[Report] International Business - Group 4 PDF

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FOREIGN TRADE UNIVERSITY Faculty of Economics and International Business ANALYSIS OF INTERNATIONAL BUSINESS OPPORTUNITIES OF FOREVER 21, INC. IN VIETNAM Group 4 Assignment for International Business Class: KDOE307(2-1718).1_LT Lecturer: MA. Nguyễn Hồng Trà My Group members: Nguyễn Ngọc Ánh Đỗ Thu Gi...

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FOREIGN TRADE UNIVERSITY Faculty of Economics and International Business

ANALYSIS OF INTERNATIONAL BUSINESS OPPORTUNITIES OF FOREVER 21, INC. IN VIETNAM

Group 4 Assignment for International Business Class: KDOE307(2-1718).1_LT Lecturer: MA. Nguyễn Hồng Trà My Group members: Nguyễn Ngọc Ánh Đỗ Thu Giang Đoàn Nguyễn Thị Diệu Linh Hoàng Thị Thảo My Vũ Thị Hồng Ngân Đỗ Thị Thảo Nguyên Võ Thị Phương Thảo

Hanoi, May 2018

1517150021 1516150036 1511150074 1511150089 1511150092 1515150097 1511150119

TABLE OF CONTENT

INTRODUCTION....................................................................................................... 1 1. Purpose............................................................................................................ 1 2. Overview of FOREVER 21, Inc......................................................................1 PART 2: THEORETICAL FRAMEWORK.............................................................3 1. Overview: Location Decisions Affecting International Operations.................3 2. Scanning versus Detailed Analysis..................................................................3 3. Future change in prime locations.....................................................................6 PART 2: MARKET SELECTION PROCESS..........................................................7 1. Identifying business opportunities of Forever 21 in Vietnam..........................7 2. Analyzing business opportunities of Forever 21 in Vietnam...........................8 2.1.

Political and Legal factors........................................................................8

2.2.

Economic factors....................................................................................14

2.3.

Social factors..........................................................................................15

2.4.

Technological factors..............................................................................18

3. Assessment of business opportunities of Forever 21 in Vietnam...................19 3.1.

Market potentialities...............................................................................19

3.2.

The business environment risk................................................................22

3.3.

Competition: H&M and Zara..................................................................23

3.4.

Competitive advantage of F21................................................................24

PART 3: RECOMMENDATIONS...........................................................................26 1. Mode of entry and targeted locations.............................................................26 1.1.

Mode of entry.........................................................................................26

1.2.

Locations................................................................................................27

2. Strategies....................................................................................................... 29 2.1.

Business and corporation strategies........................................................29

2.2.

Marketing strategies................................................................................29

CONCLUSION..........................................................................................................31 REFERENCES.......................................................................................................... 32

INTRODUCTION 1. Purpose In international business, because all companies have limited resources, they must be careful in their decision-making process, especially when deciding on in which countries to locate sales, production, and administrative and auxiliary services; the sequence for entering a new market; and the amount of resources and efforts to allocate to the country where they operate. Vietnam has been one of the fastest growing emerging markets in the world for more than a decade, which is very attractive to foreign investments. In recent years, Vietnam has seen a boom in the apparel industry, with the development of domestic brands as well as the entries of many fashion moguls such as H&M, Zara and incoming is Uniqlo, etc. Considering the current potentialities of Vietnam, Forever 21, as one of the most popular fast fashion retailers, shall take the opportunities to enter the market before the competition gets fiercer with the invasion of more international brands. In this report, we will discuss in depth the international business opportunities of Forever 21, Inc. in Vietnam by identifying, analyzing and evaluating the business environment factors of Vietnam to, therefore, draw our own suggestions for their entry into the Vietnamese market. We would like to thank our lecturer, MA. Nguyen Hong Tra My, who has provided us a foundation of knowledge related to this topic and have been very dedicated to giving us informative and practical lectures about international business so that we can finalize this assignment.

