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ASSIGNMENT 2 - INDIVIDUAL RESEARCH REPORTAMAZONGLOBAL BUSINESS ENVIRONMENT, COUNTRY EVALUATION AND FDIDECISIONSTable of ContentsIntroduction................................................................................................................................. Introduction.....................

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IBUS 201 ASSIGNMENT 2 - INDIVIDUAL RESEARCH REPORT AMAZON

GLOBAL BUSINESS ENVIRONMENT, COUNTRY EVALUATION AND FDI DECISIONS

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Table of Contents Introduction.................................................................................................................................3 Candidate countries and evaluation.............................................................................................4 Political and legal influences in the candidate countries...............................................................5 Economic factors in the candidate countries................................................................................6 International business opportunities for Amazon in Vietnam and Malaysia.................................7 Potential risks for investment in Malaysia and Vietnam...............................................................8 Why Vietnam should be strategically prioritised for Amazon’s FDI...............................................9 Recommendations for Amazon’s FDI into Vietnam.....................................................................10 Conclusion..................................................................................................................................10 Bibliography:..............................................................................................................................11

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Introduction Amazon is the company I have chosen to conduct research on their global business environment and offer recommendations with regard to their FDI into the chosen country for Amazon. Amazon is extremely successful and has been referred to as ‘one of the most influential economic and cultural forces in the world’, as well as the world’s most valuable brand. It was founded by Jeff Bezos from his garage in Washington, and was initially an online marketplace for books but has since expanded into a range of product categories. 1 It has multiple subsidiaries, such as IMDb, Wholefoods and Ring doorbell. Amazon has become known as a disruptor of well-established industries through technological innovation and mass scale. As of 2021, it is the world’s largest internet company, online marketplace, AI assistant provider and many more. Also commonly known, Amazon distributes a variety of content through Amazon Prime, Amazon Music, Twitch and Audible units.2 Amazon was a particularly interesting company to me as they have expanded into unchartered global success. I wanted to see if there were other countries that there was potential to invest in, to continue growing their global business. Currently, Amazon locations are all over the world, but the company is based in Seattle Washington. It has over 1,335,000 employees globally, with 950,000 of those in the US.3 Most of their fulfilment centres are in the USA, but there are also some scattered over Asia, Canada and Australia, though significantly less than America itself.4 This is why I chose two countries outside of USA, where most Amazon locations are.

Candidate countries and evaluation Since most of Amazon’s locations are in America, I have chosen the two countries Malaysia and Vietnam as the two candidate countries in my global business environment evaluation 1 Amazon (company) - Wikipedia. (2022). Retrieved 9 January 2022, from https://en.wikipedia.org/wiki/Amazon_(company)

2 Amazon (company) - Wikipedia. (2022). Retrieved 9 January 2022, from https://en.wikipedia.org/wiki/Amazon_(company)

3 List of Amazon locations - Wikipedia. (2022). Retrieved 9 January 2022, from https://en.wikipedia.org/wiki/List_of_Amazon_locations

4 List of Amazon locations - Wikipedia. (2022). Retrieved 9 January 2022, from https://en.wikipedia.org/wiki/List_of_Amazon_locations

