MC8492 llnal ro[ecL 4 M SecLlon 1eam 8

!asmlne Ako | Soo[ln klm | Mackenzle Malone | Lduardo anlagua | Ar[un Srlnlvasan | Wenql Zhang
1
Lxecut|ve 8r|ef
Dec|s|on 1ree
1 Company Cverv|ew
ackground
LocaLlons and llnanclal erformance
P1C uslness Model
P1C CompeLlLlve AdvanLages
P1C value Chaln
2 V|etnam Country Ana|ys|s
CACL Analysls
eneflLs and CosLs
lnsLlLuLlonal volds
Pow Lo MeeL Lhe volds
3 V|etnam Market Ana|ys|s
ulamond CompeLlLlveness lramework
MarkeL Analysls
ManufacLurlng ln vleLnam
Moblle and SmarLphone MarkeL
4 Compet|tor Ana|ys|s
Clobal CompeLlLors
WhaL CLher Companles are uolng ln vleLnam
orLer's llve lorces Analysls
S I|nanc|a| Ana|ys|s
llnanclal reakdown ManufacLurlng CosLs
6 n1C's Lntry Strategy
LnLry AssessmenL
kecommendat|ons
Works C|ted
2
P1C's LnLry lnLro vleLnam
WlLh lLs sales growlng worldwlde buL markeL share
sLlll Lralllng lLs compeLlLors ln Lhe global smarLphone
markeL P1C faces a crlLlcal declslon shou|d |t
cons|der manufactur|ng |n another geograph|c
|ocat|on to st|mu|ate future growth?
Whlle lLs currenL manufacLurlng faclllLles are head
quarLered ln 1alwan Lhe company has already
recognlzed Lhe poLenLlal of emerglng markeLs
as lL conLracLs wlLh Canadlan elecLronlcs
manufacLurer CelesLlca ln razll Lo ouLsource
producLlon Lhere uL whaL abouL vleLnam?
(Why) Why V|etnam?
Peralded as Lhe nexL global hub" for manufacL
urlng vleLnam has favorable pollcles for elecLronlcs
manufacLurers and low wages maklng lL an ldeal
place for a global company Lo creaLe an arblLrage
advanLage ln addlLlon ln SouLheasL Asla moblle
phone sales and smarLphone sales are only grow
lng meanlng Lhere would also be a local markeL
Lhere for P1C's producLs lurLhermore vleLnam ls
geographlcally close Lo P1C's 1alwan headquarLers
whlch would make managemenL of a manufacLurlng
base Lhere a loL slmpler Lhan ln a more dlsLanL
counLry
(8r|ng) What Wou|d n1C 8r|ng?
y enLerlng vleLnam P1C could brlng lLs world
renowned 8u and manufacLurlng capablllLles as lLs
sLrengLh ls creaLlng lnnovaLlve and cuLLlng edge
producLs 1herefore lL could shape Lhe smarLphone
manufacLurlng lndusLry ln vleLnam by brlnglng lLs
besL pracLlces Lo Lhe developlng counLry
(Meet) Cha||enges |n the V|etnamese Market
uesplLe Lhe poLenLlal LhaL manufacLurlng ln Lhe
vleLnamese markeL offers P1C lL would face
slgnlflcanL challenges llrsL of all lL would be a laLe
mover lnLo Lhe smarLphone manufacLurlng markeL ln
vleLnam slnce lLs rlvals nokla and Samsung have
already begun bulldlng planLs Lhere Second of all
P1C would face lnsLlLuLlonal volds such as wldespread
corrupLlon and a lack of paLenL enforcemenL lL would
also encounLer rlsks such as a weak macro pollcy
admlnlsLraLlve and lnfrasLrucLural weaknesses and
poLenLlal dlfflculLles flndlng skllled labor
erhaps mosL lmporLanLly P1C would have Lo declde
wheLher lL would flnanclally make sense Lo manu
facLure ln vleLnam Would Lhe payoffs of lower labor
cosLs and Laklng advanLage of Lhe growlng markeL
[usLlfy Lhe cosLs of puLLlng sLeel ln Lhe ground and
dlverLlng from cenLrallzlng lLs manufacLurlng ln
1alwan?
3
(now) now shou|d n1C enter the V|etnamese market?