2. Overview of FOREVER 21, Inc. Forever 21 is an American retail chain that is #122 in Forbes biggest private companies list of USA. With headquarters in Los Angeles, California, the company has 480 branches all over the world and has notched up sales of $3.7 billion in 2013. One of America’s most preferred retailers, Forever 21 was established as Fashion 21 in April 21, 1984 by Korean immigrant husband and wife, Do Won Chang and Jin Sook Chang in a small 900 sq feet space. The store is located at 5637 N. Figueroa Street in the Highland Park district of Los Angeles and is still in operation, bearing the chain's original name. Originally, Forever 21 only sold clothes for women and designs similar to those seen in South Korea were sold and targeted to the Los Angeles Korean American community. But now most Forever 21 stores sell accessories, beauty products, home goods, and clothing for women, men, and girls, including plus size clothing for women. On their website, they also sell girls clothing and home/lifestyle products. Forever 21 is known for its trendy offerings and low pricing. More than 60% of its apparel is made in China and the average store size is 38,000 square feet (3,500 m2), the largest is approximately 162,000 square feet. In 1977, there were 40 F21 stores. Today Forever21 has many different brands within the company like Forever 21, Forever XXI, For Love 21, Gadzooks. The company’s mission statement is to provide customers with an unprecedented selection of today’s fashion with affordable price. They are known as “always changing and always in style”.

PART 2: THEORETICAL FRAMEWORK 1. Overview: Location Decisions Affecting International Operations

2. Scanning versus Detailed Analysis a) Importance of scanning: Without scanning, a company may:  Overlook opportunities and risks  Examine too many or too few possibilities b) Information in scanning:  Opportunities  Sales Expansion  Resource

Acquisition

Transportation

(contain

Labor,

and Communications,

Disincentives)  Risks  Factors to Consider in Analyzing Risk

Infrastructure,

Ease

Government Incentives

of and

 Companies and their managers differ in their perceptions of what is risky.  One company’s risk may be another’s opportunity.  There are means by which companies may reduce their risks other than avoiding locations.  There are trade-offs among risks.  Types of risks  Political Risk  Analyzing Past Patterns  Analyzing Opinions  Examining

Social

and

Economic

Conditions,

including:

Obsolescence and leapfrogging of products, Prices, Income elasticity, Substitution, Income Inequality, Cultural Factors and Trading Blocs.  Monetary Risk  Exchange Rate Changes: Differences in the exchange rates can create gains or losses  Mobility of Funds: Liquidity among countries varies  Competitive Risk  Making Operations Compatible  Spreading Risk  Following Competitors of Customers  Heading Off Competition c) Collecting and Analyzing Data  Information is needed at all levels of control.  Companies should compare the cost of information with its value. d) Problems with Research Results and Data  Limited Resources  Misleading Data

 Reliance on Legally Reported Market Activities  Poor Research Methodology  Non-comparable Information: Most companies examine proposals one at a time and accept them only if they meet minimum threshold criteria. e) External Sources of Information  Individualized Reports  Specialized Studies  Service Companies  Government Agencies  International Organizations and Agencies  Trade Associations f) Country Comparison Tools  Grids  May depict acceptable or unacceptable conditions  Rank countries by important variables  Matrices allow companies to  Decide on indicators and weight them  Evaluate each country on the weighted indicators g) Allocating Among Locations  Alternative Gradual Commitments: Companies may reduce risks from the liability of foreignness by  Going first to countries with characteristics similar to those of their home countries.  Having experienced intermediaries handle operations for them.  Operating in formats requiring commitment of fewer resources abroad.  Moving initially to one or a few, rather than many, foreign countries.  Geographic Diversification versus Concentration  Growth rate in each market  Sales stability in each market

 Competitive lead time  Spillover Effects  Need for product, communication, and distribution adaptation  Program control requirements  Reinvestment and Harvesting  FDI-financial and human capital invested abroad  Depending on the success of the investment, the company may reinvest or consider using the capital elsewhere 3. Future change in prime locations  Future growth rates will have implications for locations of markets and labor forces.  Technological innovation allows for new trends in urbanization as more people are able to work from locations of their choosing.

