Sim 337: Contemporary Developments in Business and Management

SIM337: Contemporary Developments in Business and Management

Student name: Nguyễn Cường Minh

UoS ID: 159135015

Lecture: Daniel van Houtte

Word count: 3,914 (exclude Table content, Executive summary, Bibliography, and Appendix)

Table of Contents

Executive summary        3

Introduction        4

Major finding        5

I-        Task 1: External influences        5

1.        Political factors        5

2.        Economic factors        7

3.        Social-cultural factors        8

4.        Technological factors        9

5.        Opportunities and Threats        10

II-        Task 2: Risk and Foreign Direct Investment        10

1.        Infrastructure risks        10

2.        Economic risks        12

3.        Social risks        15

Conclusion        17

Bibliography        18

Appendix        25

Executive summary

Samsung Electronics Vietnam Thai Nguyen Ltd (SEVT) is established in 2013. It is a foreign direct investment company in Vietnam, and is a subsidiary of Samsung Electronics Co. Ltd (a part of Samsung Group). In 2015, the company had two manufactures with 4 billion USD on investment, and 64,000 employees. Main business of SEVT is producing, selling and exporting consumer electronics product (such as smartphone, tablet, camera, etc.)

The report showed an overview about external factors and risks on foreign direct investment which influences on Samsung Electronics Vietnam Thai Nguyen Ltd.  The first task pointed out opportunities and threats for SEVT due to external factors by PESTLE analysis (Political, Economic, Social-cultural, and Technological factors). In second task, I analyzed country risks which influences on policies and decision-making of SEVT as a foreign direct company in Vietnam. In detail, I focused on infrastructure, economic, and social risks. After that, I also evaluated the effectiveness of SEVT’s response, and gave recommendation in each case (if possible and appropriate).

Introduction

Samsung Electronics Vietnam Thai Nguyen Ltd (SEVT) is a subsidiary of Samsung Electronics Co. Ltd (a part of Samsung Group). It was established in 2013 in Yen Binh industrial park, Thai Nguyen Province, Vietnam. Main business of the company is producing, selling and exporting consumer electronics product (smartphone, tablet, camera, etc.). In 2015, SEVT had two manufactures with 4 billion USD on investment, and 64,000 employees (which is continuing to go up).

SEVT is a foreign direct investment company which comes from South Korea. Therefore, when do business in Vietnam, they should aware opportunities and threats, as well as country risks that new environment business brings to them. In the report, I will give an overview about external factors which influence on SEVT by PESTLE analysis. In addition, I will analysis risks which influences on policies and decision-making of SEVT as a foreign direct investment company in Vietnam.

Major finding

1. Task 1: External influences

In order to analyze external influences to SEVT, PESTLE analysis is an appropriate tool, which is a scan of existing external macro environment in the organization (Downey, 2007). PESTLE analysis is a useful tool for understanding the fluctuation of market, and as such the position, potential and direction for an organization (Gupta, 2013). PESTLE helps users analyze external environment through six groups of factors: Political, Economic, Social-cultural, Technological, Legal, and Environmental (Yüksel, 2012). In this case of SEVT, I will only mention for groups of factors which have strong influences on the company: Political, Economic, Social-cultural, and Technological.

1. Political factors

Political factors regard “how and to what degree a government intervenes in the economy and the organization” (Babatunde & Adebisi, 2012).

First of all, in the research of Aisen & Veiga (2010) (by using GMM estimator for linear dynamic panel data models on a sample of 169 countries in the period from 1960 to 2004), they found that lower economic growth is related to lower degree of political stability. According to TheGlobalEconomy.com (2016), in the period from 1996 to 2014, average political stability index (-2.5 weak; 2.5 strong) of Vietnam is 0.23. Moreover, with a minimum of 0 points in 2014 and a maximum of 0.46 points in 2005, the index is considered as quite stable in the period (See more in Appendix 2).

These numbers indicated that Vietnam has stable politic, which helps SEVT, be able to do business without worrying about political unrest, terrorism, violence, whose existence could interrupt business activities. Moreover, with stable political status, Vietnam is a good choice to set manufactures when comparing to other countries in South East Asia which also have large workforce, such as Thailand (which has had 19 coups with 11 successful times since 1932) (Voice of Vietnam, 2015), or Indonesia and Malaysia (which threatened terrorism of Islamic radical) (Globalnation.inquirer.net, 2016).

Secondly, according to Nguyễn (2016), in order to attract foreign direct investment to Vietnam, especially investment on high technology as SEVT, government proposed many preferential policies for foreign investment, which bring great opportunities to SEVT. In detail, SEVT Ltd. has 100% tax exemption for 4 years after starting to earn taxable income, and 50% tax exemption for the next 12 years. In addition, the combinatorial high technology project (SEVT2 project) of SEVT Ltd. which covers an area of 70 hectares is supported 50% infrastructure rental (People's Committees of Thai Nguyen Province, 2013). As a result, SEVT can save millions of USD from tax exemption and infrastructure rental, which are two big financial problems for investors.