Phân tích môi TRƯỜNG KINH DOANH QUỐC tế và hệ THỐNG tài CHÍNH VN v

The socio-economic results of the first 10 months + Foreign direct investment from the beginning of the year to 20/10/2012 reached 10.5billion USDs, including: The registered capital of

Business Report:

Operating in an international business environment gives organizations many openopportunities Market development beyond the border, access to cheaper raw materials andproduction process and achieve lower levels of financial expenditure are some logicalreasons which urge businesses to get involved in international business activities However,the managers also face many difficulties, problems and new risk factors which require them

to be very careful in management They must understand the customers’ tastes, institutionaland legal framework, cultural characteristics, macroeconomic trends and financial systems.Political requirements and risks are also the key factors to consider Therefore, approachingthe multi-national market and international financial infrastructure provides the opportunity

to choose a new competitive strategy, but also make businesses have to face with theincreasing complexity and diversity

Task: Put yourself in the place of the staff of the organizations such as the "Chamber of

Commerce" of Vietnam Your group wants to increase Foreign Direct Investment inVietnam, and the organization requires your group to find out the good, the bad and the risk

of many aspects from the perspective of a Multi-national corporation deciding to invest inVietnam Your team must know the "good side" to "sell off" the positive aspects of VietnamFinancial Market, as well as the pricing structure and the friendliness towards potentialforeign businesses Your group must also know the "bad side and the threats" to be ready todiscuss and debate about business activities in Vietnam Your group must prepare a

business report summarizing the research results and suggestions.

ANSWER:

INTRODUCTION

McDonald - A godfather in the "fast food" restaurant chain business, which has occupied

a lot of market shares and has the presence in almost all demanding markets, but so far hasnot been able to lay its foot on the Vietnamese market - a potential but very challengingmarket So what are the reasons? Investment policy, franchise partners, competitors or non-standard food are the main causes which made this big boss afraid when approaching

Vietnam The following business report will clarify the issues and help Mr McDonald have aclearer decision with Vietnam market share.

I/ INTERNATIONAL BUSINESS ENVIRONMENT AND VIETNAM FINANCIAL SYSTEM:

1 Recent socio-economic situation in Vietnam:

According to the Government's report about the socio-economic situation in 2012 at thefourth session of the National Assembly XIII, October 22nd, 2012, in the context of worldeconomic fluctuations becoming more complex and difficult, with sharp decline in trade,global growth lower than expected this year, it created the negative impact on our economywhich has deeply integrated and opened The socio-economic results of the first 10 months

+ Foreign direct investment from the beginning of the year to 20/10/2012 reached 10.5billion USDs, including: The registered capital of 881 newly licensed projects reached 6.7billion USDs, supplementing registered capital of 359 projects licensed from previous yearsreached 3.8 billion USDs Implemented foreign direct investment of ten months of 2012 wasestimated at 9 billion USDs, down 1.1 percent from the same period in 2011

+ Foreign direct investment of the first ten months of this year mainly focused on theprocessing industry with 6.9 billion USDs, accounting for 66.2% of the total registeredcapital; the real estate industry reached 1,8 billion USDs, accounting for 17.6%; remainingsectors reached 1.8 billion USDs, accounting for 16.2%

- In ten months, the country has 47 provinces and sub-cities have newly licensed foreigndirect investment projects, in which Binh Duong has the largest amount of registered capital,followed by Hai Phong, Hanoi, Dong Nai…

* Consumer Price Index:

- The consumer price index (CPI) of 10/2012 increased by 0.85% from the previousmonth The index of this month rose mainly due to the influence of the pharmaceutical andmedical services and education industries, in which the pharmaceutical and medical servicegroup increased 5.94% (medical service increased 7.78%); education group increased by1.88% (education services increased 2.10%) The high level increase of medical serviceprices in October contributed to the increase of the whole country price index with theincrease of 0.31%.

