Belt Road Initiative
1. Executive Summary
2.1 Belt Road Initiative
Belt Road Initiative or formerly known as ‘The One Belt One Road’ is a development strategy initiated by the President of China, Xi Jing Pin. The Belt Road Initiative focusses on connectivity and cooperation between Eurasian countries, mainly China, the land based Silk Road Economic Belt and the oceangoing Maritime Silk Road. Main purpose of the Belt Road Initiative for China is to take a larger role in global affairs with a China – Centered Trading Network. Furthermore, Belt Road Initiative have Explicit Objectives and Implicit objectives for china. Some of Explicit Objectives are; to bring prosperity for underdeveloped parts of China, to increased connectivity and economic expansion along both routes through distribution of goods, services, information and people and the exchange of culture and build greater relationship with China’s neighbors. Implicit Objectives are; to provide an outlet for domestic overcapacity and overseas investment and it creates a new market for Chinese products and services. Belt Road Initiative consists of over 60 countries. And it is divided in to 6 economic corridors. They are, New Eurasian Land Bridge, China – Mongolia – Russia Land Bridge, China – Central Asia – West Asia Corridor, China – Indochina Peninsula Corridor, China – Pakistan Corridor and Bangladesh – China – India – Myanmar Corridor (cbbc).
2.2 Company Profile
Sime Darby is among the Malaysia’s leading corporation and plays an influential role in Malaysia economy. Furthermore, Sime Darby’s business are very diversified and has business in 26 countries. Some of the businesses Sime Darby are involved in are plantation, industrial equipment, motors, property and logistics. Apart from these, Sime Darby are also involved in several other businesses such as Healthcare, Insurance and Retail. Ramsay Sime Darby is the Subsidiary that is involved in Healthcare, while Sime Darby Lockton and Tesco involves in Insurance and retail industry, respectively. Sime Darby’s vision is to be a leading multinational corporation delivering sustainable value to its shareholders. And Sime Darby’s mission is to develop a winning portfolio of sustainable businesses, to have good corporate governance and high ethical values, to deliver superior financial returns through operational excellence and high-performance standards and to provide an environment for the staffs to realize their full potential (Sime Darby).
2.3 Country Profile
Vietnam is a one-party communist state located in South East Asia on South China Sea with an area of 329,247 sq. km. Furthermore, the country has a population of around 100 million with majority of them being 35 years or younger (PWC). Major language spoken among the people are Vietnamese. Vietnam is among the fastest growing economies in the world. Vietnam’s GDP per capita growth has been among the fastest in the world. It averages over 6% a year in the 2000s (World Bank). Furthermore, Vietnam’s economy remains stable despite the uncertainties in global environment (World Bank). Moreover, according to World Bank Economic and political reforms under Đổi Mới, launched in 1986, have spurred rapid economic growth and development and transformed Vietnam from one of the world’s poorest nations to a lower middle-income country (World Bank). Now, it has sets its sights on becoming a developed nation by the year 2020 (BBC).
3. Environmental Analysis
Environmental analysis is a strategic tool that is used to identify the internal and external elements that could affect an organization’s performances. These analysis tool will help identify what are the opportunities for a firm and what are the threats for the firm. And based on these, decision makers make decisions, for example to invest in a new market or not to invest in a new market (pestleanalysis.com). Some environmental analysis tools are PESTLE and SWOT. PESTLE analyses the Political Situation, Economical Situation, Social Situation, Technological Situation, Environmental Situation and Legal Situation. On the other hand, SWOT, analyses the Strength and Weakness of the Company and opportunities and threats that may company have in macro environment.
3.1 Political Stability and Government Support Towards Foreign Investments and safeguarding Foreign Investment.
Political stability increases certainty in the economic environment, thereby it gives foreign investors incentive to invest in the host country. However on the other hand, Political instability increases uncertainty in the economic environment, thereby lowering the incentives for foreign investors to invest in the host country (MPRA).
Vietnam is among one of the most politically stable countries in South East Asia. Main reason for the country’s political stability is because, it had been a single party country which is ruled by the Communist Party of Vietnam, and the government does not appreciate disagreements, and also, they do not have many internal conflicts. Furthermore, Vietnam has low threat of terrorism. However, there is one downfall to the Vietnam Government’s un-appreciation for dissent, there are restrictions on freedom of speech, which would affect the internet usage especially bloggers (Gov.UK). According to freedom house organization report on 2016, they reported Vietnam as “Not Free” on the freedom of internet use (Freedom House Organization 2016).
