MSC International Business

International Business Environment

BMG812

Assignment two

Name: DO TIEN DUNG

Student Number: B00644271

Lecturer: Daniel Hagan

Due date: April 10, 2013

Word count: 1810 words

1.Introduce

Exxon Mobil, Which is a big renowned MNE, always

stands in top 3 biggest companies following the

assessment of Global finance: the Fortune Global 500,

the Financial Times Global 500 and the Forbes 2000.

Behind the successful of Exxon is an excellence

operation goes with discipline investment. Moreover,

the advantages of Exxon Mobil’s competition come from 3

segments: upstream, downstream, chemical which is

created by a vertical integration. It also brings for

company a benefit in supply chain from exploration,

refinery to supply process. However, the success of a

company, when it enters new market, not only depends on

its competitive position but also the level of foreign

market understanding. So, in this report, we will

analysis and make a plan which express how Exxon give a

discipline assessment for Vietnam oil market before

entering.

2.1 Reason for entering Vietnam market

To have a plan to enter any new foreign market, Exxon

Mobil bases on financial tool to research and assess it

carefully for example PESTLE analysis which is a useful

and necessary tool to assess new market, so we will

find out how PESTLE framework expresses in Vietnam

market. PESTLE analysis includes 6 elements which

effect on the macro environment of any market.

Political factors:

“Vietnam has only one party state controlled by the

communist party. Hence, there is more likely to be

higher central and less autonomy control for any

organization intent to do their business in Vietnam.”

(Docstoc, 2011)

However, in 1986 Vietnam performed economic renovation

and became the 150th member of the world trade

organization in 2007, which are two turning points

effect on the boost of Vietnam economy.

“This reform policy opened a new regime marked by

lower by lower inflation rate and higher economic

growth. It also provided a lot of incentive issues to

attract FDI inflow such as reducing the import/export

tariff, reducing the poverty rate, encourage foreign

invested sector and private invested sectors; lowering

foreign-currency surrender rate, lowering the

restriction barriers and some other guarantees from the

government” (Docstoc, 2011)

Furthermore, Vietnam has political stability and

absence of violence stand second position in ASEAN 6

recently (appendix chart 1). As a result, its market is

attractive destination for every MNE. Potential Impact:

in upstream Vietnam government encourage ExxonMobil

invest, exploit and refine oil on South China Sea which

has big oil reserves in the world. Although South China

Sea is disputed between Vietnam and china, if

ExxonMobil perform contract they will have big profit.

Besides, ExxonMobil can enter Vietnam market through

joint-ventures or production sharing contracts which

government gives a lot of incentives.

Economic factor:

“Vietnam is a developing economy in the Southeast

Asia. In recent years, the nation has been rising as a

leading agricultural exporter and an attractive foreign

investment destination. Vietnam's key products are:

rice, cashew nuts, black pepper, coffee, tea, fishery

products and rubber. Manufacturing, information

technology and high-tech industries constitute a fast

growing part of the economy. Vietnam is also one of the

largest oil producers in the region.” (Trading

economic, 2012)

The development about economics of country usually

express through 2 indexes: GDP growth rate (appendix

chart 2) and inflation rate( appendix chart 3) .

Particularly:

GDP: “Gross Domestic Product (GDP) for 2011 was USD

115 billion, which increased from USD 101.6 billion in

2010”. (ECR, 2013)

“The Inflation; consumer prices (annual %) in Vietnam

was last reported at 18.68 in 2011, according to a

World Bank report published in 2012” (trading economic,

2012)

Potential impact: before investing into Vietnam, Exxon

Mobil has to prepare for negative elements likes: low

interest rates, weak currency exchange rates and high

inflation. However it is not big problem with Exxon

Mobil in term of upstream activities, contrarily Exxon

Mobil will have advantage when it goes into joint-

ventures with Vietnam petroleum to exploit and refine

oil, before exporting oil over the world

Social factor:

“The population of Vietnam is about 91,519,289 (July

2012 est.). Age structure is 15-24 years: 19% (male

8,974,221/female 8,400,162), 25-54 years: 44.1% (male

20,130,321/female 20,205,400), and 55-64 years: 6.6%

(male 2,720,235/female 3,281,666). Languages Vietnamese

(official), English (increasingly favored as a second

language). Education expenditures are 5.3% of GDP

(2008). Literacy occupy 94% total population”

( Indexmundi, 2013)

Due to the globalization, the backward thinking is

eraser step by step, although good national characters

still maintain. Potential impact: it is crucial for

ExxonMobil to make a good relationship with local

government as well as local people. This is an

important step to take good comment from community and

apply for incentive policy of local government.

