Casos_Vietnam_Market_Entry_Decision

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Harvard Business School 9-597-020 
Rev. January 5, 1998 
 
Assistant Professor David J. Arnold and Professor John A. Quelch prepared this case as the basis for class discussion rather 
than to illustrate either effective or ineffective handling of an administrative situation. Company names have been 
disguised. 
Copyright © 1996 by the President and Fellows of Harvard College. To order copies or request permission to 
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permission of Harvard Business School. 
1 
Vietnam: Market Entry Decisions 
In May 1996, three U.S.-based multinational corporations (MNCs) were considering whether 
to enter Vietnam, and, if so, how. The world's twelfth most populous nation, Vietnam was being 
widely discussed as a future “Asian dragon,” because of the rapid economic growth and substantial 
inbound foreign direct investment (FDI) which had been stimulated by an ongoing series of 
liberalizing economic reforms in the previous 10 years. Opinion was divided, however, on the 
political and economic future of the country, which remained a one-party communist state. 
A number of U.S.-based MNCs were already operating in Vietnam, having entered 
immediately after the lifting of the U.S. trade embargo by President Clinton in February 1994. First to 
market, amid much publicity, had been PepsiCo, which, only seven hours after the lifting of the 
embargo, had started production in a bottling plant in which it had invested with Vietnamese and 
Singaporean partners, and the following evening placed advertisements featuring Miss Vietnam on 
national TV. Other early entrants, which had also been poised to enter at the earliest opportunity, 
included Motorola, Boeing, and several banks and accounting firms. These U.S.-based MNCs faced 
competition from many Asian and European corporations attracted by the potential growth in the 
Vietnamese market. A recent survey identified Vietnam as one of the most promising countries for 
future Japanese investment (see Exhibit 1). 
The three MNCs had each had been approached, both in their Asian offices and in the United 
States, by numerous potential distributors, joint-venture partners, and consultants offering advice on 
market entry. The decision they faced was summarized by one consultant as follows: 
It's a very difficult call. Vietnam is a large market in its own right, and it has 
a plentiful, well-educated, and low-cost workforce. Because it was one of the last 
countries to open its doors, it has been able to cherry-pick what it considers best 
practice from the emerging markets which have preceded it. What it has achieved so 
far is remarkable, especially when you remember that it's still run by the Communist 
Party. That's partly due to the Vietnamese, who are generally hard-working, and, 
especially in the south, entrepreneurial. But the government does seem genuinely 
committed to reform, and so far the transition has been remarkably smooth. 
 At the same time, there are still plenty of things about Vietnam that worry 
Western firms. Top of everyone's list are the corruption, the bureaucracy, and the 
lack of infrastructure. Also, the Communist Party has every intention of keeping firm 
control and retains some unnerving powers, such as the right to buy into foreign 
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597-020 Vietnam: Market Entry Decisions 
2 
companies, or to decide the level of profits on which it will collect taxes. The 
pessimists had a field day in February, when the government dismantled all foreign-
language billboards and painted out all foreign brand names on signs in Hanoi and 
Ho Chi Minh City, as part of its campaign against “social evils.” 
It's early days yet. When you visit Vietnam, it still looks mostly 
undeveloped. The airports haven't been fully rehabilitated from the war, the roads 
are awful, and there's little sign of industrial development. But get into the city, and 
you'll find your hotel full of business visitors, you'll see the first tower blocks going 
up, the place is full of energy, and the streets are lined with small shops piled high 
with Western products. I've spoken to quite a few American managers who were 
sent here to assess the market entry situation, only to find their products already on 
sale all over the city. Some of it was counterfeit product, but some was genuine and 
had found its way here from other Asian markets. 
Many companies I've spoken to are playing wait-and-see, but the market is 
open for business, and other firms are hoping for rich returns from getting in early. 
Country Profile 
The Socialist Republic of Vietnam was established in 1975 when, following decades of war, 
the country was reunified under the communist leadership of Ho Chi Minh. Vietnam had been 
partitioned into a communist north and a French-backed south by the 1955 Geneva Accords, 
following the defeat of the French colonial forces by Ho Chi Minh's army at Dien Bien Phu. 
Continuing tensions, and the increasing support of both Cold War military alliances, soon led to 
renewed war, which ended in 1975 with the withdrawal of American forces from the southern capital 
of Saigon (subsequently renamed Ho Chi Minh City). In 1996, all aspects of government were still 
controlled by the Vietnamese Communist Party and its Politbureau from the capital, Hanoi, in the 
north of the country. Ho Chi Minh City, the country's largest city, was regaining its former status as 
the commercial center of the nation. (See Exhibit 2 for a map of Vietnam.) 
Doi moi (“economic renovation”) was officially launched at the Vietnamese Communist 
Party's 1986 Congress, and the subsequent reforms included deregulation of prices, reduction of 
subsidies to state enterprises, ending of the collective agricultural system, new commercial ownership 
laws to encourage private enterprise, new foreign investment laws, and policies directed toward the 