Apart from political stability, Vietnam’ government are very welcoming to the foreign investors. According to the Vietnam’s Prime Minister Nguyen Xuan Phuc, Vietnam commits to support and create a favourable environment for foreign investors to invest in and operate within Vietnam (PWC). Furthermore, The Vietnamese government has developed various policies to encourage enterprise and foreign investment in recent years (PWC). For example, abridging administrative processes in areas such as import, export, establishment of companies and paying making tax payments (PWC). And also as part of opening up globally, Vietnam joined World Trade Organization (WTO) and has entered into or completed the negotiations of Free Trade Agreements (FTAs) (PWC). Furthermore, World Bank has ranked Vietnam in the 82nd position in the Ease of Doing Business List in 2017, which is 9 ranks higher than 2016 (Doing Business). This also highlights the government’s effort to increase foreign investments in Vietnam. Lastly Vietnam’s government still continues to show commitment to reforms such as Socio-Economic Development strategy (SEDS). This is a 10-year strategy, which focuses the essential for structural reforms, environmental sustainability, social equity and developing concerns of macroeconomic stability. Furthermore, it highlights 3 development capacities, they are promoting skills development on new industry and innovation, second is enlightening of market institutions and lastly additional infrastructure expansions (World Bank). According to British Department of International Trade corrupt practices are still very common in Vietnam. However, government of Vietnam have openly committed to addressing corruption and had taken actions, such as implementing and improving anti-corruption laws, developing anti-corruption strategies and strengthening of relevant institutions and also have endorsed in the United Nations Conventions Against Corruption (UNCAC) (Gov.UK).
Due to Vietnam’s government stability and its support towards foreign investments and efforts to safeguard foreign investment, it is an opportunity for Sime Darby to invest in Vietnam, one of the fastest developing country. However, the corruption and bribery can be a minor threat for Sime Darby while doing business in Vietnam
3.2 Vietnam’s growing economy, Sizable Educated Labour force and Low Wages
Vietnam economy is one of the fastest growing economies in the world. Vietnam’s GDP growth forecast is between 6% to 7% from 2016 to 2018. Furthermore, over the past 2 decades, GDP growth has averaged approximately 7% as well. Moreover, according to PWC’s World in 2050; Vietnam has the fastest projected GDP growth rate in Asia, with 5% per annum from 2014 to 2050 (PWC). Also, Vietnam’s GDP per Capita has increase significantly over the years. Vietnam’s GDP per capita increase 350% since 1991 (Gov.UK). Vietnam’ middle class population also has been growing rapidly due to foreign invested manufacturing sector (Gov.UK). And also, due to the growing economy there was drastic reduction on the nations poverty level. In 1993 over half of the Vietnamese population lived on less than $1.90 a day. However as of today, rate of such extreme poverty has fallen to 3 percent. Proportion of people living below national poverty line 13.5% as of 2014, but that number in 1993 was over 60%. This means that due to the growth of economy over 40 million people has escaped poverty (World Bank).
Apart from growing economy, Vietnam also has a sizable workforce. According to PWC, in 2016 there are around 54 million in employment of the working age, and official unemployment rate of Vietnam is 2% (PWC). Furthermore, according to an article published in Nikkei Asian Review, low personal cost and high educations level in Vietnam have been attracting global business to Vietnam (Nikkei). Moreover, according to Vietnam’s Ministry of education literacy rate of Vietnamese people of the age 15 to age 50 has reached a staggering 97.3% (DTINews). And average annual income per person in the year 2016 was over $2,200. Moreover, compared to other countries in Asia, the cost of living in Vietnam is relatively low (PWC).
Due to the fact that Vietnam is one of the fastest growing economy, it is a great opportunity for Sime Darby to diverse the business in Vietnam. Furthermore, Sime Darby can take great advantage of Vietnam’s low wage sizable educated labour force in their investments.