Lnter and
Manufacture
|n V|etnam
Do Not Lnter or
Manufacture
|n V|etnam
Cutsource
Cont|nue to Lxport
from 1a|wan
4
Greenf|e|d
L|cense]Contract
Io|nt Venture
Acqu|s|t|on

1) 1)
Company Cvervlew
ackground
P1C CorporaLlon deslgns and manufacLures
moblle compuLlng devlces (smarL phones and
uAs) based on Wlndows Moblle Androld and
rew operaLlng devlces 1he company was
esLabllshed ln 1997 AL flrsL P1C was a conLracL
elecLronlcs manufacLurer 1he company now
markeLs phones under lLs own brand
roducLs
P1C comes ouL wlLh new models each year
lllusLraLlng lLs drlve Lo creaLe producLs aL Lhe
forefronL of consumer Lrends and Lechnology lL
currenLly has 47 smarL phone models and 4
LableLs lL launched Lhe flrsL Androld moblle
phone ln 2008 whlch was wlldly successful
Ceneral SLraLegy
P1C geLs mosL of lLs sales from exporLs sh|pp|ng
2467 m||||on smartphones |n 2010 accordlng Lo
lLs annual reporL SLlff compeLlLlon ls happenlng
ln Lhe moblle phone lndusLry whlch has caused
a prlclng war P1C found LhaL sales for boLh Lhe
MlcrosofL and Coogle Androld moblle sysLems
were lower Lhan expecLed
P1C llkes Lo compeLe Lhrough lnnovaLlon and
producL dlverslflcaLlon raLher Lhan focuslng on
parLlclpaLlng ln prlce wars
Llke mosL consumer handseL makers P1C was
P1C has esLabllshed parLnershlps wlLh key
moblle brands lncludlng flve of Lhe leadlng
Luropean operaLors four of Lhe Lop uS operaLors
and several fasLgrowlng Aslan operaLors Many
of Lhe companys producLs are selfbranded whlle
oLhers carry Lhe name of P1C's subsldlary uopod
P1C owns a ma[orlLy sLake ln uopod lnLernaLlonal
a moblle phone vendor ln Chlna and oLher Aslan
markeLs
CLher producLs are rebranded wlLh Lhe names of
parLnerlng moblle operaLors such as 1Moblle
A11 uS Cellular verlzon and SprlnL Lo name a
few P1C slgned an agreemenL wlLh Chlna Moblle
ln 2009 Lo develop smarLphones Chlna Moblle ls
looklng Lo Lap Lhe growlng Lelecom markeL and ls
lnvesLlng almosL $7 mllllon Lo develop around
seven models by 2010
8ecenL uevelopmenLs
1o beef up lLs P1CSensecom cloud servlces
buslness P1C acqulred uashwlre ln 2011
uashwlre makes Lhe uashworks plaLform and
oLher producLs LhaL allow Lhe sharlng of conLenL
across moblle and web devlces
AL Lhe 2011 Consumer LlecLronlcs Show P1C
launched Lhree brand new 4C smarLphones Lhe
LvC ShlfL 4C P1C 1hunderbolL and P1C lnsplre
4C
6
LocaLlons
P1C ls headquartered |n 1aoyuan 1a|wan where lL cenLers lLs research and developmenL
manufacLurlng and managemenL Powever lL also has a head uS offlce ln ellevue WA and a
Lurope offlce ln Slough unlLed klngdom ln addlLlon Lo research cenLers ln SeaLLle WA Chlcago
lL and uurham nC P1C malnly manufacLures lLs phones ln 1alwan alLhough ln 2007 lL began
conLracLlng wlLh CelesLlca ln Sao aulo razll Lo ouLsource P1C moblle handseLs for razll and
Lhe nelghborlng markeL roducLs are sold globally around Lhe world
G|oba| reach P1C malnLalns a presence ln all key markeLs lncludlng Lhe uS Lhe unlLed
klngdom Cermany lrance Chlna !apan korea lLaly Lhe neLherlands elglum Creece Spaln
oland 8ussla Slngapore 1halland Lhe hlllpplnes lndonesla lndla Malaysla AusLralla uAL
and razll
CuLsourced
ManufacLurlng
Clobal
PeadquarLers
Solld llnanclal erformance
P1C's proflLs and revenues have grown sLeadlly over Lhe pasL few years lndlcaLlng dramaLlc growLh
uS PC
Lurope
PC uS 8u
cenLers
7
