour force  Very good local supplier quantity Factors (input) conditions  Very good telecommunications network  Good ICT expenditure

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Table of Results

Description Firm strategy, structure, and rivalry Total reserves Gross saving Gross domestic investment Gross saving – Gross domestic investment GDP per capita employed Energy efficiency Total factor productivity growth Growth in ICT capital services FDI, net inflows Export + import High-technology experts Growth in new businesses registered (4.0 ) Average Demand conditions Population GDP GDP growth GDP per capita Labour force/GDP ratio Literacy rate, adult Internet users (3.7) Average Related and supporting industries Industrial growth rate Labour productivity Local supplier quantity Number of industrial estates (3.7) Average Factor conditions Arable land Labour force Air transport Contain port traffic Electric power consumption Road, paved ICT expenditure Fixed broadband Internet subscribers Secure Internet servers Telecommunication R&D expenditure Researchers Scientific-tech journals Expenditure per tertiary student (3.1) Average Total relative competitiveness Rank

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam

Rank

In order to measure Vietnam’s competitive advantage, the five ASEAN nations have been chosen: Indonesia, Malaysia, Philippines, Singapore, and Thailand as competitiveness’ comparisons. The quantitative approach was applied onto Porter’s diamond model to assess the relative competitive capability of each nation. The data were collected from the three internet sources: World Bank, Index Mundi, and the Conference Board. The results can be found in the table result (above).

2.8 0.0 3.7

4.8 6.4 2.7

1.2 5.6 0.0

10.0 10.0 4.2

4.6 3.7 4.7

0 4.9 10.0

6 5 1

0.3

7.6

9.0

10.0

3.3

0.0

6

1.1 0.6 10.0 1.4 0.5 0.0 0.5

4.4 2.7 9.8 0.7 1.6 4.1 5.6

0.7 4.2 6.9 2.6 0.0 1.1 2.8

10.0 10.0 7.5 0.0 10.0 10.0 10.0

2.3 2.1 8.9 1.6 3.0 2.1 2.3

0.0 0.0 0.0 10.0 1.1 2.4 0.0

6 6 6 1 4 3 6

4.0

10.0

0.9

2.7

7.6

0.0

6

2.1

2.9

2.9

7.9

3.9

2.4

5

10.0 10.0 2.0 0.26 4.3 0.0 0.3 3.6

1.0 3.4 2.8 1.7 0.8 0.0 7.6 2.5

3.9 2.1 1.2 0.2 4.1 10.0 0.0 3.1

0.0 2.9 5.6 10.0 0.0 10.0 10.0 5.5

2.8 5.1 0.0 0.7 2.4 6.7 2.9 2.9

3.7 0.0 10.0 0.0 10.0 3.3 3.1 4.3

3 6 1 6 1 4 3 2

0.0 1.2 6.0 3.0 - 2.5

1.9 4.9 9.3 10.0 - 6.5

0.0 0.8 0.0 1.8 - 0.6

2.1 10.0 1.2 0.5 - 3.5

4.0 2.7 10.0 0.0 - 4.2

10.0 0.0 1.7 7.0 - 4.7

1 6 4 2 5

10.0 10.0 10.0 1.3 0.0 4.6 0.0

0.8 0.8 6.1 4.5 3.5 7.0 10.0

2.3 3.2 0.5 0.5 0.1 0.0 3.0

0.0 0.0 1.3 10.0 10.0 10.0 5.9

6.9 3.3 3.1 1.1 1.7 9.9 3.4

0.5 3.9 0.0 0.0 0.03 0.6 3.4

5 2 6 6 5 5 3=

0.0

2.5

0.5

10.0

0.3

1.1

3

0.02 0.0 0.0 0.3 0.03 0.2 - 2.6 14.8 5

0.8 5.0 2.9 0.5 1.4 2.3 - 3.4 34.0 2

0.1 0.1 0.5 0.0 0.0 0.0 - 0.8 6.8 6

10.0 10.0 10.0 10.0 10.0 10.0 - 7.7 74.4 1

0.2 5.7 0.9 0.5 3.1 0.7 - 2.9 23.5 3

0.0 6.0 0.7 0.1 0.03 0.5 - 1.2 19.2 4

6 2 4 5 4= 4 4 4

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Appendix B3 (Country Life Cycles)

