Analysis of HMs Vietnam Expansion

Analysis of HMs Vietnam ExpansionHM is a Swedish multinational clothing retail store that caters to young adults and children. Since its inception, the brand has evolved to include accessories, footwear, cosmetics and home furnishings. HM is one of the top retail stores in the world and has positioned itself as a low cost- quality clothing supplier. HM and its competitors occupy a niche segment of the retail clothing labor known as fast-fashion, characterized by the competency to see consumers who demand the most up-to-date styles at an affordable price. Retailers must meet several specific guest expectations to remain competitive in this segment, as well as maintain a highly competent intragroup operation to meet the requirements of the constancy.HMs intricacy into Vietnam is part of the companys larger overall global expansion strategy to open stores with a target of 10-15% sales harvest coupled with an introduction of online retail to emerging and unexploited retail mark ets (HM Group, 2016). Vietnam has seen recent increased growth in outside direct investment and expanding retail market. Consumers in Vietnam have a demand for large Western brands and have increased disposable income to authorize in the market(Deloitte, 2014). In Vietnam, barriers to entry remain low for HM and other manufacture competitors. HM and other impertinent retailers have the capability of opening their sign retail spaces in Vietnam without extreme difficulty (Deloitte, 2014). In 2016, Zara, HMs largest competitor opened a retail store in Ho Chi Minh City preindication an increase in inappropriate retail investment in the country (Zara Enters Vietnam, 2016). It appears that the landscape in Vietnam is changing in the favor of strange retail firms and governance policies are being shaped to attract more foreign investors.Industry Requirements and ExpectationsHM and its competitors occupy a niche segment of the retail clothing industry known as fast-fashion, chara cterized by the ability to serve consumers who demand the most up-to-date styles at an affordable price. Retailers must meet several specific customer expectations to remain competitive in this segment, as well as maintain a highly efficient internal operation to meet the requirements of the industry.Expectations within the fast-fashion industry have become increasingly more customer-focused and demanding with the success of retailers such as HM, Zara, and Forever 21. Because the industrys core market is highly sensitive to changes in trends and seasonality, retailers need a keen awareness of the fashion landscape to proactively update their inventory at locations worldwide. Successful players in the industry must also have an in-depth understanding of the local anesthetic markets of their varying locations to serve their customers specific tastes. Fast-fashions most dedicated consumers also depend on the affordability that retailers offer to allow them to keep their wardrobes stock ed with the latest styles.Highly efficient grant chain management is the cornerstone of the fast-fashion industry, and is the key requirement for any retailers success. Demands for rapid turnover and affordable prices hinge on the retailers ability to keep internal costs to a minimum to avoid passing on costs to the consumers. The industry requires retailers to keep an extremely low product life cycle (PLC), which is typically achieved through the combination of a just-in-time inventory system and a strategic distribution and fulfillment network within the countries of operation.Location is also a unfavorable requirement when operating in fast-fashion, both for retail stores and proximity to distribution centers. In order to capitalize on the benefit of operating within this industry retailers must secure locations for their retail stores that are both highly visible and densely populated, while distribution and fulfillment centers require central location to serve the maximum num ber of retail locations as quickly as possible.Low Trade BarriersIn 1986, Vietnam created an open-door policy with reforms in three essential areas i) the right to foreign trade, ii) trade instruments and policies iii) liberalization of foreign trade. Since then, the Vietnamese economy has been emergence at a rapid pace.Since Vietnams inception in WTO in 2001, Vietnam removed many non-tariff barriers including quantifiable travails on imports, quotas, bans, permit requirements and licensing requirements. (U.S. Department of State, 2014). However, there are still some existing industry specific trade barriers in Vietnam. For example, price stabilization and restriction is implemented by the Vietnamese establishment when prices are too high or low for essential goods. Other examples of trade barriers include import taxes on automated products and services, permits on foreign investment in cinema construction only through local joint ventures and land use rights. Vietnamese land, a property of the state, cannot be owned by investors nor any Vietnamese nationals (U.S. Department of State, 2014).To HMs advantage, the retail industry in Vietnam has very few trade barriers and restrictions for foreign investment. Thus, being one of the fastest growing countries in the ASEAN economy along with liberal retail policies, Vietnam is an obvious country of interest for EU business expansion. The countrys openness to foreign investment has been the cause of many trade reforms and lower trade barriers. For example, Vietnam provides investment incentives to foreign investors such as exemption from import taxes on necessary materials compulsory for manufacturing that cannot be found in Vietnam.Policies supporting FDI in VietnamSince November 1, 2015, Vietnam has allowed foreign retailers to set up 100 percent foreign-owned enterprises under its commitments to the World Trade Organization. This gives them access to supply sources and ideal business locations to