- The consumer Price Index (CPI) of 10/2012 increased by 6.02% compared with12/2011 and increased 7% compared to the same period last year The average ConsumerPrice Index of ten months of 2012 increased 9.66% compared to the same period in 2011

- The U.S dollar price index of 10/2012 increased by 0.06% over the previous month;decreased by 0.88% compared with 12/2011 and down 0.18 percent from the same period in2011

b Positive sides:

* Inflation rose lower than expected:

- In the first eight months, the consumer price index (CPI) increased only 2.83%.However, the CPI in September unexpectedly rose 2.2%, made the CPI in 9 months reach5.13% Thus, the overall inflation in the economy has not bounced back Generally speaking,most commodities’ prices in September still increased but at a very low level With credit ofthe year increased only at a very low level, there’s a high change that the inflation in thecoming months will only increase slightly even though it’s in the peak season of the yearlyinflation cycle This is contrary to the fears of many that inflation will rise sharply

- Inflation can be seen as a bright spot since it increased in a much lower level than manypeople feared it would be However, it is not an entirely positive thing because from adifferent angle, it indicates a decline of the entire economy

(Graph 1: Vietnam inflation graph from 2000 to 2012 - Source: GSO)

* The stable exchange rate will keep being stable in the upcoming months:

- 2012 was the first year in the last four recent years with a relatively stable exchangerate The current rates are much lower than that in the beginning of the year and fluctuatedaround 20,800 - 20,100 VND / USD This is considered a positive point for the economy

- In 2013, the exchange rate may continue to be stable since there’s no big gap betweenthe supply and demand for foreign currency However, the exchange rate will increaseslightly if the Government provides strong stimulus for the economy

(Graph 2: USD/VND exchange rate graph from 2008 to 2012 – Source: GSO)

* Both import and export increased:

- Both export and import increased quite significantly in the context of the economic

downturn However, the increase in export and import is mainly due to FDI This iscompletely understandable because the FDI companies are in the manufacturing chain ofmultinational companies Both domestic import and export decreased, which reflects thedifficulty of the economy

(Grapth 3: Vietnam Import – Export and Trade Balance Deficit Graph from

2001 to 2012 - Source: GSO)

* Interest rate has sharply decreased compared to that at the beginning of the year:

- Compared with that at the beginning of the year, the interest rate has fallen sharply.

Currently, the lending interest rate in the market is commonly under 15%, 4-5% lower thanthat at the beginning of the year Borrowing interest rates also fell to below 12%, lower thanthe 15-20% of the earlier time

- The decline in interest rate, not only due to the decrease of expected inflation, but isalso due to the decrease in the capital demand of the economy In addition, the interest ratedecreased is only because the Central Bank has sharply decreased the refinancing andrediscount rate

In addition, other socio-economic indicators such as foreign affairs, security and defense,socio-political stability; cultural, education and training development, science andtechnology, environmental protection, social security and social welfare also have beenimproved and achieved certain successes

- Some corporations, state corporations operate ineffectively, illegally, causing great loss

of state assets The quality, efficiency and competitiveness of the economy have notimproved much The economic and social forecasting capacity is still restricted and doesn’tmeet the requirements

- The life of a part of the population, especially in remote areas and ethnic minorities, gotmore difficult Due to limited resources, the expansion and improvement of the level ofsupport of social welfare policy, poverty reduction programs, new rural construction, jobcreation and wage reform did not meet the requirements

- Education and training is still weak; the quality of training of many universities,colleges was slow in improving; Science and technology couldn’t meet the requirements interms of productivity, quality and economic competitiveness improvement

- The management of natural and environmental resources was still inadequate; therewere a lot of pending big projects The environmental pollution in industrial parks,manufacturing facilities, villages, river basins was still heavy The flooding in some majorcities was slowly to be overcome

- There was still some disappointment about the social order and safety; especially crime,social phenomena, traffic law violations, food safety

- Administrative system reform did not meet the requirements Many administrativeprocedures are no longer appropriate and slow to be changed The administrative disciplineinspection and supervision was still weak, reducing the effectiveness and efficiency ofmanagement and administration A part of the government officials turned into bad andfailed to fulfill their responsibility, which created harassment and the negative impact on thetrust of the people

2 The international business environment of Vietnam:

2.1 FDI into Vietnam in recent time:

- According to the Foreign Investment Department (the Ministry of Planning and

Investment), the total foreign direct investment (FDI) registered in Vietnam since thebeginning of the year has reached over 11 billion dollars That's down more than 12% over

the same period, equals to half compared with the goal of attracting 22-25 billion USDs inFDI set for this year.