Appendix B3 (Country Life Cycles) Adapted from: Lasserre (2003: 171); Incorporating: Central Intelligence Agency (2011)

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Appendix B4 (Porter’s 5 Forces) Threat of new entrants

Power of suppliers

Industry Rivalry

Power of customers

Threat of substitutes ‘Determinants of industry attractiveness’, Porter, M.E., Millar, V.E. (1985), How information gives you Competitive Advantage, Harvard Business Review, Vol. 63, No. 4, July-August 1985.

Power of Suppliers – LOW L Good number of tour operators in Vietnam; not many from outside Vietnam (none outside of Asia) L Undifferentiated suppliers, most offer the same things, but in different locations L Information freely available online, however some has to be requested over the phone L Retraining would be required based on geographical location switching H Inputs are invaluable, because of local product knowledge Power of Customers – LOW / HIGH L Only one direct airline (VN) to Vietnam (SGN/HAN), others are predominantly Asian carriers (which include stopovers) L Codeshare agreement s with VN from LGW to SGN/HAN H No company or competitor details shown on website, only ancillary product promotion H Would need to change operations to a full-service carrier in order to operate flight; codesharing best alternative L Negotiation of prices with codesharing airline, if flight is not operated by Thomas Cook Airlines H Difficult to understand full consumer needs because of current business model L Opportunity to brand in new markets within Asia Threat of New Entrants – LOW L High start-up costs; takes around 44 days to start-up a company in Vietnam; M&As better alternative L Only one direct airline between UK and Vietnam; limited number of independent tour companies in Vietnam L There are no Western branded travel and tourism companies established in Vietnam; there are Western hotel chains (e.g. InterContinental and Accor), but any new company

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H L L L

wishing to establish itself would have to compete with the ‘Big Four’ of: Vietravel, Saigontourist Travel Service, Fiditourist, and Ben Thanh Tourist.

Local product knowledge Is important, but may be difficult to find (more locality specialised) Local travel and tourism companies are established and do utilise local tour operators to conduct business Communist party make company start-ups difficult with ‘red-tape’ slowing process down Local tour operators regularly compete on price

Threat of Substitutes – LOW L There are other tour operators in the region, some better than others, but all offer very similar products and services; not the same in the airline sector L Cruises still available, but (a) cruises usually include Vietnam as a stopover, not a country cruise, and (b) passengers still need to fly to the Far East (usually HKG or SIN), rather than cruise all the way to the Far East L Disposable income is increasing, but a majority of expenditure is going on high-value clothing and electronics Industry Rivalry – LOW / HIGH L Tour operators compete competitively over price, however you cannot compare direct flights because there is only one; indirect flights vary, but TG is usually cheapest, with other carriers being roughly the same price H There is not much extensive advertising from either tourist boards or tour operators, most generally rely on word-of-mouth or ‘word-of-mouse’ H/L There is not much direct foreign investment into Vietnamese companies, however there has been a lot of ‘100% foreign enterprise’ expansion, mainly within the hospitality industry, but not so much within the tourism industry L Because of the size of Vietnam, each region is competing for tourism numbers; the main ports of entry are Hanoi (capital of Vietnam) in the North, and Ho Chi Minh City (Saigon) in the South. Other regions are accessible by road, train, rail, and air.

Appendix B4 (Porter’s 5 Forces) Sources: BBC (2010acd, 2011ab); Business Traveller (2011ab); CIA (2011); Hallo Agency (n.d.); InterContinental Hotels Group (2007); Seat Plans (2011); Thomas Cook (n.d.ab); Vu (2007)

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Appendix B5 (PESTE / SWOT Analysis) Political / Legal T T T T T T T T T

There is a lot of red tape to be ‘crossed’ in business negotiations (Hallo Agency, n.d.)