3.3 Enhanced Legal System
During the 1990s, commentators and development practitioners slipped fairly effortlessly towards consensus regarding the relationship between legal systems and Foreign Direct Investments. However, it belief believe largely among people that foreign investors are attracted to legal systems which are predictable and efficient (Digital Commons). As with Vietnam, Vietnam has also made important efforts to ensure that foreign investors are not disadvantaged compared to with their local counterparts. This includes an overhaul of the legal framework governing investments and protection of intellectual property (PWC). Furthermore, before joining WTO, Vietnam improved much of their legal system, by making revisions to its major legal framework, such as Labour Code, Land Law, Civil Code, Law on Securities, Law on Competition, Enterprise Law and Investment Law. This was made to make the Vietnam’s investment environment more transparent (EY). And also, Vietnam has approved core conventions of International Labour Organizations, such as Equal Remuneration for Equal Value, Discrimination in Employment and Occupation, Minimum age of Occupation and Worst Forms of Child Labour Conventions. However, right to freedom of association and collective bargaining still remains restricted in Vietnam. Furthermore, Vietnamese workers are not free be affiliated with any independent unions. More recently in 2012, Vietnamese National Assembly accepted revision to the Labour Code of Vietnam. These revisions include extending of maternity leave to six months, setting out minimum requirements for minimum wage and reducing employees from working more than 50% over their official working hours in a day.
Improvement in Vietnam’s legal system towards foreign investment, will make it less riskier for foreign investments to invest and also will assure the foreign investors investments are safe. Therefore it is a great opportunity for Sime Darby to invest in Vietnam at this point of time.
4. Managing Culture
It is an acknowledged marvel in business that organizations must have the capacity to work in a worldwide domain, as connections and markets are progressively worldwide in nature (Rehg, Gundlach and Grigorian, 2012; Johnson, Lenartowicz and Apud, 2006). Furthermore, culturally edified administration is required to lead new organizations into advancing worldwide economy (Grahn and Swenson, 2000). Aforementioned statements highlights the importance of managing culture in today’s business world.
4.1 Cultural Differences between Vietnam and Malaysia
There are many ways to distinguish the differences and similarities in culture. Some of the famous cultural dimensions are Hofstede cultural dimension and Trompenaars cultural dimensions. Both dimensions are fairly similar and share same characteristics. For example, Hofstede’s individualism vs collectivism and Tramponaars individualism vs communitarianism, both dimensions individualism refers to people working for themselves and immediate family. On the other hand, collectivism and communitarianism refers people belonging to a group. Similarly, Hofstede’s indulgence vs restrains and Trompenaars Neutral vs Emotional also has similar traits. It is because both refers to emotions of people. Furthermore, Hofstede’s Masculinity vs Femininity cultural and Trompenaars Specific vs Diffuse are relatively similar because, in Masculinity and Specific, people work towards goal and keep work life and personal life separate. However, Femininity and Diffuse, people try to keep work life and personal life close (text Book).
Malaysians and Vietnamese share very similar cultural characteristics. However, there are minor differences too. Malaysians and Vietnamese business organizations tend to have hierarchy (Communicaid). And in both countries major decisions are made from top (Communicaid). Therefore, it could be said that Malaysia and Vietnam are high power distance countries. However, it could be said that Malaysia’s power distance is low compared to Vietnam. It is because doing business can be quite slow in Vietnam as there is lot of bureaucracy to go through before any deal can be made (Communicaid). Furthermore, Malaysia is a democratic county. And democracy is a rule by which people elect representatives to fulfil the wishes of the society. Therefore, people have slight power in what they want. However, Vietnam is a communist country. In communism leaders will decide activities of the people and sometimes leaders may interfere with public life of the society. Therefore, society do not have any say in the hierarchy’s course of action (differencebetween).
Secondly, Malaysia and Vietnam can be distinguished as a restrained society. It is because, since it is always the top management who makes the decision (Communicaid). However, it could be said that Malaysia is less restrained compared to Vietnam. As Malaysians have freedom of expression and are allowed to have unions such as labor unions. On the other hand, Vietnamese do not have freedom of expression and are not allowed to make unions and Vietnamese government do not encourage dissent. (Gov.UK).
Lastly, Malaysians and Vietnamese have a diffuse culture. It is because people from both nationality gives a lot of importance keep a good face. Furthermore, both Malaysians and Vietnamese are very indirect. Vietnamese and Malaysians do not say ‘NO’ directly as it may lead to lose face. Instead, Malaysians tend to be polite and say, “I will try” (justlanded). On the other hand, Vietnamese remain silent if there is a disagreement in order to save face (Communicaid).
