MSC International Business
International Business Environment
BMG812
Assignment two
Name: DO TIEN DUNG
Student Number: B00644271
Lecturer: Daniel Hagan
Due date: April 10, 2013
1.Introduce
Exxon Mobil, Which is a big renowned MNE, always stands in top 3 biggest companies following the assessment of Global finance: the Fortune Global 500, the Financial Times Global 500 and the Forbes 2000. Behind the successful of Exxon is an excellence operation goes with discipline investment. Moreover, the advantages of Exxon Mobil’s competition come from 3 segments: upstream, downstream, chemical which is created by a vertical integration. It also brings for company a benefit in supply chain from exploration, refinery to supply process. However, the success of a company, when it enters new market, not only depends on its competitive position but also the level of foreign market understanding. So, in this report, we will analysis and make a plan which express how Exxon give a discipline assessment for Vietnam oil market before entering.
2.1 Reason for entering Vietnam market
To have a plan to enter any new foreign market, Exxon Mobil bases on financial tool to research and assess it carefully for example PESTLE analysis which is a useful and necessary tool to assess new market, so we will find out how PESTLE framework expresses in Vietnam market. PESTLE analysis includes 6 elements which effect on the macro environment of any market.
Political factors:
However, in 1986 Vietnam performed economic renovation and became the 150th member of the world trade organization in 2007, which are two turning points effect on the boost of Vietnam economy.
“This reform policy opened a new regime marked by lower by lower inflation rate and higher economic growth. It also provided a lot of incentive issues to attract FDI inflow such as reducing the import/export tariff, reducing the poverty rate, encourage foreign invested sector and private invested sectors; lowering foreign-currency surrender rate, lowering the restriction barriers and some other guarantees from the government” (Docstoc, 2011)
Furthermore, Vietnam has political stability and absence of violence stand second position in ASEAN 6 recently (appendix chart 1). As a result, its market is attractive destination for every MNE. Potential Impact: in upstream Vietnam government encourage ExxonMobil invest, exploit and refine oil on South China Sea which has big oil reserves in the world. Although South China Sea is disputed between Vietnam and china, if ExxonMobil perform contract they will have big profit. Besides, ExxonMobil can enter Vietnam market through joint-ventures or production sharing contracts which government gives a lot of incentives.
Economic factor:
Vietnam is also one of the largest oil producers in the region.” (Trading economic, 2012)
The development about economics of country usually express through 2 indexes: GDP growth rate (appendix chart 2) and inflation rate( appendix chart 3) . Particularly:
GDP: “Gross Domestic Product (GDP) for 2011 was USD 115 billion, which increased from USD 101.6 billion in 2010”. (ECR, 2013)
“The Inflation; consumer prices (annual %) in Vietnam was last reported at 18.68 in 2011, according to a World Bank report published in 2012” (trading economic, 2012)
Potential impact: before investing into Vietnam, Exxon Mobil has to prepare for negative elements likes: low interest rates, weak currency exchange rates and high inflation. However it is not big problem with Exxon Mobil in term of upstream activities, contrarily Exxon Mobil will have advantage when it goes into joint-ventures with Vietnam petroleum to exploit and refine oil, before exporting oil over the world
Social factor:
(increasingly favored as a second language). Education expenditures are 5.3% of GDP (2008). Literacy occupy 94% total population” ( Indexmundi, 2013)
Due to the globalization, the backward thinking is eraser step by step, although good national characters still maintain. Potential impact: it is crucial for ExxonMobil to make a good relationship with local government as well as local people. This is an important step to take good comment from community and apply for incentive policy of local government.
Technological factor: with the development of technology, Mobil phone and computer is a vital part of Vietnamese people. More and more people and companies are in technology and technical gadgets. After becoming a member of the world trade organization, Vietnam continues to open for adopting new technologies with a lot of encouragement policy likes: tax cut, reducing land lease price, electricity and so on. Potential impact: technology market in Vietnam are currently improving, Vietnam is in the early stages of development. So, machines and technology about exploiting and refining oil are mainly import. This is a chance for ExxonMobil which it transfer new technology for Vietnam to receive incentive policy from government.