*llgures ln Lhousands of 1alwan dollars 8evenue ln 2010 approx uS$92 bllllon nl approx uS$13 bllllon
P1C uslness Model
kD
D|verse roduct
ortfo||o
1echno|og|ca|
rof|c|ency and
Innovat|on
n|gher W1
Grow|ng
Customer 8ase
Increased
Marg|ns]rof|t
Stream||ned
Cperat|ons
Compet|t|ve
Cost Structure
Vo|ume
Lxport|ng
G|oba||y
Market|ng
Model
P1C ls able Lo drlve and grow lLs buslness Lhrough an emphasls on |nnovat|on and kD 1hls
drlves lLs ablllLy Lo creaLe a d|verse product portfo||o of phones LhaL are aL Lhe forefronL of
Lechnology and moblle Lrends leadlng Lo hlgher demand and wllllngness Lo pay from cusLomers
Also havlng a dlverse producL porLfollo appeals Lo a wlde varleLy of markeLs allowlng P1C Lo
lncrease volume by exporLlng lLs producLs globally
1he company's sLrong operat|ons and cost structure allow lL Lo furLher lncrease marglns and
proflLs artnersh|ps wlLh lndusLry leaders such as Coogle MlcrosofL and Cualcomm and |ong
term cooperat|ve re|at|onsh|ps wlLh Lelecom provlders also keeps Lhem ln Lune wlLh demand
1herefore Lhe b|ue bubb|es represenL n1C's core strengths
8
artnersh|ps
Cooperat|ve
ke|at|onsh|ps
P1C's CompeLlLlve AdvanLage
9
Lconom|cs of kep||cat|on
y creaLlng smarLphones and repllcaLlng
Lhem on a large scale Lhrough producLlon ln
vleLnam ln addlLlon Lo 1alwan P1C could
galn economles of repllcaLlon
Lconom|es of Sca|e
P1C ls almlng for economles of
scale by flneLunlng lLs sLraLegy
and boosLlng sales Lhrough volume
wlLh fewer Lypes of handseLs y
Laklng advanLage of low cosLs ln
vleLnam Lhls would ald a scale
approach
Lconom|es of Scope Lconomles of
scope ls noL really a parL of P1C's
sLraLegy slnce lL malnly produces
one level of smarLphones and
doesn'L LargeL dlfferenL prlce
ranges (for example lL does noL
manufacLure lowcosL phones)
G|oba| Leverage and
I|ex|b|||ty
P1C could reduce Lhe rlsk
of [usL manufacLurlng ln
1alwan by manufacLurlng
ln anoLher counLry and
also grow lLs presence
and brand name ln Lhe
SouLheasL Aslan markeL
NonMarket Strateg|es
ln 1alwan P1C recelves
speclal supporL from Lhe
1alwanese governmenL
ln vleLnam lL should
also work closely Lo
creaLe relaLlonshlps wlLh
Lhe vleLnamese
governmenL ln order Lo
galn favorable
LreaLmenL
Nat|ona|
D|fferences
y manufacLurlng ln
vleLnam P1C would
be explolLlng Lhe
dlfferences ln Lhe
counLry such as
lower labor cosLs
G|oba| Learn|ng
y enLerlng vleLnam
P1C could learn whaL lL
Lakes Lo enLer a fasL
growlng manufacLurlng
and smarLphone
markeL and use LhaL
knowledge Lowards
fuLure expanslon
I Moyet ooJ llebetskloJ 2006
ln addlLlon Lo brlnglng lLs exlsLlng compeLlLlve advanLages P1C musL also develop
addlLlonal advanLages ln order Lo brlng added compeLlLlveness Lo Lhe vleLnamese
markeL
P1C value Chaln
8esearch and
uevelopmenL
Suppllers ManufacLurlng MarkeLlng ulsLrlbuLlon
Lach parL of P1C's value chaln conLrlbuLes Lo lLs success y prlorlLlzlng lnnovaLlve deslgn and 8u ln
1alwan uslng a cusLomlzed pull sLraLegy and exporLlng Lhelr producLs all over Lhe world P1C has
managed Lo galn a slgnlflcanL markeL share ln a relaLlvely shorL perlod ln lLs annual reporL Lhe
company also sLaLed LhaL 1he P1C supply chaln ls consldered sLrong and sLable"
W P1C has Lhree
8u offlces ln
Lhe uS and a
research cenLer ln
1alwan
W P1C
concenLraLes on
|nnovat|ve des|gn
and funct|ona||ty
by lnvesLlng
of Lhelr
budgeL ln 8u