stabilization and convertibility of the Vietnamese currency, the dong. These reforms transformed a 
previously distressed economy (in 1986, inflation averaged 775%) into one of the fastest-growing in 
the world. Economic indicators and comparative data for the principal Asian economies are reported 
in Exhibits 3 and 4. In 1996 the legislative program was continuing within the government's policy 
framework of “market socialism,” which aimed to create a market-oriented economy under the 
control of the state. 
This economic growth had been fueled principally by foreign direct investment (FDI) and the 
establishment of new private Vietnamese-owned organizations. The state-owned sector accounted 
for 40% of GDP in 1995, and comprised approximately 6,000 state-owned enterprises (SOEs), half the 
number that had existed in 1990. To date only three of these SOEs had been privatized (“equitized”). 
Government policy was to encourage foreign joint ventures with SOEs and to establish conglomerates 
in key industries following the model of the South Korean chaebols. By 1995, 17 such conglomerates 
had been established in industries including telecommunications, electricity, cement, steel, and 
garment manufacture. A Vietnamese government trade official described the objectives of this policy: 
We are changing regulations and reducing tariffs to attract sufficient foreign 
investment to stimulate industrial growth, but not so much that it stifles the growth 
of Vietnamese industry. The number of licenses granted in each industrial sectorwill 
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Vietnam: Market Entry Decisions 597-020 
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be limited, and tariffs will be managed to balance imports and local production, in 
line with this policy. 
Foreign investment commitments worth almost $8 billion were made in 1995, twice the level 
of the previous year, bringing the total cumulative commitment since the launch of doi moi to 
approximately $20 billion for over 1,300 approved projects. The total GDP of Vietnam in 1995 was 
$19 billion. FDI projects in Vietnam averaged $14M to $15M of investment, compared with a $1M 
average in the People's Republic of China. Approximately $8 billion of these commitments had been 
realized, of which $4 billion had been realized during 1995. The four largest sources of FDI were 
Taiwan (total cumulative commitment, $3.3 billion), Hong Kong ($2.2 billion), Japan ($2 billion), and 
Singapore ($1.6 billion), followed in rank order by South Korea, Australia, Malaysia, and France. 
U.S.-sourced FDI totaled approximately $1 billion since the lifting of the trade embargo in February 
1994, making the United States the tenth-largest source of foreign investment, and was increasing 
sharply. The major investment sectors were oil and gas, hotels and commercial real estate, 
telecommunications, services, and light manufacturing. In addition, Vietnam was pledged 
international aid worth $2.3 billion for 1996, a 15% increase on the previous year, although many 
previous pledges had never materialized. The largest donor of foreign aid, which was intended 
primarily for infrastructure projects, was Japan. 
Local private investment was running at approximately the same level as FDI, with some 
20,000 private firms registered by the end of 1995. Local entrepreneurs faced a shortage of capital, 
given the country's low saving rate and underdeveloped banking sector. A significant contributor of 
both capital and human resources was the Vietnamese diaspora. The majority of the two million 
ethnic Vietnamese living abroad (the Viet Kieu) had fled from the south as the war ended in 1975 and 
had found refuge in North America, Western Europe, or Australasia. It was estimated that in 1994, 
250,000 Vietnamese families had received a total of $500 million from relatives living abroad. In 1994 
the Vietnamese government reversed its previous policy and instituted preferential terms for Viet 
Kieu returning to their homeland, including classification as domestic residents for the purposes of 
taxation and the establishment of joint ventures. The greatest concentration of repatriated Viet Kieu 
was found in Ho Chi Minh City, where their entrepreneurial activities and taste for Western products 
contributed to that city's status as the commercial center of the nation. 
Vietnam's population of 74 million, growing at 2% per annum, was the world's twelfth largest 
and one of its most youthful: in 1995, approximately 50% of the population was aged 21 or younger. 
With a national literacy rate of 90%, the Vietnamese workforce was also one of the best educated 
among emerging markets in Asia. The recent economic growth had yet to change the living 
standards of the majority of the population, however. A 1994 World Bank report which praised the 
country's “impressive economic progress” also pointed out that 51% of the population lived in 
poverty. GDP per capita was $235 in 1995, compared to $2,000 in neighboring Thailand, with four 
televisions per 100 population (11 in Thailand) and 0.3 telephones per 100 population (3.1 in 
Thailand). These averages disguised wide variation between the major cities, where economic 
growth had been concentrated, and the countryside, still home to 80% of the population. This 
discrepancy, along with increasing pressure on agricultural land caused by population growth, was 
leading to significant migration to the cities. About 13% of Vietnamese lived in Ho Chi Minh City 
and Hanoi. Unemployment was estimated at 12%. 
Vietnam joined the Association of South East Asia Nations (ASEAN) in July 1995.1 
Membership entailed participation in the ASEAN Free Trade Area (AFTA), one of the targets of 
which was to reduce tariffs on trade between member countries to a maximum of 5% by 2003, a 
deadline extended to 2006 for Vietnam. In the same month, Vietnam signed a cooperation agreement 
 
