REPORT TOPIC DIRECT FOREIGN INVESTMENT historical methods of PEPSICO since it penetrated into the vietnamese market 3

VIETNAM GENERAL CONFEDERATION OF LABOURTON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION INTERNATIONAL FINANCIAL MANAGEMENT REPORT TOPIC DIRECT FOREIGN INVESTMENT Instructing L

VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

INTERNATIONAL FINANCIAL MANAGEMENT

REPORT TOPIC DIRECT FOREIGN INVESTMENT

Instructing Lecturer: ĐỖ THỊ MỸ HƯƠNG

Group: 8 - N01

Major: INTERNATIONAL BUSINESS

Academic Year Code: K23

HO CHI MINH CITY, 04/2022

TABLE OF CONTENTS

PART I: INTRODUCTION 2

PART II: BODY 3

Question 1: Historical methods of PEPSICO since it penetrated into the Vietnamese market 3 1.1 Historical methods of international business of PepsiCo 3

1.2 Advantages of international business of Suntory Pepsico 4

1.3 Disadvantages of international business of Suntory Pepsico 5

Questions 2: The motives for initiating PEPSICO including revenue-related motives and cost-related motives 5

2.1 Revenue - Related Motives 5

2.2 Cost - Ralated Motives 6

Questions 3: Analyze the impact of Covid 19 pandemic on this MNC’s value based on valuation model 8

3.1 Impact of Covid 19 on the economy of Viet Nam 8

3.2 Exposure to exchange rate: 9

3.3 Exposure to interest rate 15

3.4 Exposure to government’s policies 21

Question 4: In your opinion, is this firm a good or bad FDI? Give explanations and reasons for your answer 23

4.1 About Foreign Direct Investment 23

4.2 Opportunities for PepsiCo 23

4.3 Pepsi's challenges when investing directly in Vietnam 24

Question 5: The roles of direct foreign investment in Vietnam’s economic development over the past twenty years 24

PART III: CONCLUSION 28

PART IV: REFERENCE 29

PART V: MEMBER’S CONTRIBUTION 30

PART I: INTRODUCTION

In terms of governments and businesses, foreign direct investment has been a criticalcomponent Corporations will easily buy new products and technology, as well as sell theirexisting products to international customers, by purchasing a controlling interest in foreignassets Governments will also build opportunities and boost economic activity by attractingforeign direct investment

Foreign direct investment is extremely important to international investors and foreigndirect investment in has played an essential role in the development of emerging markets Atthe same time, businesses investing abroad will notice higher growth rates and diversify theirprofits, benefiting investors To understand how MNCs engage in FDI, the motivations forinitiating direct investment abroad include revenue-related and cost-related motives from theperspective of foreign investors will be discussed below in this report In addition, foreigndirect investment also presents both advantages and disadvantages for not only the investor butalso the host country At the micro level, investments carry some risks that need to beconsidered carefully On a macro level, it can cause problems for a country's domestic labormarket and capital draw in the long run

In this report, we choose PepsiCo, a company that has invested in Vietnam for nearly

20 years as a typical example because it is the largest American food and beverage company

in the world, with products with present in more than 200 countries At the same time, itshows the existence and development of Pepsico corporation when reaching out to the world

At the same time, an analysis of the benefits and limitations of foreign direct investment forthe host country as well as whether the advantages outweigh the disadvantages for Vietnamwill be presented in the next report below

PART II: BODY

Question 1: Historical methods of PEPSICO since it penetrated into the Vietnamese

In the early 1990s, PepsiCo began to penetrate the Vietnamese market PepsiCo Group isone of the first foreign-owned beverage companies to set foot in Vietnam since 1991 in theform of a joint venture Accordingly, at the end of 1991, the International Beverage Company(IBC) was established, under a joint venture between the Saigon Tourism and TradingCompany (SPCo) and Marcondray - Singapore with a capital contribution ratio of 50%-50%