and havlng good
sLaff
WP1C fully
explolLs lLs
lnnovaLlve
sLraLegy by
focuslng on
research and
co||aborat|on
W P1C malnly
manufacLures ln
1alwan and lL also
has ouLsourced
manufacLurlng ln
razll lL
concenLraLes on
uslng a custom|zed
pu|| strategy" whlch
makes producLs
based on cusLomer
demand and
bulldlng
parLnershlps wlLh
dlsLrlbuLors
aL Lhe same Llme
W1he company uses
a f|ex|b|e
product|on
p|atform so Lhey
can follow cusLomer
demand and reduce
producLlon cosLs
W P1C was CLM
(orlglnal
equlpmenL
manufacLurlng) aL
flrsL buL Lhen
sLarLed maklng
producLs uslng lLs
own brand
WllrsL LargeLed
hlgh consumpLlon
buslness cllenLs
slmllar Lo Apple
and lackberry
W 1hey now LargeL
Lhe m|d range
market
W use campalgns
emphaslzlng
P1C
Wsense" make lL
mlne sLay close
and dlscover Lhe
unexpecLed
Wlocus on hlgh
end appearance
and quallLy of
producLs
W Pas
parLnershlps wlLh
varlous
dlsLrlbuLors and
loglsLlcs
companles ln
Lurope uS and
!apan (such as
rlghLpolnL)
WLxports g|oba||y
WCollaboraLes
wlLh Lelecom
carrlers ln SouLh
korea and Chlna
W 8ecenLly
parLnered wlLh
rlghLsLar Lo
dlsLrlbuLe Lhelr
phones ln 28
counLrles ln Sub
Saharan Afrlca
W Sources from
upsLream
suppllers/hardw
are companles
LhaL provlde
chlps panels
and baLLerles
W 1o combaL
LlghL supplles of
upsLream
componenLs
P1C regularly
negoLlaLes Lo
reduce supply
cosLs CbLalns
cosL reducLlons
on
medlum/small
panels
W Also supporLs
suppllers Lo
ralse producLlon
efflclency lower
cosLs and
enhance
compeLlLlveness
10
10
22))
CACL Analysls
Cu|tura| D|stance Adm|n|strat|ve D|stance
Geograph|c D|stance Lconom|c D|stance
W ulfferenL language vleLnamese as
opposed Lo Mandarln/1alwanese
W SmarLphone lndusLry rapldly growlng
WvleLnamese have appeLlLe for moblle
llfesLyle"
W opulaLlon less Lhan 668 people per
square mlle as opposed Lo 1730 per
square mlle ln 1alwan
W vleLnamese are of slmllar culLural
descenL Lo 1alwanese such as Pakka
Chlnese
W1echnology a large parL of popular
culLure ln SouLheasL Asla
W CovernmenL SoclallsL 8epubllc
W Cpenness Lo Lrade and lnvesLmenL ls
hlgh (orLer CompeLlLlveness 8eporL)
member of ASLAn
W ollLlcal sLablllLy ls hlgh buL corrupLlon
and brlbery conLlnue Lo plague Lhe
sysLem of governmenL
WLlLLle leglslaLlon Lo proLecL lnLellecLual
properLy rlghLs
WCuallLy of leglslaLlon has gone up buL
lmplemenLaLlon ls noL sLrong and ofLen
prevenLs buslnesses and lndlvlduals from
beneflLlng from laws
W P1C's currenL headquarLers and
manufacLurlng planLs are locaLed ln 1alwan
whlch ls also ln Lhe SouLheasL Aslan reglon
WMa[orlLy of vleLnam ls coasLal (aclflc
Ccean)
WPo Chl Mlnh seaporL ls Lhe 36
Lh
buslesL ln
Lhe world buL lnvesLmenL noL keeplng up
wlLh growLh
WAlrporLs near capaclLy and noL very
efflclenL
WlnvesLmenL ln general lnfrasLrucLure ls hlgh
compared Lo counLrles llke 1halland and
Chlna
W Clobal CompeLlLlveness lndex (CCl)
rank lmproved from 7 Lo 9 20092010
Lo 20102011
W LfflclenL labor markeL buL lack of skllled
labor
W Wldespread lnflaLlon lssues
W Low wages buL producLlvlLy lssues
W MoneLary pollcy noL well coordlnaLed
or lnLerconnecLed vleLnam lacks a
coherenL and hollsLlc framework for
macroeconomlc managemenL" (orLer)
W Lconomlc openness ls hlgh
oltly low nlqb
MeJlom low
1he culLural admlnlsLraLlve geographlc and economlc dlsLances ln vleLnam range from low Lo hlgh