Legal: although Vietnam’s legal system is progress, the law which protects for foreign investor is limit. Moreover, they still have legal restrictions for market entry, so Exxon Mobil should be aware the difficulty they must face before entering.
Environmental factor:
huge amount of oil reserve that still do not discover. Moreover, with the complex about geographical terrain is obstacle for transport link between drilling place in sea and oil refinery in land.
2.2 The attractiveness of Vietnam market
In this part, the attractiveness of Vietnam market will be determined through analyzing 4 elements of Michael Porter’s Diamond and Market Intelligence Report.
Market intelligence stands in the term of competitive insight and market insight. Competitive insight: in Vietnam technology is quite old fashion, the refinery is limit. As a result, the cost of products is high and products mainly suffer a preliminary treatment. So, the profit of Vietnam Oil Company is low. Market insight: “Vietnam oil market consumption is about 365 thousand Barrels per day and stand in the 35th ranked over the world”. (EIA, 2013)
It is an attractive market for Exxon that Exxon bases on high technology to enter market and gives for customer a friendly environmental product.
Porter’s Diamond:
Vietnam factor conditions: Vietnam is developing country, the level of skill labor and technology is improved step by step. However the cost of labor is quite cheap which makes a good condition for every MNE entering Vietnam market that it reduces its cost. “According to Oil & Gas Journal (OGJ), Vietnam now ranks third in terms of proven oil reserves for the Asia-Pacific region”.(EIA, 2012)
is very demanding. Although, related and supporting industries are limit for instance: currently, Vietnam has only one oil refinery in Quang Ngai province and the technology of oil exploitation is quite old, Vietnam set up joint-ventures with huge oil MNEs over the world like: japan, Russian oil company to improve the supporting activities for oil industries. Domestic Oil Companies in Vietnam is quite effectively; they not only supply enough oil for domestic market, but also tend to expand foreign market such as: Japan, Thailand, China and so on. After entering WTO, in the next time Vietnam will open oil market, it is an opportunity for huge oil MNEs like: ExxonMobil penetrates, set up a business and find more profit.
(Wikipedia,2013)
3. ExxonMobil’s market entry strategy:
Despite the fact that Vietnam is developing country, the development is mainly in urban with the improvement of transport system which includes both public and private transport likes: car, motorbike, bus, airport and so on. So, Exxon Mobil should focus on urban especially in big city such as: Hanoi capital, Ho Chi Minh City. Moreover, target market should be restriction in group from 20 to 60 year olds, because government bans people under 18 use motorbike and car. Meanwhile people over 60 tend to use public transport more than private transport.
3.2 Projected sales and other financial implications:
Year
Finance
1 2 3 4 5 6
Sale 592 1200 2000 2500 3000 3200
Profit -3408 250 500 1000 1100 1200
Vietnam consume about 365 thousand barrels per day ( EIA, 2013)
the price of a barrels oil is about $90 (CNNmoney, 2013)
So the expenditure of Vietnam for oil is about $11,826 million per year. We will suppose that the same Cepu project in Indonesia, Exxon Mobil expends $1,300 million for exploitation and refinery in Vietnam.
more share from market such as 10% in year 2, 15% in year 3, 20 % in year 4 and remain unstable rate in following year about 20%. Moreover, as a result of effectively refinery and exploitation activities, the amount of exploited oil will satisfy the demand of Vietnam market and even export to another country. So, more profit will be seen in the next years.
3.3 operations:
The operation of Exxon in Vietnam includes 2 segments: upstream and downstream. In term of upstream, Exxon Mobil will set up a joint-venture with Vietnam Oil Company to exploration, production, gas and power marketing. In term of downstream refers to refine and supply products. With opening 2 segments, Exxon Mobil will minimize cost through supply chain and make a premise to take market share
3.4 human resources
Vietnam market likes any other markets, when Exxon Mobil enters Vietnam market, it should remember that human resources will be a vital factor which decide the success or failure of company.
