In the current business scenario, outsourcing is one of the most popular and effective business strategies for the contemporary business organizations. This is due to the reason that the current market is much more competitive in nature and it is important for the business organizations to regulate their cost of operation in order to increase the profitability. In this case, outsourcing of the production facilities is being done to the countries with having lower cost of resources.
Uniform suppliers are one of the leading manufacturers of uniform clothing in Australia. However, in the recent time, they are facing the challenges in their business due to the reason that major competitors of them have outsourced their facilities and offering their products in less cost. Thus, Uniform suppliers are also in the need of outsourcing facilities. Vietnam is selected as the chosen country for outsourcing the manufacturing the activities (Tran 2017).
This report will discuss about the advantages and disadvantages to be faced by Uniform suppliers in having manufacturing facilities in Vietnam. A few comparison tools will be used in order to identify the business factors in operating in Vietnam. In addition, recommended steps for Uniform suppliers will also be discussed in order to enable them to operate effectively in Vietnam.
In order to identify the advantages and disadvantages for doing business in Vietnam, it is important to identify their competitive national advantages. Porter diamond model of national advantage will be used in this case.
According to the report of global human development index, Vietnam is having 76.7 percent of employment to population ratio. Thus, it denotes that Vietnam is having higher ratio of employability that will ensure that Uniform suppliers will not face any labor crisis. Moreover, it will also ensure that the average cost of labor will be less (Le and Wang 2017). The less will be the cost of labor, the less will be the cost of production for Uniform Suppliers. However, from the above data, it is also to be noted that Vietnam is having 2 percent of unemployment rate in the country. It is also reported that textile industry in Vietnam is having more than 6000 companies and more than 2.5 million employees (www.textiletoday.com 2018). Thus, a huge chunk of workforce is associated with the textile industry in Vietnam.
However, it is also being reported that the median age of the total population of Vietnam is 30.4. Moreover, more than 65 percent of the total population of Vietnam is between the ages of 15 and 64(hdr.undp.org 2018). Thus, the employable age is more in Vietnam. It will help Uniform Suppliers to have the access to eligible age of employment.
According to the global competitiveness report, Vietnam stands at 35 in terms of the domestic market size. Thus, it can be concluded that the domestic demand is favorable for the business organizations and it further develops the industries. It is also being reported that garment industry is the largest export based industry in Vietnam(www3.weforum.org 2018). This is mainly due to the reason that Vietnam is increasingly becoming the global hub for the outsourced manufacturing of fashion wear.
It is reported that the positive trend of the garment sector in Vietnam is contributing in enhancing the associated infrastructure in the country. Vocational training and skills development courses are becoming more popular in the domestic economy by larger section of the population(support.gov.vn 2018). This will help Uniform Suppliers to have the latest, updated and favorable business infrastructure for their off shoring strategy.
With having favorable popularity and contribution of the garment and textile industries in Vietnam, industrial clusters in the garment industry are rapidly developing. In response to the growing popularity of the garment industry, Vietnam is witnessing the development of related and complementary industries in the country (Liu, Lin and Huang 2014). This is leading to the holistic development of the entire garment and textile sector. In this case, Uniform Suppliers will have the advantage of having favorable business environment in the country.
Competition also plays an important role in enhancing the innovative approach of the organizations. According to the global competitiveness index, Vietnam is having the ranking of 108 in terms of intensity of local competition(www3.weforum.org 2018).Thus, this will have negative implication on the manufacturing facility of Uniform suppliers. This is due to the reason that the more will be the competition, the more will be the innovative approach of the organizations. However, the major competitors for Uniform suppliers along with other global players are having their manufacturing facility in Vietnam. Thus, there will be competition and it will be important for Uniform Suppliers to initiate innovative approaches in order to stay ahead in the competition.
Prior to investing in Vietnam, it is important for Uniform Suppliers to determine the external factors effectively. PESTLE factors will be used to understand the external business environment of doing business in Vietnam.
According to the reports, Vietnam is having the ranking of 123 in terms of ease of doing business. It is also being shown in the above figure that the regional average of East Asia and Pacific is better than that of the ranking of Vietnam. This will also have adverse impact on the business operation of Uniform Suppliers (www.doingbusiness.org 2018). This is due to the reason that, according to the above information, Uniform suppliers will find it difficult to run their business in Vietnam.
However, one of the major advantages for Uniform Suppliers in operating in Vietnam is the stable political scenario in the country (Slack 2015). According to the report of global competitive index, Vietnam is having favorable environment in terms of the political scenario.
According to be above figure, favoritism in decisions of the government will also cause difficulty for Uniform Suppliers due to the reason that according to the global competitiveness index, Vietnam is currently standing at 56 in this aspect(www3.weforum.org 2018).This is also denoting that they will face the challenge of corruption in operating in Vietnam. According to the global corruption index, Vietnam is standing at 107, which shows that corruption will be an important factor for Uniform suppliers in operating in Vietnam.
Thus, the negative factors are lower ranking in ease of doing business and in corruption index, while the positive political factor will be the stable political scenario of the country.