lndlcaLlng LhaL Lhe declslon Lo enLer vleLnam ls noL an easy one for P1C
12
eneflLs CosLs 8lsks of
vleLnam
eneflLs
P1C's sLraLegy ls currenLly Lo exporL all of lLs
producLs from lLs base ln 1alwan and sell lLs
producLs ln new and growlng markeLs Lo
meeL growlng demand vleLnam's geographlc
poslLlon and proxlmlLy Lo oLher SouLheasL
Aslan markeLs whlch have shown greaL
poLenLlal growLh ln Lhe moblle and smarL
phone secLors overall serve as a greaL
lmperaLlve for P1C Lo enLer vleLnam
Growth Imperat|ve
1he mlnlmum wage ln vleLnam ls vnu
830000 or uS$397 (as of May 2011
accordlng Lo Lhe MlnlsLry of !usLlce)
compared Lo 1870 1u a monLh ln 1alwan
or uS$61 (accordlng Lo Lhe Councll of Labor
Affalrs !uly 2011) 1herefore lf P1C were Lo
open a manufacLurlng facLory ln vleLnam
Lhey could caplLulaLe on lower prlces and
poLenLlally creaLe an arblLrage opporLunlLy
Arb|trage Cpportun|ty
P1C's maln compeLlLors are all openlng
manufacLurlng planLs ln vleLnam nokla
announced ln March 2011 LhaL lL would be
openlng a new manufacLurlng planL ouLslde
Panol seL Lo open ln May 2012 ln addlLlon
Samsung opened lLs second handseL facLory
ln vleLnam ln SepLember 2011 1herefore
P1C would galn Lhe advanLage of belng
where lLs compeLlLors are
G|oba||zat|on of Compet|tors
CosLs 8lsks
lL ls falrly dlfflculL Lo recrulL skllled workers ln
vleLnam wlLh rlgld and falrly lnefflclenL labor
markeLs Accordlng Lo a !uly 2011 reporL
from CranL 1hornLon skllled labor ranked
hlgher Lhan caplLal as Lhe largesL lssue for
buslnesses ln vleLnam Sklll levels ln general
are low and Lhe quallLy of educaLlon ls sLlll
falrly weak
Sk|||ed Labor Issues
llscal pollcy ln vleLnam ls weak due Lo hlgh
sLrucLural deflclLs wlLhln Lhe governmenL
CovernmenL flnances are falrly weak and
Lhere ls also a loL of pressure regardlng Lhe
exchange raLe hlgh amounLs of lnflaLlon and
generally unsLable Llmes regardlng moneLary
pollcy
Weak Macro o||cy
AlLhough Lhere have been lmprovemenLs ln
recenL years overall Lhe admlnlsLraLlve
envlronmenL ln vleLnam needs a loL of
lmprovemenL CurrenL reform lnlLlaLlves wlll
help Lo lmprove admlnlsLraLlve pracLlces
Ma[or lnvesLmenLs were made ln physlcal and
uLlllLy lnfrasLrucLure buL efflclency sLlll lacks
A low degree of prlvaLlzaLlon affecLs Lhe real
lmpacL lnvesLmenLs have on lnfrasLrucLure
Adm|n|strat|ve Infrastructura| Weakness
Whlle Lhere are clear beneflLs Lo manufacLurlng ln vleLnam Lhere are also slgnlflcanL cosLs and
rlsks LhaL exlsL ln facL Lhey seem Lo equal each oLher maklng Lhe declslon Lo enLer unclear
13
lnsLlLuLlonal volds
Debt Lqu|ty I|nanc|ng 1here ls subsLandard access Lo caplLal and credlL ranks as Lhe slngle
mosL problemaLlc facLor hlnderlng buslness ln vleLnam (CCl p 347)
orts ka||ways koads A|r 1ransport 1hough Lhe counLry lnvesLs ln a hlgher of Cu on
average ln baslc lnfrasLrucLure Lhe rapld growLh of vleLnam has caused lnsufflclencles ln relaLlon
Lo lmporLanL Lrade lnfrasLrucLure speclflcally porLs and alr LransporL 1he counLry's exLenslve
coasLllne could allow for wldespread faclllLaLlon of Lrade buL lmperaLlve advances need Lo be
made
Schoo| and Un|vers|ty 1hough Lhe llLeracy raLe ls approxlmaLely 94 Lhe quallLy of hlgher
educaLlon ln vleLnam ls noL sLrong 1hls affecLs Lhe quallLy of Lhe workforce especlally ln regards
Lo skllled labor
roperty k|ghts LeglslaLlon Lo proLecL lnLellecLual properLy rlghLs ls noL sLrong and Lhls ls