In 1994, a new member joined the company, Pepsico Global Investment Company andPepsiCo officially entered the Vietnamese market when a joint venture with IBC InternationalBeverage Company with the birth of two companies The first products were Pepsi and 7 Upfrom the early days when the US lifted the embargo against Vietnam in 1994 Current capitalratio is: SP Company Yes 40%, Macondray Company Inc 30% and Pepsi Cola International30% In 1998, due to capital investment and business development requirements, thecompany's shares changed again: Pepsi Cola International 97% and SP.Co 3% according toDecision No 291/GPDC7 dated December 28, 1998 Capital investment is 110 milliondollars, legal capital is 70 million dollars

On April 28, 2003, Pepsico Global Investment acquired a 3% stake in Vietnam,International Beverage Company became a 100% foreign owned enterprise and changed itsname to PEPSICO Vietnam International Beverage Company Male PepsiCo's products arenow available nationwide with big and famous brands such as Pepsi, Poca, 7Up, Mirinda,Aquafina, Sting, Twister, Lipton Tea, Quaker Soya

April 2013 - The strategic beverage alliance Suntory PepsiCo Vietnam was establishedbetween Suntory Holdings Limited and PepsiCo, Inc in which Suntory accounted for 51% andPepsiCo accounted for 49% with the launch of new products Olong Tea + Plus and MountainDew

Historical international business method since Suntory Pepsico entered the Vietnamesemarket from the initial joint venture method into the current 100% foreign owned enterprise

1.2 Advantages of international business of Suntory Pepsico

- The Suntory-Pepsico joint venture in Vietnam is applied to both take advantage ofexperience, production technology and take advantage of sales experience and wide system in themarket

- The international joint venture allows Pepsico to enter the Vietnamese market morequickly and at a lower cost and quickly penetrate the distribution channel of the domestic market,increasing the likelihood of the success of the joint venture partners already have relationshipswith key suppliers and customers, and are fluent in the language and customs procedures

- A joint venture helps Pepsico to limit risks rather than owning the whole thing, because each partner only bears the risk for its own capital contribution

- The joint venture between SP.Co and Marcondray-Singapore - Pepsi Cola International helps to improve the competitiveness of domestic enterprises in the beverage industry

1.3 Disadvantages of international business of Suntory Pepsico

- There is a conflict, ownership dispute between the participating parties due to

disagreement on investments or profit sharing

- There is a situation where large companies acquire small companies due to their

inexperience and small scale

- The possibility of great risk if the joint venture company has a deadlock

- Language, thinking and cultural barriers between the parties' cooperation

- Encountered many legal problems when joint ventures related to culture projects

- The firm Pepsico will not reap any rewards from the investment until the subsidiary is built and a customer base established

Questions 2: The motives for initiating PEPSICO including revenue-related motives and cost-related motives

2.1 Revenue - Related Motives

Attract new sources of demand:

When a company reaches the limit of growth in the home country, such as stiffcompetition, or develops enough to reach near-perfection in the domestic market category.Therefore, in general, businesses can look to foreign markets to make full use of their inherentpotential as well as find potential needs from other countries (especially in countries with lowbarriers to entry like economic, political, to help MNCs penetrate and expand easily).

EX: PepsiCo's products are enjoyed by consumers in more than 200 countries and regions

around the world and consumed by a huge amount more than a billion times a day Thanks tomarket expansion strategies by region and user segment, PepsiCo generated $70 billion in netsales in 2020, including convenience food and supplement categories including Lays , Doritos,Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream PepsiCo's productportfolio includes a wide range of exciting foods and beverages, including many iconic brandsthat generate more than $1 billion annually in estimated annual retail sales

Enter profitable markets:

Some businesses create opportunities for themselves by entering certain markets wherethose industries are currently highly developed However, a particularly common negativeproblem with this strategy is that companies that have been successful in this new market, setout policies to prevent new competitors from entering, they have used measures to reduce theprice of products when other new entrants have just begun to enter the market

EX: Currently, Pepsi has more than 22 brands in its portfolio Besides carbonated drinks,