Vietnam is projected to have more than 6 percent growth of GDP in 2018. Thus, the economical environment of Vietnam is positive. Moreover, it is also reported that Australia and Vietnam is having positive growth of both import and export. According to the reports, it shows that the rate of import and export between Australia and Vietnam is increasing(dfat.gov.au 2018).This denotes that raw materials are exported to Vietnam and finished products are imported.
However, one of the major challenges that will be faced by Uniform Suppliers in operating in Vietnam is access to finance (Johnson 2016). This is due to the reason that according to the global competitiveness index, access to the finance is the major problematic factors in doing business in Vietnam.
Thus, the major positive factors are the economical growth andincrease in the trade between Australia and Vietnam. The major negative factor is the difficulty in access to the finance.
The population of Vietnam is quite optimistic and they tend to have a positive outlook and approach towards their future. The young population comprises of around 50% of the population which is considered to be a fairly good number. Although these keep adding to the labor force, the productivity of the market remains slow (Geert Hofstede. 2018). However the people involved in the given sector, are hardworking and the standard of living of the population is quite moderate. They have a good acumen in fashion and the given aspect can prove to be fairly popular for the garment company (Rothaermel 2015).
The society can be described as a mere socialistic society whereby the people believe in going together and endorsing an environment which is quite serious about the social responsibility and thus all organizations functioning in the country are required to be responsible for the efficiency, compliance, insurance and safety of the society (Jarzabkowskiand Kaplan2015). Hence, these are certain aspects the firm needs to abide by.
The primary advantages of the given factor in Vietnam is that the younger population has been increasing and they look forward to wearing products from foregign brands. A disadvantage that may arise is that the standard of living of the people is quite moderate.
The technological environment plays a key role in determining the ease of doing business. Any business operating in the business environment needs to abide by the various technological considerations present in the given country. These technological conditions may cover various aspects of the environment in Vietnam.
The state of e-commerce in Vietnam is quite good and this will lead to easy business operations for the garment company. Although steel production in Vietnam is very backward, the technology for the retail industry is quite good. However, as the economy is not that well advanced, the quality of products are quite low.
The major advantage in the given scenario is that the e-commerce industry has been gearing up which may be a good sign and an advantage is that the economy is not very well advanced and the quality of products are not that optimum (Lasserre 2017).
The country of Vietnam is considered to be one of the most vulnerable countries around the globe and it is quite prone to various natural disasters and climate change (Stead and Stead 2013). The companies functioning in an external environment of a different country, need to take into consideration the different environmental factors to ensure successful business practices and operational planning. The Vietnamese people are very conscious about their environment and keep it before the business (Data 2018). In Vietnam, there is shortage of land for the development of factories and thus this can lead to problems for the garment firm. Lastly, there exists shortage of electricity in certain areas which can cause problems for the firm.
The advantage is that the people are very environmental conscious and this makes them responsible whereas on the other hand, the electricity shortage might be a source of concern.
There are various laws which a firm needs to abide by. These laws include laws relating to Investment Laws, Enterprise Laws, regional agreements and other related rules and practices which a firm needs to abide by religiously (Hubbard, Riceand Galvin2014). The implementation of laws is a major challenge for the businesses as the quality of the public services are very poor. This means that as the corruption rate is high, the individuals tend to face problems relating to the registration and other aspects. The tax structure of the country also needs to be abided by.
Furthermore, there are various environmental laws which a firm needs to ensure it is following else it might lead to fines and penalties. There are various dumping lawsuits imposed by the government which makes business difficult.
The major disadvantage is that there are various stringent laws which need to be abided by whereas an advantage in this scenario is that external help is available for a moderate price.
Hence, after the PESTLE analysis and the other macro environmental factors analysis, the following strategic recommendations have been made for the company. These recommendations are as follows:
Horizontal alliances can be described as alliances whereby the company tends to enter into a long term strategic relationship with the different companies which are already in existence in the given country (Wipo.int. 2018). For this purpose, it becomes extremely important to ensure that the organization gets into a joint venture with an existing company in the same sector in Vietnam so as to ensure that it is able to cater to the needs of the market effectively and form a position in the minds of the consumer (Merat and Bo 2013).
As observed from the external environmental analysis, it could be said that the people are very conscious and hence, they would require a company they can trust upon, hence, Uniform suppliers can use this point to expand in the right manner.
The legal and the environmental aspects are considered to be crucial aspects of expansion into a given company and therefore the company needs to ensure that if it wants to achieve success in the long term business domain then it would be required to abide by all environmental and legal aspects (Wto.org. 2018). Doing so, would allow the company to have long term relations with the country and achieve success.As observed from the PESTLE, the people give high value to this aspect and hence, if the company is able to successfully form horizontal alliances and abide by all laws in order to be successful in the long run (Morschett, Schramm-Klein and Zentes 2015).
Conclusion
Therefore from the given analysis it could be seen to it that there is a presence of various factors in the external environment of the business. For this purpose it becomes increasingly important for the firm to see to it that it abides by those given factors. When a firm is easily able to adjust in the given environment then it becomes easy for them to achieve competitive advantage. Various aspects of the external environment have been discussed along with application to the Vietnam environment.
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