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from an international business perspective. Currently, online shoppers from Vietnam and Malaysia can access Amazon, but many products are not available for shipping to either country and those that are, available have extremely high shipping costs – potentially even higher than the cost of the product itself. Malaysia and Vietnam are both in the continent of Asia, which has been a common location for FDI for numerous reasons. Both Malaysia and Vietnam have a very large population. Vietnam has a population of 97.34 million, whilst Malaysia has 32.37 million (2020 figures). Both countries are part of ASEAN which is a regional organisation bringing together disparate neighbours to address economic, security, political issues and of the world’s largest free trade blocks and plays a crucial role in Asian economic integration. 5 This would be beneficial to Amazon as it would create a fair environment for them as foreign investors. Vietnam is considered an attractive destination for investors from various countries. According to the statistics of the Foreign investment Department, up till August 20, 2020 there have been 32, 539 valid projects with a total registered capital of nearly 381.2 billion USD. Vietnam’s nominal GDP estimate for 2022 is $404 billion dollars. Asia Legal listed some reasons why Vietnam should be favoured by foreign investment. Firstly, Vietnam has a particularly favourable geographic position with a long coastline and many deep-water seaports, as well as a gateway to international goods trade by sea. The mainland is also bordered by China, one of the world’s largest economics today.6 Malaysia’s 2022 (estimate) nominal GDP is $415 billion dollars. In 2020, the amount of foreign direct investments in Malaysia amounted to approximately 3.5 billion US dollars, which was the lowest FDI inflow to Malaysia in the last 10 years. The decrease in investments was due to the negative business sentiments during the pandemic. Malaysia was in the top tier of preferred ASEAN countries to investment, but now has fallen behind other countries such as Philippines, Singapore, Indonesia and Vietnam. 7 The reason why I have chosen Malaysia as a host country is because their economy has been on an upward 5 ASEAN | Definition, History, & Facts. (2022). Retrieved 7 January 2022, from https://www.britannica.com/topic/ASEAN 6 Nguyen, T. (2020). 9 reasons why foreign investors should invest in Vietnam. Retrieved 14 January 2022, from https://www.lexology.com/library/detail.aspx?g=bcead934-0c6c-410c-bf77-90c687270c18

7 Cheok, K. (2020). FOREIGN DIRECT INVESTMENT: CHANGES IN MALAYSIA. Retrieved 10 January 2022, from https://www.kwm.com/au/en/insights/latest-thinking/fdi-malaysia.html

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trend with an average growth of 5.4% a year since 2010. It is a country with huge potential for growth, and due to the exchange rate and cheap resources, would be a good candidate for Amazon’s foreign direct investment.

Political and legal influences in the candidate countries Amazon will need to assess the political and legal influences on any potential FDI activities in Vietnam and Malaysia. The political situation is known to be relatively stable in Vietnam, which is one of the most attractive factors for investors and highly appreciated. Many other Asian countries have political mayhem, meanwhile, Vietnam’s politics has been much more stable, ensuring consistency in economic development policy and in attracting foreign investment.8 Vietnam is a socialist republic with a one-party system led by the Communist Party of Vietnam. Malaysia’s political system has been less stable. In fact, decisions made by Barisan Nasional’s successor shook the confidence of foreign investors. There was a sudden cancellation of multi-billion Ringgit projects undertaken by foreign partners and the halting of key infrastructure development projects. The failure of Pakatan Harapan’s government to maintain the upstanding policies and diplomatic relationships as well as breaking promises give via contracts signed prior to their term, have led to deterioration in confidence with key foreign investors.9 This may mean that Amazon might need to create a good relationship with the current leader in order to secure any possibility of successful investment in Malaysia, whilst also ensuring that there is no risk for any cancellation in the future with new successors. This might be a lot to ask, if successors can cancel contracts and break promises such as has already occurred and causes investors to wonder whether they can trust the Malaysian government as there appears to be a lack of security.

Economic factors in the candidate countries Vietnam is considered a country with a stable and dynamic economic. It is still considered a country with the leading stable and fast-growing economy in the region and in the world. In 8 Nguyen, T. (2020). 9 reasons why foreign investors should invest in Vietnam. Retrieved 14 January 2022, from https://www.lexology.com/library/detail.aspx?g=bcead934-0c6c-410c-bf77-90c687270c18

9 Awani, A. (2021). Malaysia's FDI: Major factors and the way forward. Retrieved 13 January 2022, from https://www.mida.gov.my/mida-news/malaysias-fdi-major-factors-and-the-way-forward/