PART 2: MARKET SELECTION PROCESS 1. Identifying business opportunities of Forever 21 in Vietnam Vietnam has been one of the fastest growing emerging markets in the world for more than a decade until 2018. It is a rapidly developing country with a young population of more than 89.71 million, with the median age of 29.2, and a per capita GDP of USD 1,902, as of 2013. It has also been a major attraction for foreign direct investment (FDI) from around the world.

Regarding economic developments, Vietnam’s growth rate has averaged 6.4% per year for the last decade, but it has begun to slow recently. In 2013, the nominal GDP reached US$174.4 billion, growing at 5.4% and is projected to flatten in 2014. Although the economic growth remains moderate and below its potential, Vietnam managed to improve its macroeconomic stabilization. Headline inflation fell from a peak of 23% in August 2011 to about 4.2% in August 2014. Despite these negative elements like language barriers, different business cultures, inadequate and inaccurate information, etc., the potential of the Vietnamese market remains strong and the country is predicted to continue growing at an annual rate of about 5% in the coming years. According to the 2012/13 ASEAN Business Outlook Survey by AmCham Singapore and US Chamber of Commerce, Vietnam remains the most popular location for expansion within the

ASEAN region by a wide margin. Thailand is ranked second, followed by Singapore and the Philippines.

In January 2007, Vietnam became a member of the World Trade Organization (WTO), over a decade after it first applied for membership. This completes Vietnam’s efforts to become a full member of the world trading system. Prior to joining the WTO, Vietnam had begun a process of trade liberalization, reducing its tariffs in accordance with its obligations as a member of the Association of South East Asian Nations (ASEAN). 2. Analyzing business opportunities of Forever 21 in Vietnam 2.1.

Political and Legal factors

a. Political factors Vietnam is a socialist country operating under the leadership of the Communist Party. A national congress of Vietnam's Communist Party is held every five years determining the country's orientation and strategies and adopting its chief policies on solutions for socio-economic development. For politics, Vietnam is adopting a mixed economy and government still plays a big role in planning and governing. When investing in Vietnam, there are several significant political aspects that need to be concerned.  Strengths The Communist Party government appears committed to market-oriented reforms necessary to double 2000's GDP per capita by 2010, as targeted.

The one-party system is generally conducive to short-term political stability. Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia.  Weaknesses Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party. There is increasing public dissatisfaction with the leadership's tight control over political dissent.  Opportunities The government recognizes the threat that corruption poses to its legitimacy, and has acted to clamp down on graft among party officials. Vietnam has allowed legislators to become more vocal in criticizing government policies. This is opening up opportunities for more checks and balances within the one-party system.  Threats The sharp slowdown in growth expected in 2009 is likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could easily develop into a full-on challenge of undemocratic rule. Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable b. Legal factors -

Socio-economic conditions have affected significantly on legal system. Legal

system must respond to the changes of socio-economic conditions. The remarkable changes in socio-economic in Vietnam that has required significant changes of legal system as follows:  Globalization: Vietnam became a member of WTO in 2007. World Trade Organization membership has reduced the tariffs and restrictions on

Vietnam’s exports to other member states, which has benefited the country. Also, all legal sectors have been reformed basing on the international trade rules. The legal landscape in the country has been improving since it became a member of the WTO. It is easy to register property in the country compared to elsewhere in the region (The World Bank 2010). While the recent past has witnessed difficulties in joint ventures located in Vietnam (high profile failures or withdrawal cases, disputes between joint venture partners, problems associated with the lack of transparency in the law (Quang 1998)) the situation is improving.  Achieving success as a Middle- Income Country : In progress of building rule of law state and democratic society, especially since became a middleincome country, Vietnam introduced a Master Plan on Administrative Reform period 2011-2013 with the aim at building up an effective, efficient, transparent, and strong administrative system from central to local level. Hence, the 1992 Constitution was amended in 2013 as a significant effort in reforming process. Currently, Vietnam has carried out reviewing all legal documents and has planned to promulgate new Laws in order to ensure that legal documents comply with the 2013 Constitution. -