Pepsi will provide healthy snacks and low-calorie drinks To boost up and to the perch brand,unlike Coca Cola - a brand that focuses on valuable media, Pepsi wants to target the younggeneration, who are rich in energy and enthusiastic "flaming fire" PEPSICO will focus oncustomers from 13 to 35 years old, from all walks of life from middle to upper class, frommodern people to people with minimalist lifestyles Besides, the price of products from thebrand is also very diverse, suitable for all choices of users

Diversify internationally:

Because the economies of countries may not transform at the same time, the corporation may take advantage of the consistent net cash flow that comes from selling items across countries The corporation can lessen the volatility of net cash flow and hence the possibility of a

liquidity shortage by spreading worldwide sales and manufacturing Furthermore, ifshareholders and creditors view the MNC's risk to be reduced, the firm may have a cheapercost of capital with more steady cash flows.

EX: The impact of the Covid-19 outbreak has caused PEPSICO's goods trade to be delayed

and short in Vietnam, but the outbreak is also a time to show that Vietnam needs to restructurethe market, open up, diversify market diversification, especially the market such as Africa, theNetherlands, America, Japan, to avoid the risk of depending on certain markets

2.2 Cost - Ralated Motives

Fully benefit from economies of scale and use foreign factors of production: Establish

a subsidiary in new markets where goods can be produced inexpensively and can be sold domestically or be exported and efficiency has lower costs of labor, land, capital or

technology

Use foreign raw: Establish a subsidiary in a market where raw materials are cheap and

accessible Sell the products in that market and elsewhere

Use foreign technology: Participate in a joint venture or acquire an existing overseas

plant to learn about foreign production processes, so as to improve its own operations

React to exchange rate movements: Establish a subsidiary in a new market where the

local currency is weak but is expected to strengthen overtime

EX: In 1994, at the time of the US embargo against Vietnam, PepsiCo entered the Vietnamese market

when it entered into a joint venture with the IBC International Beverage Company with the launch of the first two products, Pepsi and 7Up from the United States the first day when the embargo against Vietnam was lifted in 1994 And in 2003, the company was renamed PepsiCo Vietnam International Beverage Company Many beverage products are not released such as: Sting, Twister, Lipton Ice Tea, Aquawna In the following years, through the merger and acquisition of factories, the company expanded its production and business to officially become one of the largest beverage companies in Vietnam An example of PEPSICO company expanding production and business in both the field and source of raw materials as well as the user market.

According to evaluation articles, after 35 years of progressive corporate renewal, Vietnam's economy has developed strongly Vietnam is an in 5 national family with the fastest economic

growth in the world over the past 30 years Vietnam's average GDP growth rate reached 7%per year in the period 2009-2019 In the commercial year, Vietnam is in some of the countries

in the world with a positive GDP growth There are also factors that show that Vietnam'seconomy is attractive to global businesses thanks to its cheap labor force, stable exchange rateand low inflation

In 2010, PEPSICO showed Vietnam as an important country in its market expansionstrategy by Pepsico announcing to continue investing in Vietnam 250 million USD for the nextthree years and opening a new factory in Vietnam Can Tho At the same time, 2 years later,PEPSICO bought, sold and imported the San Miguel factory in Dong Nai _ The largestPepsiCo factory in Southeast Asia was inaugurated in Bac Ninh

Questions 3: Analyze the impact of Covid 19 pandemic on this MNC’s value based on valuation model

3.1 Impact of Covid 19 on the economy of Viet Nam

From an economic point of view, Covid-19 can be considered a pandemic that has far-reaching effects on world economies Evidence demonstrates that the effects of the pandemic have spread to different spillovers such as travel, tourism, supply chains, stock market volatility and oil price volatility Of course, the beverage industry is equally affected by difficulties in importing and exporting goods and materials Likewise, this pandemic has created an overall panic among consumers and companies that have distorted the way consumption patterns are established and created market anomalies COVID-19 has also posed an unprecedented challenge to MNCs like PEPSICO as the virus spreads rapidly and causes an economic slowdown.