1 The other members of ASEAN were Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. 
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597-020 Vietnam: Market Entry Decisions 
4 
with the European Union (EU), which gave Vietnamese goods Most Favored Nation (MFN)2 status in 
the 15 EU countries and vice versa, and included a schedule of increased European aid to Vietnam. 
The restoration of full diplomatic relations with the United States, also in July 1995, allowed the 
opening two months later of negotiations regarding trade normalization between the countries, 
including MFN status. American officials demanded as preconditions for granting of MFN status 
agreement on the issue of American military personnel unaccounted for after the end of the war, and 
clarification of “the legal framework, intellectual property rights, trade practices, foreign exchange 
controls, human and labor rights.” 
Forms of Market Participation 
A number of entry modes were possible for an international firm seeking to do business in 
Vietnam. All had to be agreed by the State Committee for Co-operation and Investment (SCCI). 
The simplest arrangement was for an MNC to appoint a Vietnamese import agency and 
export finished product to that agent from outside Vietnam. Formerly, this would have required an 
international firm to deal with one of nine state-owned import organizations, but recent reforms had 
extended the granting of import licenses to privately owned Vietnamese firms, and an increasing 
number of such small distributors were eagerly seeking to represent foreign MNCs. Imported 
products were subject to tariffs, which had been introduced to replace import quotas as part of the 
doi moi reforms. In early 1996 these tariffs ranged from 5% to 100%, and averaged 25%, but were 
subject to frequent government revision and were inconsistently applied by customs officials. In 
addition to a license granting importer status, a separate product-specific license was required for the 
import or export of any item, however small, which had to applied for with the bill of lading at least a 
week before the item was expected to arrive at the Vietnamese port of entry. Open licenses valid for 
six months for specified items could be granted to joint ventures, BCCs, or foreign-owned ventures 
(see below); otherwise a license had to be obtained for each consignment. 
MNCs wishing to invest in Vietnam had a variety of options. The government policy 
encouraged joint ventures between local SOEs and international organizations, and, in order to attract 
inbound investment, regulations permitted up to 70% ownership by foreign partners. The 
Vietnamese partner usually contributed its workforce, premises, equipment, and land use rights, the 
valuation of which could be problematic. The Foreign Investment Law included a buy-in stipulation, 
under which local parties could be granted the right to acquire an increasing share of foreign-owned 
ventures. In any joint venture designated by the government as an “important economic 
establishment” (mostly infrastructure development and energyindustry projects), there was a legal 
requirement for the local partner to increase periodically its capital stake (and therefore equity share) 
in the project. A majority equity share did not bestow managerial control, however, as the law 
required unanimous voting by directors. 
Government approval for wholly foreign-owned organizations was granted only in rare cases, 
typically large and complex projects, where joint ventures were not feasible. Like joint ventures, these 
organizations were limited to a 70-year life. 
A processing contract allowed a foreign corporation to use a Vietnamese factory for production 
or assembly. If the products were intended for export, the foreign company could import necessary 
raw materials, could provide some of the equipment in the factory, and then re-export. To attract this 
type of venture, five Export Processing Zones (EPZs) had been created, offering reduced taxation 
levels and ongoing investment in infrastructure. Their reputation had suffered, however, from 
 