The main legislation governing foreign direct investment (FDI) activities are

the Law on Investment and the Law on Enterprises in Vietnam. With a view towards creating a comprehensive legal framework for FDI activities in accordance with international standards, Vietnam has signed and acceded to various bilateral and multilateral arrangements on investment, such as agreements for the promotion and protection of investment with 46 countries and territories, Framework Agreement on the ASEAN Investment Area (AIA), etc. The international agreements contain provisions inconsistent with the provisions of the legal instruments on FDI, the provisions of the international agreements shall be applied.

 Free Trade Agreements: Vietnam has committed to several free trade agreements (FTAs), which attract investors and boost international economic integration. In addition to participation in the World Trade Organization (WTO) and the ASEAN Economic Community, Vietnam is a signatory to 12 FTAs with various countries. 10 FTAs are in effect:  ASEAN-Korea,

Six multilateral FTAs (Vietnam with ASEAN, ASEAN-China, ASEAN-Japan,

ASEAN-India

and

ASEAN-Australia-New

Zealand); 

Four bilateral trade agreements (Vietnam-Japan Economic

Partnership Agreement, Vietnam-Chile Bilateral FTA, Vietnam-Korea FTA and Vietnam-Eurasian Economic Union FTA); The following 2 FTAs have been concluded: Vietnam-EU FTA; and Trans-Pacific Partnership. 

Vietnam officially joined the WTO on November 7, 2006, and

put its commitments into force from January 11, 2007. The accession of Vietnam to the WTO has had a positive impact on the country’s market and economy, including: The considerable reduction of import duties on goods for domestic production as well as for private and government consumption; and the liberalization of Vietnam’s services market. 

The services subsectors which used to be closed or restricted to

foreign investment, such as distribution, transport, telecommunications and finance, are now largely liberalized.  Corporate Law: Under Vietnam’s Law on Enterprises 2014 (LOE), a foreign investor must first apply for an investment registration certificate (IRC), and second, apply for an enterprise registration certificate (ERC) to establish a company. The LOE came into force on July 1, 2015, and regulates the establishment, organization, restructuring, management and dissolution of enterprises in Vietnam.  Law on Investment: Foreign investors play an increasingly important role in the development of the economy of Vietnam. Pursuing the objective to attract foreign investment, Vietnam’s law makers have set out a number of

innovative investment regulations to prepare for upcoming opportunities from the ASEAN Economic Community and a series of newly negotiated FTAs. At the center of the legal framework for attracting investment, the Law on Investment (LOI) receives the most focus. In 2014 a new LOI with breakthrough changes aimed at improving the investment environment was passed. In 2016 Vietnam took further action to remove legal barriers for business by revising the LOI. On November 12, 2015, the government issued Decree 118/2015/ND-CP guiding the implementation of the Law on Enterprises 2014 (Decree 118). Clarification of new concepts and scope: Many problems in implementing investment-related regulations before the LOI were the results of authorities misunderstanding legal concepts or the lack of key definitions in legislation. This led to the issue of different licensing authorities interpreting the law differently, and various aspects of the investment registration procedure became unpredictable.  Corporate Income Tax (CIT): As of 1 January 2016, the standard corporate income tax rate is 20% (reduced from 25% to 22% in 2014 and to 20% presently). Preferential tax rates are available when certain criteria are met. Certain industries may have a higher tax rate applied (for example, oil and gas and other rare natural resources operation...