Technological factor: with the development of

technology, Mobil phone and computer is a vital part of

Vietnamese people. More and more people and companies

are in technology and technical gadgets. After becoming

a member of the world trade organization, Vietnam

continues to open for adopting new technologies with a

lot of encouragement policy likes: tax cut, reducing

land lease price, electricity and so on. Potential

impact: technology market in Vietnam are currently

improving, Vietnam is in the early stages of

development. So, machines and technology about

exploiting and refining oil are mainly import. This is

a chance for ExxonMobil which it transfer new

technology for Vietnam to receive incentive policy from

government.

Legal: although Vietnam’s legal system is progress,

the law which protects for foreign investor is limit.

Moreover, they still have legal restrictions for market

entry, so Exxon Mobil should be aware the difficulty

they must face before entering.

Environmental factor:

Vietnam, which is tropical country, is usually faced

to natural disasters such as typhoon. Its coastline is

more than 3,400 km and its area of South China Sea have

huge amount of oil reserve that still do not discover.

Moreover, with the complex about geographical terrain

is obstacle for transport link between drilling place

in sea and oil refinery in land.

2.2 The attractiveness of Vietnam market

In this part, the attractiveness of Vietnam market

will be determined through analyzing 4 elements of

Michael Porter’s Diamond and Market Intelligence

Report.

Market intelligence stands in the term of competitive

insight and market insight. Competitive insight: in

Vietnam technology is quite old fashion, the refinery

is limit. As a result, the cost of products is high and

products mainly suffer a preliminary treatment. So, the

profit of Vietnam Oil Company is low. Market insight:

“Vietnam oil market consumption is about 365 thousand

Barrels per day and stand in the 35th ranked over the

world”. (EIA, 2013)

It is an attractive market for Exxon that Exxon bases

on high technology to enter market and gives for

customer a friendly environmental product.

Porter’s Diamond:

Vietnam factor conditions: Vietnam is developing

country, the level of skill labor and technology is

improved step by step. However the cost of labor is

quite cheap which makes a good condition for every MNE

entering Vietnam market that it reduces its cost.

“According to Oil & Gas Journal (OGJ), Vietnam now ranks third

in terms of proven oil reserves for the Asia-Pacific

region”.(EIA, 2012)

Demand conditions: in the early of developing period,

the population of Vietnam and the private transports

increase dramatically, as a result, the oil market is

very demanding. Although, related and supporting

industries are limit for instance: currently, Vietnam

has only one oil refinery in Quang Ngai province and

the technology of oil exploitation is quite old,

Vietnam set up joint-ventures with huge oil MNEs over

the world like: japan, Russian oil company to improve

the supporting activities for oil industries. Domestic

Oil Companies in Vietnam is quite effectively; they not

only supply enough oil for domestic market, but also

tend to expand foreign market such as: Japan, Thailand,

China and so on. After entering WTO, in the next time

Vietnam will open oil market, it is an opportunity for

huge oil MNEs like: ExxonMobil penetrates, set up a

business and find more profit.

(Wikipedia,2013)

3. ExxonMobil’s market entry strategy:

3.1 Target market

Despite the fact that Vietnam is developing country,

the development is mainly in urban with the improvement

of transport system which includes both public and

private transport likes: car, motorbike, bus, airport

and so on. So, Exxon Mobil should focus on urban

especially in big city such as: Hanoi capital, Ho Chi

Minh City. Moreover, target market should be

restriction in group from 20 to 60 year olds, because

government bans people under 18 use motorbike and car.

Meanwhile people over 60 tend to use public transport

more than private transport.

3.2 Projected sales and other financial implications:

Yea

r

Finance

1 2 3 4 5 6

Sale 592 1200 2000 2500 3000 3200Profit -3408 250 500 1000 1100 1200

Vietnam consume about 365 thousand barrels per day

( EIA, 2013)

the price of a barrels oil is about $90 (CNNmoney,

2013)

So the expenditure of Vietnam for oil is about $11,826

million per year. We will suppose that the same Cepu

project in Indonesia, Exxon Mobil expends $1,300

million for exploitation and refinery in Vietnam.

Moreover, ExxonMobil spends about $2,700 million to

set up office and all of oil station system. So, total

of cost Exxon Mobil is approximately $4,000 million. In

the first year, because Exxon Mobil is new brand in

Vietnam, it takes about 5% share of market. As a

result, a negative profit is showed in year 1. From

year 2, with the improve of advertising and focusing on

target market, Exxon Mobil takes more share from market

such as 10% in year 2, 15% in year 3, 20 % in year 4

and remain unstable rate in following year about 20%.

Moreover, as a result of effectively refinery and

exploitation activities, the amount of exploited oil