2 In a trade treaty between two countries, agreement to an MFN clause required that each country would trade 
with the other on terms at least as favorable as those agreed with any other country. 
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Vietnam: Market Entry Decisions 597-020 
5 
problems with power supply and water shortages, and the EPZ in Haiphong collapsed in late 1995 
after the 70% owner, based in Hong Kong, declared bankruptcy. The most successful EPZ, Tan 
Thuan near Ho Chi Minh City, had attracted 60 projects. More recently, more projects had been 
established in new Industrial Processing Zones (IPZs), intended as centers for both domestic and 
export production. A number of consumer goods firms, including producers of cigarettes, soft drinks 
and beer, had licensed manufacturers for small-scale production while awaiting approval of their 
joint venture applications for larger new production facilities. 
A business cooperation contract allowed a private Vietnamese enterprise and a foreign partner 
freedom to design their own contract, and no legal entity was established. Such an arrangement 
required submission to the SCCI of annual accounts, from which the SCCI calculated the profit it 
deemed the venture to have made, and levied taxes on the two partners at differential rates. 
In 1995, the Vietnamese government published a list of major infrastructure projects which 
qualified for build-operate-transfer ventures. Under such an arrangement, a foreign organization 
would be allowed to build a property, such as a power station or a toll road, and then retain the 
profit from its operation for a specified time period, at the end of which it would be transferred to 
Vietnamese ownership without further compensation. 
Finally, foreign companies could be granted a license to establish a representative office in 
Vietnam. The role of such offices was restricted to promotion of international trade, or technical 
support for local importers or exporters, and such offices were prohibited to engage in investment, 
trading or marketing. 
All forms of market participation were subject to approval by the SCCI and in many cases 
also required separate approval by additional government ministries or by People's Committees at 
the regional or city level. Consultants all warned that the granting of licenses was not only complex 
and time-consuming but also unpredictable, as procedures were often improvised because of the 
incomplete regulatory framework. One MNC, seeking to obtain a 70% stake in a joint venture, was 
reported to have been required to pay 120 separate fees over three years to obtain the necessary 
licenses, of which only 40 were required by regulations. 
Doing Business in Vietnam 
A number of additional factors were highlighted by consultants and managers experienced in 
Southeast Asia as critical to any market entry strategy. 
Distribution Potential distribution partners were plentiful but tended to concentrate only on a 
specified area, often as small as a few blocks in one of the major cities. The choice facing any MNC 
was often between a distribution organization partly or wholly owned by the government, and a 
young but small privately owned distributor. The former would probably boast better connections 
with officials but might prove less aggressive in selling, while the latter would probably be more 
entrepreneurial but had yet to establish a customer base. National distribution required an extensive 
network of distribution partners; the Castrol oil company had to establish its own fleet of trucks to 
deliver motor oil to its many distribution points. The principal difficulty was described by one 
consultant as “telling the difference between the aggressive but competent distributor and the 
cowboys who will be knocking at your door as soon as you check into your hotel.” He also warned 
that Vietnamese business tended to be based upon a 
trading culture. . . . Traditionally, goods have been scarce, and consumer demand 
could be taken for granted if you managed to get your product to the market. . . . The 
emphasis is still on moving product quickly, and negotiating over price, rather than 
what Western firms know as marketing or positioning. Honda has excelled at 
playing this game in selling motor scooters: the company appoints a large number of 
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597-020 Vietnam: Market Entry Decisions 
6 
distributors, who then compete with each other to achieve the sales volumes they 
need to retain their agencies the following year. The result is that the cities are 
swarming with Honda motor scooters. 
Corruption Despite a government campaign and an increase in criminal convictions, corruption 
was prevalent at all levels in both industrial and government sectors. One experienced Asian MNC 
executive described Vietnam as “the worst country in Asia” in this regard, and attributed the problem 
to the generally low salary levels and the lack of an official schedule of fees for licenses and permits. 
One Vietnamese-American owner of a small Ho Chi Minh City distribution company indicated that 
U.S. corporations were especially challenged by this problem: “Their legislation3 means that, if one of 
their managers gets caught, the liability can spread back up through the corporation. It scares them 
stiff, and it can put them at a real competitive disadvantage alongside Asian and European 
companies.” 
Vietnam's long coastline and mountainous frontiers facilitated smuggling of goods into the 
country. Around 40% to 60% of the consumer electronics piled high at streetside stores in Ho Chi 
Minh City were said to be smuggled, as were 100% of the highly visible foreign cigarette brands 
(because they were formally prohibited). U.S. products had been widely available in the major cities 
before the lifting of the trade embargo in 1994, including brands as varied as Kleenex (at three times 
the price of local brands) and Kodak (a number of Kodak processing outlets were in operation in Ho 
Chi Minh City as early as 1992). Executives from Castrol had reported competition from competitive 
brands of brake fluid which had been illegally imported as “motor oil” and thus charged only a 1% 
tariff instead of 35%. 
Infrastructure Years of war and economic hardship had left Vietnam with little infrastructure to 
support its ambitious economic reforms. The 1,000-mile trip between Hanoi andHo Chi Minh City 
required five to eight days by Highway 1—the only road linking the north and south of the country—
or two days by rail. Vietnam's two major ports, Ho Chi Minh City and Hai Phong, were both 
shallow-water harbors upriver from the sea, so large shipments had to be offloaded into smaller 
feeder ships at either Singapore, Hong Kong, or Kao Siung, Taiwan. Both ports also lacked capacity 
and equipment to cope with booming imports, as did the country's main airports. Delays were 
exacerbated by product loss or damage in transit running at rates as high as 25% to 50%. Office and 
production premises could be subject to periodic power outages and telecommunications blackouts. 
Costs One of the major attractions of Vietnam for foreign investors was the low level of labor costs. 
Typical monthly compensation in Ho Chi Minh City and Hanoi was $40 for an unskilled laborer (the 
legal minimum wage), $100 for a secretary, and $200 for an engineer or manager. Additional 
employment costs were typically 50% of compensation. Rates were one-third lower outside the two 
major cities. Although the level of basic education was good, managerial talent was scarce. Foreign 
investors also faced high office rents, and the process of establishing an office was slowed by the need 
for land-use permits for all premises. Telecommunications costs were also high, up to $20 per minute 
for calls to the United States, for example. Both property and telecommunications costs were 
expected to fall with continued market development. 
Profiles of Three Multinational Corporations 
The three U.S. MNCs considering entry into Vietnam were all experienced in international 
operations, and all aspired to global leadership in their industries. Exhibit 5 summarizes their 
international distribution arrangements. 
 