As the covid pandemic rages, it may take weeks or months for currency markets to focus

on controlling the spread of the virus, and some countries may lose ground Also, there's moregoing on in the world of money than the evolution of the pandemic Policy changes are stillimportant but will also pose political risks to countries and MNCs over the 2020 pandemic, somonitoring the relative progress of the virus is important to understand currency movements

The Covid-19 epidemic has complicated developments, disrupting socio-economic activities of countries around the world; The US-China trade conflict continues In the country, natural disasters and epidemics have a significant impact on the activities of the economy and

people's lives; unemployment and underemployment rates are high However, with drastic andeffective solutions in realizing the dual goal of "both disease prevention and socio-economicdevelopment", Vietnam's economy still achieved positive results with maintaining growth.Although GDP growth in 2020 is the lowest in the 2011-2020 period, before the negativeimpacts of the Covid-19 epidemic, it is a success for our country with the highest growth rate

in the group of countries in the world Along with China and Myanmar, Vietnam is one ofthree countries in Asia with growth this year; At the same time, the scale of our country'seconomy reached more than 343 billion USD, surpassing Singapore (337.5 billion USD) andMalaysia (336.3 billion USD), making Vietnam become the leading country in the world Thecountry has the 4th largest economy in Southeast Asia (after Indonesia 1,088.8 billion USD;Thailand 509.2 billion USD and the Philippines 367.4 billion USD) billion USD)

3.2 Exposure to exchange rate:

Vietnam in 2019 before the Covid epidemic occurred:

In the second quarter of 2019, the foreign exchange market experienced strongfluctuations Specifically, the USD/VND exchange rate increased by 0.84% in just 5 weeksfrom the end of April, peaking at 23,360 VND/USD (bank rate) However, in June, VND had astrong recovery when the USD/VND exchange rate continuously decreased, the total decrease

of the whole month was 0.43% Accordingly, the bank rate decreased by 100 VND/USD, to23,260 VND/USD for buying and 23,380 VND/USD for selling The free exchange ratedecreased by 115 VND/USD on the buying side and 110 VND/USD on the selling side,respectively at 23,300/23,320 VND/USD The central exchange rate was adjusted up anddown alternately, ending June at 23,066 VND/USD - an increase of only 1 VND/USDcompared to the end of May For the whole 6 months, the USD/VND exchange rate increased

by 0.41 %, while the central rate increased by 1.06% from the end of 2018 until the end ofJune 2019 Compared with some countries in the region such as the Philippines, Malaysia,Singapore , Vietnam is in the group of countries with a stable local currency

Many favorable factors for a stable trend in the third quarter of 2019 according to BIDV's research, stated that "Interbank VND/USD interest rate differential is expected to remain stable at a positive level, term 1 week fluctuated around 0.7 - 1.2% Market sentiment is expected to remain steady, easing concerns as international pressures are expected to ease On the other hand,

Vietnam's macroeconomic context is still stable such as stable growth, low inflation, andforeign currency inflows are still maintained, which are the core factors to help the domesticforeign exchange market no longer suffer The foreign exchange market in the third quarter of

2019 still has many favorable factors to maintain a stable trend from the beginning.”

In summary, the exchange rate situation of Vietnam after 2019 is lower than in 2018specifically, in the fourth quarter of 2018 it increased by 1.8%, in the first quarter of 2019increased by 1%, in the second quarter of 2019 it increased by only 0.3% However, with theUSD/VND exchange rate being stable and not excessively increasing by 2.5-3%; This isconsidered a supportive increase for interest rates, credit growth and the goal of controllinginflation At the same time, the State Bank of Vietnam controls interest rates and exchangerates in line with the macro balance, market movements and monetary policy objectives,synchronously combining monetary policy tools and intervention measures foreign exchangemarket when necessary to stabilize the foreign exchange market One of the focus of monetarypolicy management from now until the end of 2019 of the State Bank is to continue to stabilizethe exchange rate through controlling VND liquidity