Apart from aforementioned cultural dimension, Vietnamese are punctual people and expect others to be so. Furthermore, appointments are made in several weeks earlier. However, on the other hand, Malaysians, usually Malays and Indians have a relaxed attitude to time (Justlanded). Moreover, Malaysians Muslims tend to avoid meeting on Friday since it is considered a holy day in Islam and attend have Friday Prayers. Also, due to Malaysia’s diverse society Malaysia has a lot of public holidays. On the other hand, Vietnam has very few public holidays compared to Malaysia (OfficialHolidays).
4.3 Managing Cross Cultural Diversity
Cross-cultural training can be an effective way to manage cross cultural diversity. It is because cross-cultural training is associated with: feelings of well-being and self-confidence; development of appropriate behaviors in the context of the foreign culture; and improvement of the relationships with host country’s inhabitants (Waxin and Panaccio 2005; Black and Mendenhall, 1990; Black, Mendenhall and Oddou, 1991). The goal of cross cultural training is to show individuals from one culture to collaborate successfully with individuals from another culture, and to incline them to a rapid adjustment to their new positions (Waxin and Panaccio, 2005; Brislin and Petersen, 1986; Mendenhall and Oddou, 1991). Therefore, that pre-move preparing and culturally diverse briefings can help expatriate staff adapt to living and working in new environments (Waxin and Panaccio, 2005; Forster, 2000). Moreover, cultural training can lessen aversion, help individuals from various co-societies to relate with each other, and enhance the adequacy of communication across co-cultures (Nixon and Dawson, 2002).
Another way to manage cross cultural diversity effectively is by investing in multinational corporation’s own socialization mechanisms. For example, social events alongside regular meetings and conferences. Also, creating social platforms such as company magazines, intranets, and even in-house television channels for corporate communications can all support to manage cultural diversity effectively. Moreover, these kinds of activities will not only manage cross cultural diversity but will also promote shared values, symbols, and even language to help bind employees together (Unece.fr).
Furthermore, building diversity issues into recruitment, Human Resource Management (HRM) planning, strategy, location decisions, alliances, and partnerships will help avoid clashes and inefficiency which will lead to support cultural awareness within the group (Unece.fr).
Moreover, studying the various cultures and ethnic groups working in the multinational company and based on this study understand which elements of consistency and standardization can be implemented within the multinational company, that will aid to manage cross cultural differences (Unece.fr).
Lastly building a senior management team and board of directors of vast cultural differences to match the geographically diverse multinational company will also help to manage cross cultural diversity effectively (Unece.fr).
5. Entry Strategy
Today businesses are always looking at new market entry prospects as a way of creating rapid growth and expanding the businesses (bizvietnam). However, it is crucial to make a good market entry strategy in order to make an international business a success. It is because if you make a wrong market entry strategy it might be difficult to recover the market position (bizvietnam). Furthermore, there many ways to enter new market. Some of the famous entry strategies are Export and imports, Wholly owned Subsidiary, Mergers and Acquisitions, and alliances and joint ventures.
Therefore, Sime Darby as a diverse multinational company, must evaluate the best market entry strategy before investing in Vietnam. Based on the situations and circumstances in Vietnam, the best market entry strategy for Sime Darby, will be to form a joint venture. Furthermore, preferably with a state-owned enterprise. It is because in Vietnam, state-owned enterprise normally has more business experiences, have better capability to secure and sustain land use rights, gain approvals, negotiate tax and import duty concessions, and also has political influence which can benefit Sime Darby (Vietnamese Law Consultancy).
Due to Vietnams, political stability and Vietnamese governments welcoming nature to foreign investment and the growing economy of Vietnam is an attract preposition for a multinational company like Sime Darby to invest in take full advantage of. Furthermore, Sime Darby can also really benefit from Vietnam’s low wages and sizable educated labor force. Lastly, Vietnam and Malaysia has very similar culture, hence culture difference will not make it hard for a Malaysian based multinational company like Sime Darby to adapt into. All in all, based on these factors, Sime Darby should choose to invest in Vietnam.