Pestle Analysis of Vietnam

PESTLE analysis (Vietnam)

Introduction of Vietnam:

    According to the current economic situation of Hong Kong Trade Development Council (HKTDC, 2016), they indicated that Vietnam is the sixth largest economy in the ASEAN. ASEAN consists ten members, which are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Vietnam’s service, industry and agriculture sectors account for 44%, 39% and 17% of GDP. In addition, Manufacturing, mining, construction, real estate and finance are the major industry and service of Vietnam. For Sheen Master Industrial, the economy situation may appropriate for them to develop.

Political:

    First, political factors include taxation, employment, foreign trade policy or government policy. These factors may affect the business environment, even the economy or a certain industry. After Vietnam became a member of World Trade Organization in 2007, they were facing fewer restrictions and lower tariffs in export markets. The manufacturer in Vietnam also benefit from improving access to imports of cheaper raw materials as Vietnam’ s import tariffs drop. In addition, World Trade Organization accession permits Vietnam to take advantage of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for World Trade Organization partners in 2005.

    Vietnam government announced a series policy in order to attract more foreign direct investment which including tax holidays and preferential corporate income tax rates. Not only the policy, Vietnam government improve the taxation rate in order to further the economy such as decreasing the taxation rate. From January in 2016, standard corporate income tax rates reduced to 20%. In the past few years, the rate was around 22% to 25%. According to Wing Chu, who is the senior economist in Greater China. In order to further the development of industrial zones, government especially offer bespoke tax incentives which including preferential rates for corporate income tax and reduce personal income tax rate for employees. Those factors can benefit for recruitment and reduce the taxation burden.

    Furthermore, business in Vietnam can exempt some imported taxation including raw materials, components or production of goods. Those policies are benefit for the export processing business that is relied on imported inputs for production. As a result, the foreign investor will consider those costs and benefits and make investment decision. About the incentive, it costs 10% preferential rate for first fifteen years period. Then, it costs four years tax-free holiday and commencing from the first profitable year. After nine years, company can exempt fifty percent corporate income tax.

Moreover, Vietnam had simplified the application procedures for foreign investors. They just register their business in an industrial zone, which can enjoy the above incentives. For Sheen Master Industrial, clothing manufacturer are their potential customer for developing. From this, it can be seen that the restriction of import, export and taxation are little.

Economic:

[pic 1]

    For a business, economic factors include inflation, unemployment, interest rates, GDP levels, even disposable income. These factors are significant to a company and may affect them directly or indirectly. For instance, increasing inflation rate will influence the price of products and services. Moreover, it would affect the purchasing power of consumer and may change the supply and demand of the economic system.   Refer to the market profile of Vietnam in Hong Kong Trade Development Council, to compare with 2014 and 2015, the GDP per capita in 2016 was around US$ 2164 (around HKD$ 16837), it’s GDP  was increased year on year through those years. In the same year, the inflation rate was increased 2%. As a result, the GDP and inflation rate will influence each other. Moreover, government raised around 7.3% of the minimum wage from January 2017. Especially Ho Chi Minh City, its new monthly wage was USD$ 166 (around HKD$ 1292). However, the external trade did not affect by those policy. The market profile indicated that Vietnam’s exports raised 6.7% year on year to USD$128.2 billion (around HKD$ 9975 billion). The rise in demand of telephone and spare parts as well as electronics, computers and components caused the exports surge. In 2015, machinery, equipment and parts, electronics and accessories are the major imported items. Many of them related to assembling goods for export. Recently year, China is the largest place to import, it followed by Korea, ASEAN, Japan and the US. Refer to the major economic indicators in 2016, between 2014 and 2016, the export growth and import growth also increased.   In 2015, government estimated 67% for the manufacturing and processing were the largest foreign direct investment.

    Moreover,

Socio-Cultural:

    Until 2016, the Vietnam market profile indicated that there are 93 million people in Vietnam. To compare with past few years, the demography rate was increase. The economic expansion further the revenue be increased. It will stimulate the demand for purchasing products. Although the income level in Vietnam still on the low side, consumer are increasingly purchasing the fashionable products in an affordable prices. At the same time, Vietnam appeared some retailer who are famous and have reasonable prices such as Uniqo and H&M. They are clothing manufacturer and retailer in universe. Following with the development, people can afford the product. Even the minimum wage are USD$ 166, the GDP still rise in stable situation. For Sheen Master Industrial, their target customer was the garment retailer. If there were numerous retailers, it will benefit for them to corporate.

Technological:

    In Vietnam, manufacturing and production are the majority business. They count around 67% in profile. Following to the environment, it mentioned that the electronic power grids. Because of it is a significant factor for business. If the electric supply was not enough, the business may happen risk such as fire. To compare with the competitors in Vietnam, manufacturing is common. If your technology were not differentiation, you cannot strive with others. For Sheen Master Industrial, their products are hanger including wooden, plastic and non-woven hangers. These products are common through society, people may find the substitute easily.

Legal:

    According to the market profile of Vietnam, it mentioned the free trade agreements in 2015 in order to further the economic combination each nation. Especially the China ASEAN free trade area, Vietnam had sign the Free Trade Agreement with Korea and Eurasian Economic Union in May 2015. At the same year, they signed the same agreement with EU in August. In addition, Vietnam participates in AESEAN membership in order to advance market opening and liberalizations among those members. Vietnam has signed double taxation agreement with more than 60 countries including Australia, Germany, Japan, Korea and China. In 2014, Vietnam signed up the “Comprehensive Double Taxation Agreement in order to further economic development. Between Hong Kong and Vietnam, the taxation tariffs and entry barriers became decrease. Business can be convenient for doing business in Vietnam.