Specifically, the first four months of 2020 are the period of strong growth of the USD/VND exchange rate The central rate climbed to 23,245 VND/USD on February 25, up 0.4%compared to the beginning of the year due to the strong increase in USD price, this is also anew peak established during the past 3 years However, this peak was quickly broken about 2months later, the central rate continued to climb to a new level of 23,272 VND/USD on April

24 Accordingly, the buying price of USD at banks fluctuates around 23,075-23,300VND/USD, and the selling price in USD ranges from 23,230 to 23,510 VND/USD On the freemarket, the buying price fluctuates at 23,170-23,450 VND/USD and the selling price rangesfrom 23,180-23,500 VND/USD

While in the past, the selling price of USD on the free market was always lower than atthe bank, now the reversal is much higher Also, to stabilize the exchange rate, on March 24,

2020, the State Bank adjusted the USD selling rate at the SBV's Exchange with the buying selling exchange rate at the State Bank of Vietnam level of 23,175-23,650 dong/USD, keepingthe buying price unchanged and reducing the selling price by 257 dong (equivalent to morethan 1%) compared to the level announced on March 23 Thus, the selling price at the StateBank Exchange was about 100 dong cheaper than the banks at that time

-Analysis of buying prices in USD on the free market from the beginning of 2020 toDecember 29, after the intervention of the State Bank, the upward momentum of the exchangerate was reduced The selling price of USD on the free market is back lower than the USDprice at the bank At the same time, the State Bank kept the USD selling rate at the Exchangefixed at 23,650 VND/USD in the next 3 months On July 16, the State Bank increased theselling price of USD at the Exchange to VND 23,873/USD and accordingly the USD sellingrate at the Exchange was managed according to the fluctuations of the central exchange rate.

After the sublimation period, the uptrend of the central exchange rate USD/VNDslowed down and entered a period of steady decline from May 19 until now As of December

29, 2020, the central rate of USD/VND returned to the starting level of early 2020,approximately 23,150 VND/USD The USD/VND exchange rate at banks and on the freemarket both declined and went sideways after the intervention of the State Bank from March

24, 2020 As of December 29, 2020, the buying and selling price of USD at banks was popular

at 23,010-23,220 VND/USD and the buying and selling price on the free market was popular

at 23,290-23,320 VND/USD In which, the buying price in USD at banks decreased by 0.3%compared to the beginning of 2020 while the selling price decreased by only 0.04%

Contrary to developments in the banking market, the USD/VND exchange rate on thefree market in mid-December tended to increase slightly by 0.5% and 0.6% compared to thebeginning of the year and were 280 dong and 100 dong higher than banks, respectively.because of the difference in the domestic gold price - the world gold price is at a high level, up

to more than 3 million VND/tael as of December 29, 2020 One of the factors that caused theexchange rate to decrease was the weakening of the USD

During the regular Government meeting in early September, Prime Minister Nguyen Xuan Phuc said foreign exchange reserves had reached about 92 billion USD This is a record level of foreign exchange reserves of Vietnam The figure by the end of this year can reach 100 billion USD, 5 times higher than 20 billion USD at the beginning of the term Therefore, after nearly a year of maintaining the buying price at 23,175 VND/USD since November 29, 2019, the State Bank Exchange Department lowered the buying price of USD to 50 VND, to 23,125 VND/USD in afternoon session 11/24/2020 The decrease in USD buying price of the State Bank of Vietnam Exchange was stronger than in 2019 in the context that the State Bank bought a large amount of foreign currency from commercial banks, equivalent to more than 30,000 billion VND Besides, the supply of USD in Vietnam is assessed to be abundant thanks to the trade surplus The General Department of Customs said that in the first 11 months of 2020, the trade balance of goods was estimated to have a record trade surplus of 20.1 billion USD (the same period last year, the trade surplus was 10.8 billion USD) The fact that the State Bank lowers the price to buy USD will reduce the attraction of foreign currencies, help the supply of foreign currencies stay in the market more, and contribute to stabilizing the domestic exchange rate in the context that the demand for foreign currencies tends to increase at the end of the year five.

increased by 0.1%, while the exchange rate on the interbank market decreased by about 1.6%compared to the beginning of the year.

