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4Fingers Entering Vietnamese Market

Executive Summary

4Fingers is a successful business with operations in Singapore, Indonesia, and Malaysia. Since entering new markets requires a thorough analysis, the purpose of this paper is to present a comprehensive description of the attractiveness of the Vietnamese market, including market size, growth rate, pricing trends, and competition. Besides, this paper presents an assessment of the new market’s attractiveness and competitiveness following international reports’ data. These reports highlight potential threats that could affect doing business in Vietnam. The paper also presents examples of approaches to successful business to overcome potential problems and risks. The recommendations offer ways of doing business in the new unexplored territory of the Vietnamese market.

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Introduction

4Fingers is a company that provides services in several countries in the Asia-Pacific region – Singapore, Indonesia, Malaysia. Therefore, a natural step is to expand the company’s business and enter new markets. The first step in this expansion is the opening of a new restaurant in Vietnam. This paper aims to present the analysis of market attractiveness and find the appropriate business model that will help overcome institutional voids that may impact the Vietnamese market.

Assessing the Attractiveness of the Vietnamese Market

Understanding market attractiveness is required when a company enters a new market to evaluate whether investing will prove beneficial. The criteria by which the assessment is carried out includes four main metrics – market size, growth rate, margins and pricing trends, and competition (Bhasin, 2019). Some marketers also consider the overall risk in the industry and the ability to differentiate products and services (Olsen, n.d.). According to most experts, Vietnam’s market attractiveness is high, especially in the context of the trade wars between the US and China and the Vietnamese government’s imposition of policies to make it easier to do business. Vietnam also responded very quickly to the challenges of COVID-19, starting to introduce measures to combat the virus back in January 2020. Therefore, the Vietnamese market, including the restaurant and hotel business, has already begun to recover, relying on domestic demand.

Notably, AT Kearney named Vietnam as one of the six most attractive retail markets in the world. According to its Global Retail Development Index (GRDI), only the markets of India, China, Malaysia, Turkey, and the UAE turned out to be more attractive (Van, 2017). At the same time, Vietnam was ahead of Indonesia, Thailand, the Philippines, Kazakhstan, and Saudi Arabia. The GRDI rating considers 25 factors related to macroeconomics and retail trade (Van, 2017). This rise in attractiveness to foreign investors emerged since the government allowed foreign retailers to own 100% of their equity. The free trade agreement with the EU has also improved the attractiveness scores. The innovations have led to significant retail sales growth, increased investment inflows, and GDP growth rates.

Besides, government policies to attract foreign investors have led to an extension in the urban population and the middle class. This process influenced rising costs and willingness to pay for quality products and services (The attractiveness of Vietnam retail market, 2017). Therefore, given that the country’s vast population, it can be summed up that Vietnam is a large and rapidly growing market. Besides, the simplified taxation system and the dynamism of market processes allow for good margins and flexibility in pricing processes.

A negative factor is the growth of competitive pressure in retail, tourism, restaurant, and hotel businesses. At the same time, development can be predicted in the tourism sector, closely related to the restaurant business. The country receives about 13 million tourists every year, with the bulk coming from Asia – China, South Korea, and Japan (Enhancing the Vietnamese tourism industry, 2018). Less than 2 million come from Europe – Russia, UK, France, and Germany; about 1 million tourists come from the US and Australia (Enhancing the Vietnamese tourism industry, 2018). These factors should be considered when developing a unique business model that will target the local market.

Institutional Voids

Despite the Vietnamese market’s high attractiveness for investors, the country has institutional voids reflected in the World Economic Forum Global Competitiveness Index, the World Bank, IMF, and OECD reports. Vietnam ranks as the 67th most competitive country in the world out of 141 countries, according to the 2019 Global Competitiveness Report published by the World Economic Forum (Vy, 2019). It is noteworthy that for the first time, Vietnam was in the top half of the list. A prerequisite for this success was the government’s efforts to reform investment policy. It is also believed that Vietnam took advantage of the US-China trade war to attract investor capital (Vy, 2019). Another critical factor was the attempt to introduce e-government and support for the start-up system.

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Remarkably, the World Economic Forum report in 2019 gave several examples of global institutional voids. Over the past decade, the global economy has found itself trapped in a cycle of low or constant productivity growth, despite central banks’ support, according to the report (Global competitiveness report, 2019). To change the situation in the next decade, experts advised countries to pay more attention to stimulating economic processes in domestic markets and increasing the dynamics and access to international markets. The report also noted that the Asia-Pacific region is today the most competitive globally, followed by Europe and North America.

At the same time, Singapore is the most competitive country in the region. The report recommends that market players use a universal approach in emerging economies, integrate technologies, and pay attention to personnel education (Global competitiveness report, 2019). The report also noted a slowdown in reducing extreme poverty in the least developed countries and increased hunger incidence. Fortunately, Vietnam has managed to overcome these negative trends, but the risks should not be underestimated. Experts also advised governments to increase economic resilience by increasing competitiveness, especially given the economic downturn that followed COVID-19.