reflecLed ln Lhe low number of paLenLs ln vleLnam
Lega| System 1hough clLlzens generally LrusL pollLlcal offlclals and have dependable pollce force
(CCl ranklngs) corrupLlon ls wldespread and brlbes are ofLen necessary for dolng buslness ln
vleLnam AbouL 62 of flrms reporL paylng exLra" fees and flndlng lL necessary Lo esLabllsh
relaLlonshlps" wlLh publlc offlclals
Whlle vleLnam has shown economlc growLh and favorable economlc pollcles for companles
looklng Lo enLer Lhe markeL Lhe counLry sLlll lacks cerLaln lnfrasLrucLure Lo connecL buyers and
sellers ln parLlcular Lhe followlng sofL" and hard" lnsLlLuLlonal volds are mosL noLeworLhy and
P1C should pay parLlcular aLLenLlon Lo Lhem lf Lhey plan on enLerlng Lhe markeL Lo manufacLure
Lhelr producLs
14
"Soft" Inst|tut|ona| Vo|ds
"nard" Inst|tut|ona| Vo|ds
Pow Lo MeeL Lhe volds
lnsLlLuLlonal volds MlLlganL
MACkLnZlL 1C uC
1
16
3) 3)
ulamond lramework Cvervlew of
vleLnam's uslness LnvlronmenL
Context for
I|rm Strategy
and k|va|ry
Demand
Cond|t|ons
Iactor
Cond|t|ons
ke|ated and
Support|ng
Industr|es
WvleLnam has a hlgh level of openness Lo
forelgn lnvesLmenL however Lhere are
slgnlflcanL barrlers wlLhln Lhe local markeL
W8elaLlvely weak pollcles for compeLlLlon
WSCLs recelve speclal LreaLmenL ln
comparlson Lo mulLlnaLlonal companles
WCompeLlLlon cenLered on prlce raLher
Lhan quallLy
WPazy separaLlon beLween whaL Lhe
governmenL's role ls as a regulaLor vs an
owner
WA very aLLracLlve and growlng
poLenLlal markeL due Lo rlslng
mlddle class and lncomes
W SophlsLlcaLlon of local
cusLomers ls sLlll low buL lL ls
lmprovlng over Llme
W Weak regulaLory sLandards
and enforcemenL
W aslc physlcal lnfrasLrucLure
exlsLs buL Lhere ls room for
lmprovemenL and lnvesLmenL
W SLrong communlcaLlon
lnfrasLrucLure
W llnanclal sysLem ls growlng
buL sLlll hlghly unsLable
W AdmlnlsLraLlve lnfrasLrucLure
ls weak buL reforms underway
W Low lnnovaLlon lnfrasLrucLure
W ClusLers exlsL ln vleLnam buL Lhey
Lend Lo cenLer on narrower acLlvlLles
wlLh a relaLlvely low presence of local
suppllers/provlders
W Lack of pollcles geared Lowards
secLors and Lhey are noL speclflcally
focused on clusLers
ootce vletoom competltlveoess
kepott ceottol lostltote fot cooomlc
Moooqemeot
Conc|us|on
n|gh potent|a| but cha||enges
ex|st n1C must approach
V|etnam w|th caut|on and
awareness of the cha||enges
they w||| meet
17
vleLnam MarkeL Analysls
ootce otomooltot
8lslng Cu and
ulsposable lncome er CaplLa
ro[ecLed 8lse ln urbanlzaLlon
ootce colJwell 8ooket vletoom
overLy 8educLlon 19982006
Soclal Change
Grow|ng |ncomes amongsL Lhe vleLnamese
populaLlon represenL poLenLlal for demand
Lo lncrease even more ln Lhe fuLure for
moblle phones and also hlgherend luxury
phones such as smarLphones
Accordlng Lo vletoomoet Lhe MlnlsLry of
lannlng and lnvesLmenL forecasLs LhaL
average per cap|ta GD w||| reach
US52100 |n 201S whlch ls 17 Llmes hlgher
Lhan 2010 1hls lndlcaLes LhaL people can
afford a hlLech producL llke a smarLphone
Urban|zat|on ls also growlng and as
counLrles urbanlze Lhelr hablLs and
consumer LasLes wlll also change and
accllmaLe Lo more complex producLs
lavorable Lconomlc ollcy
A new law Look effecL ln Aprll 2011 where
Lhe vleLnamese governmenL lnsLlLuLed a
pollcy ln favor of speclallzed lndusLrles
called ueclslon no 12/2011 C111g