- Disbursed FDI capital since the start of the year reached more than 7 billion USDs

- The total number of newly registered FDI projects has reached 658 projects worth 10.79billion USDs, down about 10% in terms of the number of projects but increased 41% interms of the amount of registered capital over the same period last year

- Also according to the Foreign Investment Department (the Ministry of Planning andInvestment), the majority of foreign investment projects in the first 10 months of 2012 aresmall and medium projects There is only one project with the investment of over 1 billionUSDs in the real estate industry, 55 are medium-sized projects, and 111 are small and supersmall projects

- Currently, the Ministry of Planning and Investment is now focusing on the quality aswell as the disbursing progress to implement the investment projects, instead of focusing onthe amount of registered capital This is also a positive result in the context of global anddomestic economic difficulties

2.2 Shortcomings in attracting FDI:

- After 25 years implementing the open door policy, attracting foreign investment withthe promulgation of the Law on Foreign Investment in 1987 (one of the first laws of therenovation period) and the amended laws in 1990, 1992, 1996, 2000 and 2005, along withthe bylaws, Vietnam has established an uniform, transparent and consistent legal frameworkwith international standards and create a favorable business environment for foreign directinvestment (FDI)

- Despite achieving important basic results mentioned above, but according to Dr DoNhat Hoang, the director of the Foreign Investment Department (the Ministry of Planningand Investment), there are still many problems existing in the policies of attracting FDI intoVietnam today; they are reflected through the fact that the attracting, use and managementactivities of foreign investment over time have revealed a number of limitations andshortcomings They are:

+ The ability to absorb capital is still modest, means that we haven’t taken advantage ofthis capital source in an efficient way while Vietnam is having a great demand for capital;the quality of the capital is not high;

+ The attraction of high-tech investment projects is still limited; technology transfer isstill slow; there are still some foreign investment enterprises using outdated technology,which can potentially create pollution;

+ The use of land and mineral resources is not really effective; the horizontal and verticallinkages between foreign-invested enterprises and domestic enterprises are not high; thereare still labor disputes and strikes in some places, which created bad influence on theinvestment climate

- The above limitation and existing issues of the FDI field are caused by the internalweakness of the economy as well as the limitations in the planning and implementation ofpolicies and laws on foreign investment The main reasons are:

+ The systems, laws and policies related to investment are incomplete and inconsistent.+ The preferential investment policy is not attractive enough

+ The development of infrastructure did not meet the development needs of the economy

as well as not create good conditions for foreign investment inflows to be promotedefficiently

+ There is limitation in human resources Vietnam's human resource is abundant butthere’s a low percentage of trained workers, highly qualified human resources areinsufficient, which did not meet the labor needs of businesses in general, including foreigninvestment enterprises

+ The development of supporting industries is still limited

+ We haven’t implemented well the decentralized management of foreign investments.The empowerment of the decentralization task to the local People's Committee and the IPsand EPZs’ management boards in the management of foreign investment is the right policy,

it create an active position and raise the responsibility of local authorities in the management

of foreign investment activities However, the decentralization process must beaccompanied by clear policies, with a synchronized planning system; the ability of theempowered organizations must be improved; the information reporting and transferring from

local to the central Government must be timely; the inspection and handling of violationsmust be done thoroughly; enhance the horizontal and vertical coordination between thegeneral management authorities and specialized management agencies, between centralauthorities and local authorities.

+ The inspection and supervision of the implementation of environmental protectionregulations of the companies is still insufficient

+ Investment promotion activities are not effective enough

Attracting foreign investors need to focus on a number of priority areas That is, to selectprojects which have modern technology, are environmentally friendly and can enhance thelink between the areas; related to the sectors producing products with competitive advantage,products which can participate in the global production network and value chain, such ashigh technology, engineering, information technology and communications,pharmaceuticals, bio-industry; environmental industry and industries which use green energyand renewable energy or new materials The projects which save energy and do not use alot of cheap labor will also be given priority

(Quote from the source: www.diendandoanhnhan.vn )

3 The impact of the global financial crisis on Vietnam:

3.1 The global financial crisis:

* The government debt crisis in Europe:

- The European government debt crisis is a debt crisis first bloomed in Greece in early