Further, according to the OECD study, Vietnam needs to create an integrated and transparent market economy. This step will help avoid getting stuck in the dualistic economic structure typical of economies with a large middle class, which in Vietnam will exceed 40 million people by 2030 (Multi-dimensional review, 2020). An integrated economy involves creating equal opportunities for foreign and local companies and maintaining a balance between an export orientation and a competitive domestic market. Given the broad middle class, it is noted that a domestic demand-driven electricity market can help balance global uncertainty.

There are also problems associated with environmental pollution that require immediate solutions. In particular, according to the OECD study, Vietnam needs a natural resource management strategy due to ongoing air and water pollution by fine particles (Multi-dimensional review, 2020). Besides, the Mekong River is one of the four leading rivers polluting the world’s oceans, as industrial and domestic waste in Vietnam is discharged right into waterways without a proper treatment system (The World Bank in Vietnam, 2020). This situation poses a threat to the health of the country’s inhabitants and the global ecology. Interestingly, despite the government’s concrete steps to simplify the taxation and administration system, the OECD notes the need for a thorough analysis of the tax structure and tax collection system. This step will attract long-term investors, such as insurance companies, which guarantees the development of a more diversified financial system.

Vietnam’s success in the fight against COVID-19 deserves special attention. The World Bank report notes that the impact of the virus on health in Vietnam has not been as severe as in other countries, thanks to proactive measures at the national level. Nonetheless, experts predict a slowdown in economic growth to 3-4% in 2020, compared to 6.5% in 2019 (The World Bank in Vietnam, 2020). Given the stability of other indicators, experts predict a rapid recovery of the Vietnamese economy in 2021 (Lee, 2020). At the same time, IMF experts note that Vietnam’s policy containing COVID-19 is an example for other countries. Thanks to the implementation of this strategy, there were 352 confirmed cases of COVID-19 and no deaths in Vietnam (Vietnam’s success in containing COVID-19, 2020). As a result, the country was one of the first to lift almost all internal containment measures.

In light of the above, it can be assumed that the consequences of COVID-19 will have the most significant impact on Vietnam’s economic processes. Also, the advice on creating an integrated and transparent market economy in the country, given the middle class’s growth, deserves special attention, since a halt in economic growth, which may be observed in the next ten years, is inevitable otherwise. The situation may also be exacerbated by the Vietnamese population’s ageing factor, which will lead to an increased burden on the budget and a decrease in the workforce. Besides, environmental pollution creates problems for doing business, lowering the country’s ranking. Simultaneously, the development of information technology is a critical factor in the successful development, and one can expect the continued integration of IT into economic and business processes.

Features of Providing Similar Services on the Market

The results of numerous researches that study the specifics of running a restaurant business in Vietnam can be of great value to cope with the presented challenges. According to Long et al. (2019), brand equity, value equity, and relationship equity are decisive factors when deciding to revisit a restaurant. Further, Pham (2018) notes that for most craft-beer restaurants in Vietnam, returning decisions are usually affected by access, local connection, unique seeking, hedonic and social influence, and willingness to pay. In other words, attentiveness to customers and a high level of service are the keys to success in Vietnam’s growing service market.

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In the Vietnamese restaurant industry, management pays much attention to employee retention, since low staff turnover is associated with a higher quality of service. Besides, employee retention ensures a contribution to developing an integrated and transparent market. Therefore, Huong (2017) cites seven staff turnover factors, the most important of which is supportive management oversight, in the absence of which employees are more likely to leave work. Other factors are peer support, training, and development, suitable working conditions, promotion, communication, decent wages, and benefits.

Considering the environmental problems in Vietnam, the role of restaurants should be estimated, since they are the primary source of municipal solid waste. In particular, according to Phu et al. (2019), restaurants generate 74.5% of municipal waste. The composition of municipal waste includes biodegradable waste – 66.8%, recyclable waste – 20.1%, combustible waste – 11.3% (Phu et al., 2019). Adherence to effective waste management practices is essential to running a sustainable business.

Another unexpected trend was the increase in Vietnamese residents’ meat consumption, traditionally inclined to a more varied diet. Scientists note that such changes are driven by rising incomes, urbanization, and foreign culinary influences (Hansen, 2018). Since the beginning of market reforms, the consumption of meat in Vietnam has grown significantly. Scientists believe that the reasons are changes in meat supply systems, the intensification of traditional meat dishes, the import of meat nutrition methods from abroad, and the growing spread of eating outside the home. There is also positive social perception of meat as a symbol of development and progress.

Choosing the Right Business Model

When creating a new enterprise in Vietnam, the right type of enterprise should be chosen, as this will determine its capabilities in doing business. There are three main types of companies – a representative office, a limited liability company, and a trading company (Shira, 2019). Since 4Fingers is opening the first restaurant in Vietnam, a limited liability company will work best. The LLC can hire locals and write checks, which can be very useful in doing business. Besides, due to simplified tax and administrative procedures, opening an LLC will not cause problems. It should be borne in mind that LLCs are of two types – a service company and a trading company. Trading companies are usually engaged in the export and import of large volumes of goods, require large financial turnover, and hire contractors. 4Fingers do not need such capabilities; therefore, a service company would be the best choice.