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Vietnam, GDP is steadily increasing, processing and manufacturing and the consumption market. Furthermore, the supply of goods is abundant. Total export and import turnover was estimated at 382.72 billion USD, of which export turnover of goods reached 194.3 billion USD, an increase of 82% and trade surplus was 5.9 billion USD, with 26 items of export turnover of over 1 billion USD.10 Vietnam’s current economic situation appears to be thriving and with a lot of potential for new growth, which Amazon could use to their advantage. Furthermore, Vietnam has open foreign investment policy. Vietnam as a country always opens its market to encourage and attract the foreign investors through administrative procedure reform and investment incentives. The Investment Law 2020 and Enterprise Law 2020, which came into force January 1 2021, further strengthens Vietnam’s open foreign investment policy by cutting some administrative investment procedures. Malaysia is one of the most open economies in the world, with a trade to GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities. It is expected to achieve its transition from an upper middle-income economy to a high-income economy by 2024. However, the Covid-19 pandemic may have set them back, and has had a huge economic impact on vulnerable households. 11 The government is focused on addressing the well-being of the poorest 40% of the population, which remains particularly vulnerable to economic shocks, coupled with increases in living costs and financial obligations.

International business opportunities for Amazon in Vietnam and Malaysia Vietnam’s business environment is constantly improving which provides potential opportunities for Amazon. Their competitiveness, travel and tourism and global innovation index have each increased their points in the rankings.12 This means that Amazon can capitalise on this by investing into manufacturing locations and distribution centres in

10 Nguyen, T. (2020). 9 reasons why foreign investors should invest in Vietnam. Retrieved 14 January 2022, from https://www.lexology.com/library/detail.aspx?g=bcead934-0c6c-410c-bf77-90c687270c18

11 The Vulnerability of Jobs to COVID-19: The Case of Malaysia. (2021). Retrieved 14 January 2022, from https://www.worldbank.org/en/events/2021/09/23/the-vulnerability-of-jobs-to-covid-19-the-case-of-malaysia 12 Nguyen, T. (2020). 9 reasons why foreign investors should invest in Vietnam. Retrieved 14 January 2022, from https://www.lexology.com/library/detail.aspx?g=bcead934-0c6c-410c-bf77-90c687270c18

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Vietnam as they have become more business savvy and could potentially become a new hub for new business opportunities that might not be available without the guidance of a large corporation such as Amazon.

Furthermore, they have a young and abundant labour force. Vietnam is a country with a young population, with nearly 88% of the population aged 25 to 59. Another factor that is an opportunity, is that the Vietnamese workforce is known and appreciated for its hard work, high level of education and ease of training. Vietnam has also been and will continue to invest more in education and training than other developing countries.13 This is one of Vietnam’s competitive advantages compared to other labour markets in the region. This creates an opportunity for Amazon because if they consider foreign direct investment into Vietnam, they would be rewarded with a highly skilled and diligent workforce. Despite the annual increase in the regional minimum wage, Vietnam remains a low labour cost country. Wages in Vietnam are still less than half the wages in China. 14 The rise in wages in China has forced manufacturers to look for a market with lower labour costs. Vietnam with a low minimum wage and a growing economy is a low-cost alternative to China. Because the labour is also comparatively cheaper, due to the exchange rate and it being a less wealthy country than the likes of USA (where most of Amazon’s manufacturing locations and distribution centres are based), they should be able to save money to perhaps even invest in neighbouring Asian countries whom they have a good relationship with.

Malaysia also serves as an ideal platform for expansion in Asia. The country has become a prime location for investment, due to a unique combination of factors that makes Malaysia so attractive. Malaysia has good infrastructure, skilled labour and relatively low cost structure. These all contribute to a competitive investment climate. Furthermore, the market for high-end products have been increasing. The workforce is well-educated which would serve as a good resource if wanting to invest in Malaysia. the labour force is multilingual and most people speak English fluently. Employees are generally well-trained

13 Nguyen, T. (2020). 9 reasons why foreign investors should invest in Vietnam. Retrieved 14 January 2022, from https://www.lexology.com/library/detail.aspx?g=bcead934-0c6c-410c-bf77-90c687270c18

14 Cant, R. (2016). Features- Minimum Wage Debate Across China, India, and Vietnam. Retrieved 15 January 2022, from https://www.gpminstitute.com/publications-resources/Global-Payroll-Magazine/august-september2016-issue/features-minimum-wage-debate-across-china-india-and-vietnam

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and productive, open to new ideas and always willing to improve. 15 The Malaysian workforce is considered to be some of the hardest and dedicated workers in the world. Amazon could utilise this if they wanted to invest in to Malaysia. Another opportunity is that many people in Malaysia observe Western culture through television and social media, and have grown to appreciate items that people have in Western society. I believe they would be eager to purchase them if they had access – through a website such as Amazon. I know this from speaking to my relatives in Malaysia, where my family are from.