“Workforce development:- the recruitment and development of qualified national/local employee” (ExxonMobil 2008, p.5)
good comment from community and make a condition to receive the supporting of government likes: tax cut and so on.
3.5 entry modes:
With joint-venture method Exxon Mobil must share its technology and takes times and effort to build relationship with local oil company. However, joint-venture will be the best choice for company compare with licensing and export, because licensing and export express less effectively and with both method Exxon Mobil will face with tariff and non-tariff barriers which reduce significant its profit. Moreover, the advantage is well seen in joint-venture method, it obtains a chance for Exxon Mobil enter Vietnam oil market easily, makes use of distribution of local oil company, shares risk with partners and even gives big opportunity to exposure with raw material which is oil reserve that Vietnam oil company cannot exploit.
3.6 marketing campaign
With a developing country likes Vietnam, environmental pollution more and more become a big problem. So, marketing campaign of Exxon Mobil should focus about product which is friendly with environment such as: unleaded petrol or green fuel that Exxon focuses to develop. With the development of technology, online advertisement becomes more easily and convenience. However, offline advertisement still is main channel for marketing in Vietnam like: TV, leaflet. So, the combine between online and offline advertisement as well as with discount program will be the best campaign for Exxon Mobil.
Reference:
CNNmoney(2013). Available from http://money.cnn.com/data/commodities/
Docstoc (2011), A PEST and Porter analysis no 1. Available from:
http://www.docstoc.com/docs/78212518/?
ct=40&utm_source=docstoc&utm_medium=email&utm_term=Registration+- +Doc&utm_content=Registration+Confirmation+With+Doc+-+DP+-+v5+-
+SL2&utm_campaign=Registration&alt=657d11e7-e564-4d82-9fd7-2b50b383a920. [Accessed April 28, 2011
ExxonMobil (2008) national content it’s the way we do business no.5. Available from: http://www.exxonmobil.co.uk/Corporate/Files/news_pub_nc.pdf [Access may 2008]
EIA (2013), countries Vietnam, Washington: U.S. Energy Information
Administration. Available from http://www.eia.gov/countries/country-data.cfm? fips=VM [Accessed 12 February, 2013]
EIA(2012)Energy Information Administration: Country Analysis Briefs. Available from http://www.eia.gov/cabs/Vietnam/Full.html [Accessed May 9, 2012]
ECR(2013) euro money country risk. Euromoney Institutional, Investor PLC. Available from http://www.euromoneycountryrisk.com/Wiki/Vietnam
Indexmundi (2013) Vietnam Demographics Profile 2013. Available from: http://www.indexmundi.com/vietnam/demographics_profile.html [Accessed February 21, 2013]
Trading economic (2012), Inflation; consumer prices (Annual %) in VIETNAM. Available from: http://www.tradingeconomics.com/vietnam/inflation-consumer-prices-annual-percent-wb-data.html
Bibliography
Bintang,H. (2012) ,Indonesia today. Available from:
http://www.theindonesiatoday.com/news/resources-news/resources-photo/item/ 2256-exxon-s-cepu-project-construction-reaches-35.html#.UWSqMTA3vjE Accessed December 28,2012]
ExxonMobil(2010), financial and operating overview. Available from
http://www.exxonmobil.co.uk/Corporate/Files/news_pub_ir_finstmts2011.pdf
Griffin, R.W and Pustay,M.W (2010) International Business. 6th ed. Prentice Hall
Global Finance( 2012), world’s lagest companies. Available from
http://www.gfmag.com/tools/global-database/economic-data/11935-largest-companies.html#axzz2NnUfRcos
Appendix
Char 1 political stability and absence of violence
( Source: ADB Asian bondsonline)