It is also necessary to define a business model according to which business processes will be carried out. Experts point out that “a business model is a conceptual framework that sustains the viability of a business and explains how it works, makes money, and intends to achieve its goals” (Das, 2020, para. 4). Therefore, franchises, bricks-and-clicks, and high touch business models will be the best choice for 4Fingers’ business. Doing business will not be complicated by disproportionate taxes, since service companies are subject to the following rates: corporate income tax – 20%, personal income tax – 5% to 30%, value-added tax – 10% (Guide to taxes, 2018). Therefore, the listed approaches will ensure the effective start for a new business.

Practical Steps and Conclusion

The 4Fingers organization will need to take several steps to enter the Vietnamese market. First, it will need to set up a Vietnam service company that can hire employees, issue checks to customers, and pay employees’ salaries. Further, when starting and setting up work processes, bricks-and-clicks and high touch business models should be chosen, since the first one makes it possible to order dishes via the Internet, and the second one will ensure an attentive attitude towards customers. Besides, the new restaurant will likely use the franchise business model since the company is a recognizable brand. It is noteworthy that Ho Chi Minh City can be the most suitable place for a new restaurant since it is the centre of the country’s business and economic activities. In the future, restaurants can be opened in tourist regions.

When setting up business processes, special attention should be paid to menu design. The service market in Vietnam is highly competitive, and the inclusion of some dishes more traditional for Vietnamese cuisine will increase demand. Since Vietnam is a global exporter of rice, coffee, tea, and other goods, it will be most profitable to purchase products from local markets or retail chains. Special attention will be paid to the practices of hiring and training employees and providing them with the right working conditions to meet the increased competition.

Further, since 4Fingers is an environmentally-friendly business, it will be essential to reduce environmental pollution and establish a practice of sorting waste, ensuring its further processing. Besides, the menu will need to include more vegetarian options and more vegetable snacks to improve public health and adequate meat consumption. It’s good that today 4Fingers offer seafood dishes like squid and batter shrimp. Since Vietnam is one of the leading exporters of seafood, these dishes should be left on the menu.

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Given the market’s high attractiveness, there is a high likelihood that the new business will find many buyers and occupy its niche in the market. Considering that Vietnam has already dealt with the consequences of COVID-19, the restaurant will have enough visitors. However, 4Fingers will have to ensure visitors’ safety, mainly through implementing an existing virus prevention program. Besides, a system of discounts associated with the local market’s peculiarities and the fact that 4Fingers enters the market should be developed to attract customers.

Reference List

Bhasin, H. (2019) ‘What is market attractiveness? Importance, examples and factors’, Marketing91, Web.

Enhancing the Vietnamese tourism industry (2018). Web.

Global competitiveness report 2019: How to end a lost decade of productivity growth (2019). Web.

Guide to taxes in Vietnam (2018). Web.

Hansen, A. (2018) ‘Meat consumption and capitalist development: The meatification of food provision and practice in Vietnam’, Geoforum, 93(1), pp. 57-68.

Huong, TCD (2017) Factors affecting turnover intention of fine-dining restaurants-A study in Ho Chi Minh City, in Ho Chi Minh City Vietnam. PhD thesis. International University-HCMC.

Lee, C. (2020) ‘IMF: Vietnam GDP to grow at 7% next year’, Vietnam Times, Web.

Long, N.H., Van Oanh, D., Hoa, P.H., Dung, V.T., Thanh, P.T.K. and Quang, N.N. (2019). ‘The effects of customer equity on customer loyalty for chain restaurants: Case study of KFC Vietnam’, Socio-Economic and Environmental Issues in Development, pp. 229-243.

Multi-dimensional review of Viet Nam: Towards an integrated, transparent and sustainable economy (n.d.) Web.

Olsen, E. (n.d.) Strategic planning and the market attractiveness framework. Web.

Pham, H. and Nguyen, T. (2018). ‘Understanding consumer returning decision with the mediation of willingness to pay: A case study of craft-beer restaurants in Vietnam’, In Proceedings of Asia Conference on Business and Economic Studies (ACBES), pp. 750-765.

Phu, P., Takeshi, F., Giang, M. and Dinh, V. (2019) ‘An analysis of the commercial waste characterization in a tourism city in Vietnam’, International Journal of Environment and Waste Management, 23(3), pp.319-335.

Shira, D. (2019) How to pick the right business model for distributing goods in Vietnam. Web.

The attractiveness of Vietnam retail market (2017). Web.

The World Bank in Vietnam (2020). Web.

Van, H. (2017) ‘Vietnam among top 6 most-attractive retail markets’, Vietnam Economic Times, Web.

Vietnam’s success in containing COVID-19 offers roadmap for other developing countries (2020). Web.

Vy, H. (2019) ‘Vietnam reports fastest increase in Global Competitiveness Index’, VIR, Web.

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