3The Foreign Corrupt Practices Act. 
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Vietnam: Market Entry Decisions 597-020 
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Chemical Corporation Chemical was the world leader in chemical adhesives and sealants for 
industrial applications. The company’s core product range, which always formed the introductory 
line when entering new markets, was positioned as a replacement technology, offering superior 
performance-cost relative to more traditional mechanical fastenings and seals. The range of potential 
applications was wide, including virtually all manufacturing operations, after-market applications 
such as automotive servicing, and even some consumer applications. The firm marketed its specialty 
chemicals as low-volume, premium-priced, branded products and expected to have a diverse and 
fragmented customer base. This marketing strategy was built upon two major thrusts. First, sales 
personnel were trained to tailor their offering to the individual applications of customers. Most 
important, this entailed “pricing to value,” which required an analysis of the long-term savings to the 
customer of performance improvements from switching from traditional and ostensibly cheaper 
technologies. Second, the firm strived to maintain technological leadership by requiring that 30% of 
revenues should flow from products introduced in the previous five years. In support of these two 
strategies, Chemical, which enjoyed a 61% gross margin, invested 32% of its 1995 revenues in sales 
and marketing and 7% in R&D laboratories in the United States, Ireland and Japan. Chemical's 
executives, who estimated their market share as high as 80% in the domestic U.S. market, viewed 
their major challenge as market expansion. 
International distribution was a strength. From its foundation, the firm had been approached 
by numerous distributors wishing to carry its products, and it was part of company lore that its 
products were crossing the Atlantic Ocean before they crossed the Mississippi River. The global 
distribution network had evolved independently of manufacturing operations, because of the low 
bulk-to-value nature of its products. By 1995, the company's manufacturing operations were located 
in the United States, Puerto Rico, Ireland, Costa Rica, Japan, and Brazil, with additional operations (to 
meet local regulatory requirements) in India and the People's Republic of China. This logistics 
network could supply new markets at short notice: the ex-Soviet-bloc countries of Eastern Europe, for 
instance, were supplied from Ireland via a warehouse in Vienna within three days of a new 
distributor being appointed and/or placing an order. 
Chemical favored independent distributors for market entry, because of their existing 
product ranges and customer base, which provided both economies of scope for the initial low-
volume business, and access to industrial customers who felt no obvious need for this replacement 
technology. The firm emphasized training and support to distributors in the difficult selling challenge 
posed by its product range, and the higher margins it offered to the general industrial supply houses 
who made up the majority of its distributors. To encourage investment in business development, 
distributors were generally granted territorial exclusivity. In many cases, however, sales had reached 
a plateau after several years in market, and Chemical had switched to a direct distribution subsidiary. 
The slowdown in sales growth was variously attributed to the lack of marketing capability by the 
distributor or a lack of ambition to dominate the market (distributors were often small, privately 
owned organizations). In the words of the head of the firm's operations in China, “Our own people 
always outperform even the best distributors. They run out of steam because they don't immerse 
themselves in our technology and the benefits it can deliver to customers.” All Chemical's 45 national 
distribution subsidiaries had evolved from independent national distributors. 
Chemical's vice president for Asia/Pacific, based in Hong Kong, had been with the company 
for 30 years, the last 16 in Asia. The region accounted for 13% of corporate sales revenues in 1995 and 
had grown 21% since 1994. Over the previous two years, Chemical’s Asian operations had been 
restructured in response to their growing size, and, by 1995, there were four marketing sub-regions 
reporting to Hong Kong: Eastern Asia, which included Japan and South Korea; Greater China, 
comprising the People's Republic of China, Taiwan and Hong Kong; Central Asia, including India; 
and Southeast Asia, including Singapore, Malaysia, Indonesia, Philippines, Thailand, Australia and 
New Zealand. The regional Hong Kong office comprised five executives and two support staff. 
Chemical's products would be subject to a 30% import tariff in Vietnam. The regional vice president 
commented: 
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597-020 Vietnam: Market Entry Decisions 
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A lot of our attention is focused on Asia these days, because of slower growth 
in America and Europe and because so many of our U.S. manufacturing customers 
are setting up here. We have an established operation here in Hong Kong, and I 
know we can serve Vietnam well enough from our new logistics base in Singapore. If 
we exported into Vietnam, using a representative office to provide technical support, 
our products would be three or four times the price of the local or Chinese adhesives 
they are using at the moment. 
We have received six approaches from distributors wanting to represent us—
four from Ho Chi Minh City,one from Hanoi, and one from a Viet Kieu working with 
our products in a major customer in California. Frankly, I don’t know how to 
evaluate these potential distributors. I doubt if any of them have the sense of quality 
and service needed to represent Chemical and sell its products effectively. I suppose 
we could set up a representative office to provide technical support. We have also 
been approached by an SOE seeking to establish a manufacturing joint venture, but 
we’re in India and the PRC already. 
Sports Corporation Sports Corporation, founded in 1978, enjoyed explosive growth in its youth- 
and fashion-oriented market for sports footwear and apparel. Still under the leadership of its 
founder, Sports ranked second in global market share in most of its product-markets. The company 
contracted out virtually all its manufacturing to independent suppliers in Asia and viewed its core 
competences as product design and marketing expertise. Sports's success depended on the ability to 
deliver innovative products to a fast-changing and segmented market. As a result, brand building, 
advertising and promotion, endorsements by sports teams and celebrities, and retail channel relations 
were all especially important. 
The majority of Sports's products would face a 40% import tariff on entering Vietnam, 
although for some the rate would be only 20%. Maintaining normal margins, Sports’s cheapest pair 
of sneakers could retail for $35 a pair. In 1995, Sports’s major competitor had established production 
in Vietnam under a processing contract. Although product from this plant was intended for re-
export, it was thought that investment in production facilities would have a beneficial effect on the 
brand’s market development in Vietnam. Sports executives commented that demand might prove 
stronger than in other emerging markets, because of the high brand awareness spread by Viet Kieu 
returning from the U.S. and other countries. 
Reflecting the values of its founder, Sports sought as its international distributors 
“entrepreneurs with their own money on the line and a fortune to be made from rapid growth.” 
Distributors were given territorial exclusivity and considerable autonomy as incentives to invest in 
growing their business and responding to local market conditions. 
Like Chemical, Sports Corporation had in several cases bought back its distribution rights 
from independent distributors and established a direct distribution subsidiary. The usual catalysts 