On the free market, the exchange rate of Vietnam dong against the US dollar increased

by 0.5% due to the widening gap between domestic and international gold prices Currently,the domestic gold price is about 11.2 million dong/tael higher than the world gold price Thefactors affecting the exchange rate this year mainly come from the international market, inwhich the two main factors are the US economic growth slowing down due to the impact ofthe Covid-19 pandemic and the Federal Reserve the US (Fed) kept the loose monetary policy

to stimulate the economy affected by the pandemic, so the dollar only increased slightly by0.1% compared to the beginning of the year

The buying price of USD decreased sharply: Since the beginning of the year until now,

the State Bank has adjusted 3 times to reduce the buying price of USD Specifically, on June 8, 2021, it decreased by 150 VND/USD, on August 11, 2021, it changed from buyingfor a 6-month term to buying spot, and at the same time reducing the purchase price by

225 VND/USD The third time to reduce the purchase price of USD by 100 VND/USD onNovember 5, 2021, to 22,650 VND/USD The downward adjustment of the buying price is

an inevitable consequence in the context that both the central exchange rate and the sellingprice of the State Bank and the USD price in the interbank market decreased compared to the beginning of the year At the same time, the State Bank sharply reduced the buying price in USD on the basis of abundant domestic foreign currency supply when Vietnam's trade balance in the first 11 months had a surplus of 225 million USD and the estimated amount of remittance Returning to Vietnam reached a record of 18.1 billion USD, despite the Covid-19 epidemic

The selling price of USD also dropped sharply: In the morning of December 7, 2002,

the central exchange rate continued to be adjusted sharply by 27 dong compared to theprevious session, listed at 23,237 dong/USD, marking the third strongest increasesession consecutive Meanwhile, the selling rate was suddenly adjusted by the State Bank

of Vietnam, down sharply by 706 VND/USD compared to the previous session, down to23,150 VND and remained fixed until now Thus, after continuously increasing hot in the

first week of December, the State Bank has stabilized, when sharply lowering the sellingprice of USD to create intervention supply The listed operator's selling price as above is

742 VND/USD lower than the ceiling price, reflecting the message of willingness tocreate supply at low prices, cool down the market and create liquidity for banks

According to Mr Hoang Cong Tuan - Head of Macro Research Department, the exchange rate will be stable soon, specifically that "Although in 2021, there will not be too many foreign exchange reserves However, Vietnam is still running a surplus on the overall balance Therefore, the pressure on the exchange rate is not much, while the USD has appreciated again, but the increase is not high And with the Omicron variant that has just appeared, the possibility of the US raising interest rates quickly

in the first half of 2022 is almost nonexistent Therefore, Mr Tuan believes that the exchange rate in the coming time will be very stable and only fluctuate at 0.5% compared to the present, but the general trend is not yet showing that the Vietnamese dong depreciates against the USD As for the Vietnamese dong to appreciate, we certainly don't expect it, because comparing the factors, we don't have too many advantages”.

3.3 Exposure to interest rate

In 2020:

Before the impact of the Covid 19 epidemic, according to a report by market researchcompany Kantar Vietnam, the fast-moving consumer goods (FMCG) industry grew slowly,beverage products decreased significantly (-6.8%), a Part of that may be due to restrictions ontravel, sightseeing, gathering of friends as well as the reduced demand for parties andprioritizing health protection during the epidemic season.

In addition, the Covid-19 epidemic also had a substantial impact on inventory spendingduring the epidemic season With anxiety and bewilderment during the outbreak, consumersbegan to increase their purchases and stockpile fast-moving consumer goods actively Thebeverage is the industry most affected during the epidemic season, while all other categorieshave double-digit growth Specifically, beverage consumption decreased by 14.1%; milk anddairy products by 10.3%; packaged food by 26.2%; personal care products by 29%; home careproducts increased 11.4%

Notably, consumers' shopping carts changed due to the impact of the Covid-19 epidemic The list

of cuts includes party products such as beer (down 24 percent) and soft drinks (down 19