pursuanL Lo Lhe rlme MlnsLer's ueclslon
no 49 10/C111g" whlch lncluded
manufacLurlng mechanlcal englneerlng
elecLronlc lnformaLlcs and hlLech lndusLry
developmenL as Lhe favored lndusLrles 1hls
wlll bode especlally well for P1C lf Lhey
declde Lo enLer Lhe reglon slnce
smarLphone manufacLurlng falls under hl
Lech and Lhe oLher lndusLrles are relaLed Lo
whaL P1C does
Soclal changes and favorable economlc pollcles help Lo creaLe an aLLracLlve markeL ln vleLnam
for P1C Plgher urbanlzaLlon raLes and hlgher lncomes wlll lead Lo greaLer demand for
smarLphones and new economlc pollcles favor elecLronlcs
18
ManufacLurlng ln vleLnam
ootce c looovotloo Aslo Motcb 2011
Soclal Change
vleLnam ls qulckly becomlng a Lop cholce for companles Lo
manufacLure Lhelr producLs Accordlng Lo a lrosL and Sulllvan reporL
manufacLurlng accounLed for 24 of Cu ln 2009 ln addlLlon rlslng
wages ln LradlLlonal manufacLurlng counLrles such as Chlna ls shlfLlng
company lnLeresL Lo Lhe SouLheasL Aslan reglon
Accordlng Lo uS Chlna's llghL manufacLurlng (consumer elecLronlcs
and smarL phones would fall under Lhls caLegory) decllned by 23
percenLage polnLs whlle V|etnam's ||ght manufactur|ng |ncreased by
16 percent
vleLnam ls rapldly emerglng as a global manufacLurlng hub
AdvanLageous Labor CosLs
Accordlng Lo an arLlcle ls lL 1lme Lo Leave
Chlna for vleLnam and oLher LCCs?" from
ClC lnnovaLlon Asla pro[ecLed lncreases of
Lhe medlum wage ln Chlna are expecLed Lo
brlng Chlna pasL Lhe uS$20 level whlch ls
more Lhan Lwlce Lhe wage of vleLnam
whose currency was recenLly devalued
agalnsL Lhe dollar
vleLnam's lndusLrlal developmenL sLraLegy poslLlvely lmpacLs Lhe manufacLurlng lndusLry
vleLnam sLrlves Lo be a fully lndusLrlallzed
counLry by 2020 accordlng Lo lLs 20112010
SocloLconomlc uevelopmenL SLraLegy WlLh
LhaL goal ln mlnd many governmenL pollcles
and lnlLlaLlves ln addlLlon Lo W1C commlL
menLs have made Lhe cllmaLe for Lhe
manufacLurlng lndusLry lncreaslng poslLlve
due Lo lncreaslng Lrade and lnvesLmenL
cooperaLlon ln addlLlon vleLnam's lndusLrlal
developmenL sLraLegy for 20112020 focuses on
Lhe areas of LexLlles leaLher chemlcals agro
processlng e|ectron|cs and |nformat|on and
commun|cat|on techno|og|es Slnce cell
phone/smarL phone manufacLurlng falls
underneaLh elecLronlcs Lhls ls clearly favorable
for P1C
vleLnam's emergence as a hub wlLhln souLheasL Asla for manufacLurlng low labor cosLs and
favorable lndusLrlal developmenL sLraLegy all bode well for P1C Lo conslder manufacLurlng Lhere
W|den|ng Wage Gap 8etween Ch|na and V|etnam
19
vleLnam's Crowlng Moblle and
SmarLphone MarkeL
SmarLphones are a growlng and boomlng
markeL ln vleLnam ln Lhe flrsL 7 monLhs of
2011 849000 smarLphones were sold ln Lhe
counLry lllusLraLlng an lncrease of 73 ln Lhe
same Llme perlod ln 2010 erhaps mosL
noLably vleLnam's moblle markeL ls
anLlclpaLed Lo experlence more growLh ln Lhe
comlng decade
vleLnam had 137 mllllon moblle cusLomers aL
Lhe end of 2010 lllusLraLlng a penetrat|on rate
of 1723 1hls ls conslderably hlgher Lhan Lhe
326 peneLraLlon LhaL Lhe markeL reached ln
2006 1haL means LhaL Lhe counLry's moblle
markeL recorded an average growLh raLe of
806 |n the |ast f|ve years
CrowLh ls parLlcularly aLLrlbuLed Lo Andro|d
based phones (n1C's p|ay|ng f|e|d) whlch
represenLed 26 of Lhe counLry's smarLphones