for this move were financial problems in the distributor, the limited capacity of the distributor to 
support the business once it had grown beyond a certain size, or the desire of the distributor 
principal(s) to realize profits from the agency. In general, however, Sports preferred to “leave the 
business in the hands of the people who know the market best.” 
An alternative arrangement was a minority equity position in the distributor organization. 
Sports did not involve itself in operational decision making, but used its access to financial and 
market performance figures to exercise control on a “by-exception” basis. In addition, this 
arrangement enabled Sports to participate in the incremental revenue stream from any brand 
premium the distributor was able to extract above the cost-plus price at which the product was 
purchased from Sports. 
The Asia-Pacific region accounted for 7% of Sports Corporation's sales in 1995. The firm’s 
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Vietnam: Market Entry Decisions 597-020 
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Asian marketing organization had been restructured in early 1996. The regional vice president, who 
had previously led a single team in Hong Kong, relocated to Tokyo to head a North Asia unit and 
was replaced in Hong Kong by a vice president switched from Europe to take charge of the South 
Asia region. 
The new regional vice president commented: 
Asian markets represent our biggest growth opportunity, but we've had a 
number of problems in the region, in particular the logistics of moving product 
around the markets and creating the right sort of retail environment for our brand. 
Vietnam embodies all these issues. It's a huge, booming, young market, but it's 
underdeveloped as yet. If we wait, and one of our major competitors gets in first, we 
may never catch up. But our results have been a little sluggish recently, and we must 
avoid too much exposure in high-risk markets. 
So far, our U.S. headquarters has received seven letters of enquiry from 
potential distributors, and we have identified five additional candidates. One of these 
is a company which manufactures and exports jeans and also runs a chain of four 
modern sports equipment stores in Ho Chi Minh City; they are also talking to our 
competitors. Right now, there are only about 20 retail outlets where athletic footwear 
is being sold in a half-decent manner. There are a lot of counterfeits on the streets. 
Children Corporation Children Corporation, founded in 1945, was the global leader in the 
manufacturing and marketing of branded toys. Against all industry trends, Children integrated 
almost all its manufacturing, enabling it to reap economies of scale and achieve new quality levels in 
a product range of which 80% was new every year. By 1996, the firm's 15 manufacturing plants were 
located in the United States, Canada, Mexico, UK, Italy, Malaysia, Indonesia, and the People's 
Republic of China. Children used consumer packaged goods marketing practices such as co-
promotions, in-store merchandising and, above all, television advertising, to expand its market. The 
company had developed several well-known brands within its product line, which provided a 
backdrop of continuity to the annual seasonal launch of its new products at the toy industry's buying 
fairs. In addition, it had benefited in a number of countries from a shake-up in the retail sector, with 
“category killer” hypermarkets and new entrants such as Toys 'R' Us often transforming what the 
firm's senior executives claimed had been a “cottage industry of mom-and-pop stores.” 
The president of the international division identified three key success factors: 
First, we're the best at understanding children's play patterns, which are 
pretty similar around the world. Second, our manufacturing operations can deliver 
good-quality innovative product at the competitive price points needed to open up 
the mass market. Third, we communicate well with our market through advertising, 
co-promotions with other entertainment companies, and cooperation with retailers in 
merchandising. 
Children's early international growth had been spearheaded by its business as a supplier of 
components to local toy manufacturers. Over time, many of these OEM customers became 
assemblers, as manufacture became concentrated in a small number of low-cost centers, principally 
Hong Kong, and many took on distribution agencies for Children's full line of toys. Major growth 
outside North America had only been achieved since the early 1980s, when Children began switching 
to direct distribution subsidiaries. This era also saw an easing of the tariff and advertising 
restrictions, which the firm argued had hindered its international development, and an opening of 
previously specialist and protected distribution trades. Children's policy when re-acquiring an 
international distribution franchise was to install a new management team of local managers 
headhunted from local subsidiaries of MNCs operating in other consumer goods sectors. As 
described by one of the firm's country managers: “Wholesalers, distributors, and retailers are 
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February 2016.
597-020 Vietnam: Market Entry Decisions 
10 
typically all servants of many masters. They never want one player to grow too strong. To gain 
market leadership, we have to get control of our own business and innovate.” Despite this, Children 
recognized the value of independent distributors as market entry partners, given the closed character 
of distribution systems in many country-markets, and had never entered a new country-market by 
establishing a wholly owned subsidiary at the outset. 
Asia/Pacific was the firm's smallest region in terms of sales revenue, accounting for 11% of 
1995 sales, but was regarded as having the greatest long-term potential. Children's manufacturing 
operations, recently expanded by the installation of substantial new capacity in Indonesia, were run 
as a stand-alone global division which supplied the company's marketing organizations. The firm 
faced uneven demand due to the seasonality of gift-giving, and therefore its coordinated production 
schedules were inevitably skewed to suit its largest markets at the expense of the smaller ones. 
Children's vice president for Asia-Pacific was located at U.S. corporate headquarters. A small 
team of four regional staff in Hong Kong aided Children’s country managers. After an uneven 
history in Asia, attributed to the “complex and protectionist” distribution systems in the region, 
recent sales growth was strong, especially in Japan, where several previous ventures had ended in 
failure. The regional vice president commented: 
Some of my colleagues say it's far too early to enter Vietnam, because of the 
undeveloped retail sector. We need the right retail environment to support our 
brands, which despite our best efforts will be more expensive than the toys currently 
on offer. But I believe that we should appoint a distributor to start selling in Vietnam 
now. In fact, our best-selling products are already available in the airport duty-free 
shops in Ho Chi Minh City and Hanoi. Demand would be very concentrated in the 
two largest cities, so we could easily identify the special gift-oriented distribution 
channels. Also, television broadcasting is relatively advanced, so advertising would 
be possible from day one.4 
We have been approached by two SOEs that make toys. Their products are 
low quality and retail on average for $3 a unit, compared to our $15. However, these 
SOEs claim to have access to over 1,000 retail distribution points throughout the 
country, and the top managers in one of them seem young and aggressive. But I’d be 
concerned about our molds being duplicated without our knowledge. We have also 
been asked whether we’d be interested in a processing contract, using excess 
capacity at one of these SOEs to assemble our toys for export. Given current labor 
rates, we could save $1 a unit if we assembled some of our more labor-intensive toys 
in Vietnam. 
 
