Analysis of HMs Vietnam Expansion

Analysis of HMs Vietnam ExpansionHM is a Swedish multinational article of clothing retail store that caters to untested 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 utter cost- quality clothing supplier. HM and its competitors deal a niche segment of the retail clothing application cognise as fast-fashion, characterized by the ability to serve consumers who pauperization the nigh street smart styles at an cheap price. Retailers must meet just about(prenominal) precise client expectations to remain competitive in this segment, as tumesce as claim a exceedingly efficient internal doing to meet the requirements of the industry.HMs elaborateness into Vietnam is part of the companys larger overall global expansion strategy to slack stores with a target of 10-15% sales maturement joined with an introduction of online retail to emerging and unexploited retail markets (HM Group, 2016). Vietnam has seen new-fashioned increase growth in contrasted direct investing and expanding retail market. Consumers in Vietnam pick up a demand for large Western brands and have change magnitude disposable income to spend in the market(Deloitte, 2014). In Vietnam, barriers to entry remain impression for HM and other industry competitors. HM and other external retailers have the capability of opening their initial retail spaces in Vietnam without extreme bar (Deloitte, 2014). In 2016, Zara, HMs largest competitor opened a retail store in Ho ki Minh City signaling an increase in impertinent retail investment in the country (Zara Enters Vietnam, 2016). It appears that the landscape in Vietnam is changing in the favor of overseas retail firms and government policies are existence 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, characterized 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 indoors the fast-fashion industry have become increasingly more customer-focused and demanding with the success of retailers much(prenominal) as HM, Zara, and Forever 21. Because the industrys core market is highly sensitive to changes in make outs 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 in addition have an in-depth down the stairsstanding of the local markets of their varying locations to serve their customers specific tastes. Fast-fashions most dedicated consumers al so depend on the affordability that retailers offer to allow them to come on their wardrobes stocked with the latest styles.Highly efficient supply chain focus is the cornerstone of the fast-fashion industry, and is the key requirement for any retailers success. Demands for quick turnover and affordable prices hinge on the retailers ability to clasp 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 by means of the combination of a just-in-time inventory system and a strategic diffusion and fulfillment network inside the countries of operation.Location is also a unfavorable requirement when operating in fast-fashion, both for retail stores and proximity to statistical 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 an d densely populated, piece distribution and fulfillment centers require of instant location to serve the maximum number of retail locations as speedily as possible.Low Trade BarriersIn 1986, Vietnam created an open-door policy with reforms in third essential areas i) the right to foreign tack, ii) trade instruments and policies iii) liberalization of foreign trade. Since then, the Vietnamese economy has been growing at a rapid pace.Since Vietnams inception in WTO in 2001, Vietnam removed many non-tariff barriers including quantitative restrictions on imports, quotas, bans, permit requirements and licensing requirements. (U.S. part of severalize, 2014). However, there are still some existing industry specific trade barriers in Vietnam. For example, price stabilization and restriction is implemented by the Vietnamese government when prices are too high or low for essential goods. Other examples of trade barriers include import taxes on automate products and services, permits on foreign investment in cinema construction solitary(prenominal) 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. surgical incision 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 backup expansion. The countrys openness to foreign investment has been the cause of many trade reforms and sink trade barriers. For example, Vietnam provides investment incentives to foreign investors such as exemption from import taxes on necessary materials required for manufacturing that cannot be found in Vietnam.Policies reenforcement FDI in VietnamSince November 1, 2015, Vietnam has allowed foreign retailers to set up 100 percent foreign-owned enterprise s under its commitments to the World Trade Organization. This gives them access to supply sources and ideal communication channel locations to croak from. Most international brands are opening stores in Vietnam through franchising or the granting of rights to a local partner, as franchisees are required 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 preliminary years. In 2016, FDI inflows climbed to US$24.4 billion with a 9% increase from 2015. tabu 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$3.4 billion flew in from foreign investors purchasing stakes in 2,547 companies. Vietnams rapid pace of integration into global commerce is likely to yield not bad(p) opportunities for foreign investors. So, this is the right time for HM to invest and expand into Vietnam. (Vietnams FDI medical prognosis for 2016)In January 2017, foreign investors invested in 16 domains in Vietnam, out of which in large quantities and retail ranked third with total registered capital of US$ 88.75 million, account for 5.6% of the total foreign direct investment. Relative high investment in Wholesale and Retail market bodes well for HM. HM is proviso 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 con tinue, the industry is forecasted to reach $109 billion by 2017. With the population of more than 90 million, Vietnams retail market is growing promptly, making it highly attractive for foreign 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 xcl countries, up nine 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 F DI in Vietnam is Vietnamese authorities have different definitions of a foreign invested enterprise. In intrust the level of foreign investment that qualifies an entity as foreign differs from province to province. contrary other countries in the region, such as China or some of the other ASEAN member states, Vietnam does not maintain a ostracise controversy of industries with foreign equity ownership caps. (Restrictions on Foreign Direct 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 proposal and may choose to impose additional requirements. Distribution sector such as retail is considered conditional in Vietnam and may inclined(predicate) to addit ional 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 information/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 Inve stment 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-invasio n-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/