Potential risks for investment in Malaysia and Vietnam The risk of investing in Malaysia is that there is possible corruption involving Chinese conglomerates and Malaysia’ prominent leaders, which has worsened things. 16 This is a large risk for Amazon, because if they were to invest and Malaysian politics favoured Chinese trade rather than American, they could end up on the backfoot and resources could be wasted. Furthermore, because their economy has taken a hit during the pandemic, it could be unsafe to invest in such an uncertain time whilst the economy is not entirely stable. The country is further hindered by corruption that adversely impacts the efficacy of the legal system, as well as the bureaucracy surrounding paying taxes and opening and closing a business. While exports have proved resilient amid the pandemic, there are several risks to the economy in the short term. These include, high shipping costs amid the pandemic, which could weigh on manufacturing activity; a shortage of construction raw materials slowing project progress; and a resurgence in Covid-19 infections hampering a recovery in services and also disrupting factory operations.17 However, Vietnam also poses some risks for investment. Vietnam is still a socialist driven society. This would be a risk for Amazon because the government still has control over many industries and since Amazon is from a capitalist society, there could be issues. There are also limits on freedom of expression that can impact internet use, which is problematic for a 15 100, S. (2020). Doing business in Malaysia - Gaiyah Consult. Retrieved 17 January 2022, from https://www.gaiyahconsult.com/en/business-integration/doing-business-in-malaysia.html

16 Alam Siddiquee, N. (2020). Absolute Power, Absolute Venality: The Politics of Corruption and Anti-corruption in Malaysia. Retrieved 18 January 2022, from https://www.tandfonline.com/doi/abs/10.1080/10999922.2020.1830541?journalCode=mpin20 17 Report, V. Vietnam Trade and Investment Risk Report. Retrieved 19 January 2022, from https://store.fitchsolutions.com/operational-risk/trade-investment/vietnam-trade-and-investment-risk-report

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store that is online, and possible limitations on their choice of advertising. Essentially, they might have to have a strategic overhaul if they wanted to invest in Vietnam, based on what is politically and legally acceptable there. Furthermore, Vietnam is at a fragile and early stage of economic growth, making it riskier than mature markets. This means that the economy could be volatile in the future and Amazon would have to consider whether the risk is worth taking since there are many other opportunities for investment elsewhere.

Why Vietnam should be strategically prioritised for Amazon’s FDI I would recommend that Amazon invests into Vietnam as opposed to Malaysia, and prioritise them for their foreign direct investment. Malaysia’s political climate does not seem as stable as Vietnam, which could cause many problems if contracts are not honoured. Because of high amounts of corruption in Malaysia, it might be harder to maintain a genuine relationship and there could be fears of Amazon’s Chinese competitors bribing their way into the market. This would mean that Amazon could potentially struggle to gain market share if politicians favour Chinese businesses. Vietnam has a larger population which is also more attractive for investors, and a more stable political situation. The economy appears to be more stable than Malaysia’s. Even though it might be vulnerable, it is one of the leading Asian countries when it comes to economic growth and if nurtured, could allow for new growth if Amazon were to enter the Vietnamese market.

Recommendations for Amazon’s FDI into Vietnam I would recommend Amazon to be an early entrant, because they are so technologically advanced, they can potentially take command of the market in Vietnam before competitors catch up. Vietnam is becoming more technologically advanced, but they are still lacking compared to a tech-giant such as Amazon. Furthermore, since their economy is growing rapidly it would be beneficial for Amazon to enter the market as soon as possible so there are no lost opportunities. I believe that a rapid large-scale investment would be in their favour, because they already have the resources to, it would be beneficial to create another

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hub in Asia which is such a large market and has been growing in wealth over more recent years.

Conclusion In conclusion, after careful analysis of Malaysian and Vietnam as candidate host countries for foreign direct i...