2010 when the cost of government debt increased continuously The crisis then spread toPortugal, Spain, followed by Italy in the Euro area France is a country with high risk offalling credit ratings; the Republic of Cyprus has been pushed to the brink to get bailout

- On 09/05/2010, the European Minister of Finance has approved the rescue packageworth 750 billion Euros in order to ensure financial stability in the Euro zone, and set up theEuropean Financial Stability Committee Followed by a 85 billion Euro bailout package forIreland in November 2010 and 78 billion Euros for Portugal in May 2011 The debt crisis hasthreatened the existence of the euro currency, influenced the global financial system, andmade the Greek Prime Minister and the Italian Prime Minister to resign On 06.02.2012 theGovernment of Romania is the 6th European government collapse due to debt crisis

- The statistics said that in the last quarter, Germany - the number one economy inEurope - only had modest growth of 0.2%, lower than the 0.3% in the second quarter and0.5% in the first quarter France is also struggling to achieve growth of 0.2% Although theGerman and French economies continue to grow, but when considering all 17 membereconomies, the eurozone still has fallen into deep recession.

- The "modest" Growth of Germany, France, could not pull the Europe ship accelerate asthe economy of the Netherlands, Spain, Italy and Austria all decelerate In the third quarter,the economy of Spain and Italy - the countries imposing the unpopular measures to "tightentheir belts" - fell by 0.3 per cent and 0.2 per cent Meanwhile, the Austrian economic decline0.1%, Netherlands fell 1.1%, the deepest decline in Eurozone

* The government debt crisis in the US:

- According to the U.S Deposit Insurance Corporation (FDIC), the federal debt hasdoubled in the past seven years to 14 trillion USDs, a direct result of the financial crisis andthe fact that the government does not want to limit long-term structural deficit If there’s nodecision made, the U.S federal debt could rise from 62% of GDP this year to 185% of GDP

in 2035

- When more than 70% of U.S Treasury bonds held by outside private investors matureafter 5 years, the poor investor confidence in the United States will cause interest expense forthe government and the private sector of U.S increased

- Total U.S government bonds held by China in January fell by $ 5.4 billion, to $ 1.155billion, down continuously for three consecutive months In December last year, China sold anet $ 4 billion of U.S government bond

- The foreign central banks hold $ 3,150 billion U.S government bonds out of $ 4440billion in circulation abroad

- The investment fund of Jim Rogers, the president of Rogers Holdings and BeelandInterests, Inc also decided not to continue lending money to the U.S government again From all these facts above, we can see that the United States is entering a major downturnwhich has the global influence

3.2 The impacts of the global financial crisis on Vietnam:

The recession of the world economy is having a strong impact on Vietnam, includingboth positive and negative, expressed by some aspects as follows:

* Negative sides:

- The general decline of the world economy will certainly affect the economy ofVietnam, but the overall impact is likely to be slow growth and rising unemployment Thisdefinitely will affect all levels of the Vietnamese population, including working-classworkers which will be affected directly

- In this context, the Government should place the highest priority against inflation andheading towards macroeconomic stabilization We have to accept slower growth in a fewyears to have macroeconomic stability and ensure long-term growth

- In terms of currency, we must continue the tightened policy But when operating, weneed flexible ways to exploit favorable opportunities to achieve consistent economic growthsuch as positively cutting interest rates for loans to support and reduce the difficulty forbusinesses

- The State Bank had the measures of raising the required reserve rate from 1.2% to 5%and payment bonds to commercial banks to improve liquidity and reduce costs for banks,enabling banks to cut lending rates This is for the objective of combating inflation andexploiting the ability of reasonable growth

- So far, we prioritize exports (60% of GDP) and we depend on it So when the worldeconomy is in crisis, many countries reduce imports which make Vietnam's export activitiesseriously affected

- In the areas affected by the world economic crisis, the FDI sector is the most affected,which can be shown through:

+ Foreign direct investment fell sharply from the beginning of the year, but Vietnamremains a relatively favored address for investors around the world The phenomenon ofnarrowing and reducing the capital of the foreign investment enterprises is clear, but with thecurrent positive signs, we can fully confirm that, in Vietnam, there’s no problem of foreigninvestors withdrawing capital in large-scale

+ The capital absorption capacity of the economy of Vietnam is not high is due to the

"growth knots" such as infrastructure, transportation, electricity, water, the quality of human