operate fro m. Most international brands are opening stores in Vietnam through franchising or the granting of rights to a local partner, as franchisees are needed to have a zero-loss business record and must be able to present their business development plan to the franchisor during the bidding process, which increases the likelihood of success for foreign investors in Vietnam. (VN Express Retail market share,2016). These policies make expanding to Vietnam attractive for HM. Franchising their retail stores in Vietnam is safer for HM now because of these policies.FDIAs Vietnam is becoming increasingly accessible to foreign investments, FDI inflows have seen a steady and strong increase over the previous years. In 2016, FDI inflows climbed to US$24.4 billion with a 9% increase from 2015. Out of these, US$15.1 billion flew to 2,556 newly registered projects, US$5.76 billion came from 1,225 existing projects adding to their capital, and US$3.4 billion flew in from foreign investors purchasing sta kes in 2,547 companies. Vietnams rapid pace of integrating into global commerce is likely to yield great opportunities for foreign investors. So, this is the right time for HM to invest and expand into Vietnam. (Vietnams FDI Outlook for 2016)In January 2017, foreign investors invested in 16 sectors in Vietnam, out of which Wholesale and retail ranked third with total registered capital of US$ 88.75 million, accounting for 5.6% of the total foreign direct investment. coition high investment in Wholesale and Retail market bodes well for HM. HM is planning to open up its first retail shop in Ho Chi Minh City, where FDI investments are high. (Ministry of planning and investing of Vietnam, 2017)Vietnams retail industry has witnessed healthy growth rates of 8 10 percent annually in recent years. To continue, the industry is forecasted to reach $109 billion by 2017. With the population of more than 90 million, Vietnams retail market is growing rapidly, making it highly attractive for f oreign investors. The country is currently ranked top 5 and 11 in Asia and globally respectively in terms of retail growth. (VN Express Vietnams rapidly growing retail Industry, 2016)Ease of doing businessThe countrys ease of doing business while still leaving room for improvement is developing, Vietnam ranked 82nd out of 190 countries, up cabaret positions from 2016. Government of Vietnam is actively privatizing its state-owned enterprises (SOEs) on top of its trade agreements and foreign direct investment policies. Since 2015, nearly 170 companies have been privatized and this trend will continue in the coming years. This creates many opportunities for foreign investors. (Vinkenborg, M. (2017). Vietnam in 2017 Spotting opportunities for FDI)Policies restricting FDI in VietnamOne complication for FDI in Vietnam is Vietnamese authorities have different definitions of a foreign invested enterprise. In practice the level of foreign investment that qualifies an entity as foreign dif fers from province to province. Unlike other countries in the region, such as china or some of the other ASEAN member states, Vietnam does not maintain a forbid List of industries with foreign equity ownership caps. (Restrictions on Foreign get hold of Investment in Vietnam, 2015)With the enactment of the Law on Investment and the Law on Enterprises however, the country is moving in the direction of such a Negative List system. The two laws, in addition to various other laws and regulations are applicable to industries that are termed conditional. When investing in conditional industries, the government examines the investment intent and may choose to impose additional requirements. Distribution sector such as retail is considered conditional in Vietnam and may prone to additional requirements from government of Vietnam. (Restrictions on Foreign Direct Investment in Vietnam, 2015)Works CitedDeloitte (2014). Retail in Vietnam. Retrievedhttp//www.iberglobal.com/files/2016/vietnam_ retail.pdfHong, A. (2016). Vietnams rapidly growing retail industry partially offsets economic slowdown.Retrievedhttp//e.vnexpress.net/ intelligence agency/business/vietnam-s-rapidly-growing-retail-industry-partially-offsets-economic-slowdown-3448240.htmlHM Group. Retrieved https//about.hm.com/en/about-us/markets-and-expansion.htmlIndiaretailing Bureau. Retrievedhttp//www.indiaretailing.com/2016/09/27/fashion/zara-enters-vietnam-first-store-vincom-center/Ministry of Planning and Investment. (2017). Retrievedhttp//www.mpi.gov.vn/en/Pages/tinbai.aspx?idTin=35921idcm=122Shira, D. (2015). Restrictions of Foreign Direct Investment on Vietnam. Retrievedhttp//www.vietnam-briefing.com/news/restrictions-foreign-direct-investment-vietnam.html/Sweden and Vietnam Boost BUsiness and Investment Cooperation (2016). Retrievedhttps//nsnbc.me/2016/10/08/sweden-vietnam-boost-business-and-investment-cooperationU.S. Department of State (2014). Retrievedhttps//www.state.gov/documents/organization/229305. pdfVietnams FDI Outlook for 2016 Trends and Opportunities. Retrievedhttp//www.vietnam-briefing.com/news/vietnamese-fdi-2016-outlook.html/Vinkenborg, M. (2017). Vietnam in 2017 Spotting opportunities for FDI. Retrievedhttp//www.vietnam-briefing.com/news/vietnam-2017-spotting-opportunities-fdi.html/http//www.eightyquartier.com/hm-announces-first-store-in-vietnam/Ministry of planning and Investment of Vietnam, 2017 Retrievedhttp//www.mpi.gov.vn/en/Pages/tinbai.aspx?idTin=35921idcm=122VN Express Vietnams rapidly growing retail Industry, 2016 Retrievedhttp//e.vnexpress.net/news/business/vietnam-s-rapidly-growing-retail-industry-partially-offsets-economic-slowdown-3448240.htmlVN Express Retail market share,2016 Retrievedhttp//e.vnexpress.net/news/business/markets/foreign-invasion-threatens-domestic-retail-market-share-3406399.htmlRestrictions on Foreign Direct Investment in Vietnam, 2015 Retrievedhttp//www.vietnam-briefing.com/news/restrictions-foreign-direct-investment-vietnam.html/