Starting a company up in Vietnam will take up to 44 days, and costs 12.11% GNI per capita (Hallo Agency, n.d.)

Communist state (BBC, 2011) Long-running territorial dispute with China over parts of South China Sea, rich in oil and fish (BBC, 2011) Some communist leaders worry that too much economic liberalisation will weaken their power base (BBC, 2011) Communist party shows little willingness to give up its monopoly on political power (BBC, 2011) Communist party accused of suppressing political dissent and religious freedom; singled out Hanoi’s treatment of ethic-minority hill tribe people, known as Montagnards (BBC, 2011) Strong media grip by communist party; controlled by Ministry of Culture and Information (BBC, 2011) ‘Transactional costs’ of policy and institutional changes

Economic O O O O O O O O O

VAT is 10% in Vietnam, half of what it is in the UK (Hallo Agency, n.d.)

Confucian society, with business practices similar to those of China, Japan, and Korea, than those of its ASEAN neighbours (Hallo Agency, n.d.)

One of the fastest growing economies (Hallo Agency, n.d.)

Set to become a developed nation in 2020 (BBC, 2011) Low wages (BBC, 2010) A major manufacturing centre; second biggest supplier of clothes to the US (BBC, 2011) Foreign investment has grown; US is Vietnam’s main trading partner (BBC, 2011) Joined the World Trade Organisation (WTO) in January 2007 (BBC, 2011) Disparity in wealth between urban and rural Vietnam is wide (BBC, 2011)

O O O T T

Access to and better allocation of resources (Vu, 2007) Domestic private sector development (Vu, 2007) Economic reform promotion (Vu, 2007) Working hours are 08:30 to 16:30, Monday to Friday (Hallo Agency, n.d.)

High rate of inflation: 20% by end of 2011 (Hallo Agency, n.d.; BBC, 2011)

T T T T T T T

High food prices; doubled by the end of 2011 (BBC, 2011) Struggled to retain its trade and budget deficits (BBC, 2011) Strong agricultural economy (BBC, 2011) Inefficient administration (Vu, 2007) Weak business environment (Vu, 2007) Inefficient use of capital (Vu, 2007) Weak competitiveness (Vu, 2007)

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T T

Increased competition (Vu, 2007) More vulnerable to external shocks (Vu, 2007)

Social O T T T

Market is fuelled by the young, middle class demand for electronic and luxury goods (BBC, 2011) 3 main English speaking newspapers – communist party controlled (BBC, 2011) Inadequate education and training (Vu, 2007) Unequal distribution of costs and benefits of integration (Vu, 2007)

Technological O T T T

28.6 million Internet users (InternetWorldStats, 2011) Poor transportation infrastructure (BBC, 2008) Vietnam is an RSF “Enemy of the Internet” (RSF, 2011; BBC, 2011) One of the 10 worst countries to be a blogger (RSF, 2009; BBC, 2011)

Environmental T T

A major manufacturing centre; second biggest supplier of clothes to the US (BBC, 2011) Strong agricultural economy (BBC, 2011)

Social Etiquette           

Introductions should be made through a mutual third-party, to limit suspicion (Hallo Agency, n.d.)

Pass items with both hands (i.e. business cards); show respect upon receiving one (Hallo Agency, n.d.)

First meeting should be lengthy (getting to know and trust you): explain who you are, your company, and objectives for business in Vietnam (Hallo Agency, n.d.)

Only people of the same sex should shake hands; otherwise bow head (Hallo Agency, n.d.)

Silence is commonplace in meetings; even if you do not agree with what is being said (Hallo Agency, n.d.)

Good business relationships are critical for successful partnerships (Hallo Agency, n.d.)

The spoken word is very important; do not make promises you can’t keep (Hallo Agency, n.d.)

Interpersonal relationships are important; provision of a business gift (Hallo Agency, n.d.)

Do not encourage bribery or corruption (Hallo Agency, n.d.)

Do not dress or wrap anything in black; considered to be unlucky colour (Hallo Agency, n.d.)

Avoid sharp objects, such as scissors or knives when in business meetings (Hallo Agency, n.d.)

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