 
4Total advertising spending was $100 million in Vietnam in 1995, up from $31 million in 1994. 
For exclusive use Pontificia Universidad Catolica Chile (PUC-Chile), 2015
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Vietnam: Market Entry Decisions 597-020 
11 
Exhibit 1xxxSurvey of Japanese Corporations: Most Promising Countries for Future Investment 
During the 
Next Three 
Years 
Ranking in 
1995 
Survey 
No. of 336 
Respondents 
Citings 
Ranking in 
1994 
Survey 
No. of 238
Respondents 
Citings 
 During the 
Next 10 
Years 
Ranking in 
1995 
Survey 
No. of 274 
Respondents 
Citings 
Ranking in 
1994 
Survey 
No. of 284
Respondents 
Citings 
China 1 248 1 169 China 1 215 1 265 
Thailand 2 122 2 75 Vietnam 2 113 2 114 
Indonesia 3 110 4 58 India 3 98 7 38 
U.S. 4 108 3 72 U.S. 4 83 4 85 
Vietnam 5 95 6 34 Indonesia 5 66 5 83 
Malaysia 6 73 5 57 Thailand 6 66 3 92 
India 7 57 10 14 Burma 7 40 - - 
Philippines 8 52 10 14 Malaysia 8 35 6 44 
Singapore 9 32 7 33 Philippines 9 31 10 19 
U.K. 10 24 9 19 U.K. 10 16 - - 
 
Source: Adapted from Export-Import Bank of Japan data. 
 
Exhibit 2xxxMap of South East Asia 
 
Hanoi
Ho Chi Minh City
THAILAND
MALAYSIA
MALAYSIA
PHILIPPINES
HONG KONG
TAIWAN
South China Sea
BRUNEI
SINGAPORE
MYANMAR
VIETNAM
LAOS
CAMBODIA
PEOPLE’S REPUBLIC OF CHINA
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597-020 Vietnam: Market Entry Decisions 
12 
Exhibit 3 Vietnam—Economic Data 
 1995 1994 1993 1992 
 
GDP (US$ millions) 19,100 13,900 12,800 9,900 
Real GDP growth (%) 9.5 8.5 8.1 7.8 
Exports (US$ millions) 5,200 4,250 3,010 2,600 
Imports (US$ millions) 7,520 5,850 3,900 2,550 
Retail price inflation 14.2 15.5 6.5 17.8 
 
Source: Adapted from Economist Intelligence Unit data. 
 
 
 
Exhibit 4xxxComparative Performance Data for Asian Countries 
Source: Adapted from Deutsche Bank data. 
GDP
China
S Korea
India
Taiwan
Indonesia
Thailand
Hong Kong
Malaysia
Singapore
Philippines
Pakistan
Vietnam
200100 5004003000
1994, $bn
GDP per person
Hong Kong
Singapore
Taiwan
S Korea
Malaysia
Thailand
Indonesia
China
Philippines
Pakistan
Vietnam
India
105 20150
1993, $’000
Average exchange
rates
Purchasing-power
parity
GDP growth
China
Singapore
Vietnam
Malaysia
S Korea
Thailand
Indonesia
Taiwan
Hong Kong
India
Pakistan
Philippines
4 1280
1994, %
For exclusive use Pontificia Universidad Catolica Chile (PUC-Chile), 2015
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February 2016.
Vietnam: Market Entry Decisions 597-020 
13 
Exhibit 5 International Distribution Organization of Multinational Corporations 
 Chemical Corp. Sports Corp. Children Corp. 
 
Total Global Network: 
Independent distributors 11 30 5 
Joint ventures 0 11 1 
Direct distribution subsidiaries 45 17 30 
 
Asia Pacific Region: 
Independent distributors Indonesia 
New Zeland 
Australia 
Indonesia 
New Zealand 
Philippines 
South Korea 
Taiwan 
Thailand 
 
Joint ventures (MNC 
ownership 50% or less) 
 Philippines (33%) 
Hong Kong (33%) 
Singapore (33%) 
Malaysia (33%) 
Thailand (28%) 
Taiwan (25%) 
 
 
Direct distribution subsidiaries 
(100% unless shown) 
Australia 
Hong Kong 
Indonesia 
Japan 
Malaysia 
People’s Republic of 
China(75%) 
Philippines 
Singapore 
Souith Korea 
Taiwan 
Thailand 
 
Hong Kong 
India (60%) 
South Korea (80%) 
People’s Republic of 
China (66%) 
Japan (51%) 
 
Australia 
Hong Kong 
Indonesia 
Japan 
Singapore 
 
For exclusive use Pontificia Universidad Catolica Chile (PUC-Chile), 2015
This document is authorized for use only in CDD 2015 Desarrollo de Producto y Marca (SSFF-HP) by Hern?n Palacios, Pontificia Universidad Catolica Chile (PUC-Chile) from August 2015 to 
February 2016.