ln Aprll 2011 a huge [ump from [usL 2 ln Lhe
prevlous year
vleLnam's moblle markeL ls sLlll experlenclng
a double dlglL growLh Lhanks Lo Lhe huge
markeLlng efforLs LhaL are belng deployed by
Lhe counLry's slx llcensed moblle operaLors
Accordlng Lo uaLaxls lnLelllgence Lhe moblle
markeL experlenced unprecedenLed growLh
ln [usL Lwo years where Lhe number of
people wlLh access Lo a moblle neLwork has
soared from 2S8 m||||on |n f|rst quarter
2007 to reach over 80 m||||on |n 2009
resulLlng ln a peneLraLlon raLe of 91
uoubledlglL moblle growLh
AlLhough Lhe average vleLnamese cusLomer cannoL afford a smarLphone Lhe markeL ls vlable and
growlng 1he facL LhaL sales of smarLphones more Lhan doubled from 20102011 ls a very Lelllng
slgn for whaL's Lo come ln Lhe fuLure
vleLnam's marLphone markeL grew by 806 ln Lhe lasL years
30
70
ootce vloopbooe 2011
V|etnam Ce||phone Users
Smartphone Users
Ce||]Mob||e Users
Nclc1 wbltebook 2010
20
21
4) 4)
CompeLlLors Lo P1C
nokla
24
Samsung
11
P1C
9
8lM
14
Apple
19
CLher
23
G|oba| Smartphone Manufacturer
Market Share 2011
Samsun
g
28
P1C
22 Sony
Lrlcsson
11
LC
10
CLher
29
Andro|d Vendor
Market Share |n V|etnam
ootce uA 1oJoy
ootce vloopbooe
AlLhough P1C ls noL Lhe global markeL leader ln Lhe smarLphone lndusLry lL has shown healLhy
growLh and looks polsed Lo conLlnue growlng ln Lhe fuLure lL ls also 2
nd
ln markeL share ln
vleLnam for Androld phones
Accordlng Lo uA 1oJoy as of Lhe flrsL
quarLer of 2011 nokla commands Lhe
largesL markeL share for smarLphone
manufacLuers wlLh 243 of Lhe
markeL nokla ls followed by 8lM
Apple Samsung and Lhen P1C who ls

Lh
ln markeL share wlLh 9 of Lhe
markeL
AlLhough P1C ls Lhe
Lh
largesL ln
Lerms of markeL share lL has shown
lmpresslve growLh ln recenL years
n1C's market share near|y doub|ed
from 20102011 from 49 Lo 89
P1C
Lh
ln MarkeL Share
for Clobal SmarLphone
ManufacLurers
uaLa from vlnaphone from Lhls pasL year
shows LhaL of Lhe Androld markeL ln
vleLnam P1C commands a 22 markeL
share 1here ls currenLly no offlclal daLa
showlng Lhe markeL share of speclflc
smarLphone companles ln vleLnam
Powever accordlng Lo 1henexLWebcom
and research from Cfk rough esLlmaLes
show LhaL Androld wlLh lLs low enLry prlce
and lackerry due Lo lLs popularlLy ln
nelghborlng counLrles of 1halland and
lndonesla are llkely Lhe maln cholce among
smarLphones wlLh Lhe comparaLlvely more
expenslve lhone comlng ln as a second
cholce
P1C Second ln Androld MarkeL
Share ln vleLnam
22
Clobal SmarLphone
ManufacLurers ln vleLnam
Ma[or Clobal CompeLlLor WhaL Lhey are dolng ln vleLnam
nokla
Samsung
lnvesLed 200 mllllon euros ($276 mllllon) ln a
new manufacLurlng slLe ln Lhe ac nlnh
rovlnce near Panol !uha uLklranLa Lhe
Sv of nokla sald ln a press release 1hls
new manufacLurlng slLe wlll play a key role ln
our efforL Lo connecL Lhe nexL bllllon Lo Lhe
web" nokla has 10 oLher manufacLurlng
slLes around Lhe globe 1he move ls parL of
lLs "next b||||on" strategy Lo capLure new
consumers ln growlng economles llke
SouLheasL Asla
Accordlng Lo olqoo uolly Lhey have sLarLed
recrulLmenL for Lhe facLory and wlll employ
27 workers ln CcLober wlLh up Lo 10000 by
Lhe end of 2014 1he planL wlll open ln 2012
wlLh handseLs comlng ouL ln March or Aprll
lL plans Lo exporL mosL of Lhe producLs from
80 ln 2012 Lo 92 ln 2013

Accordlng Lo Lhe koteo 1lmes Samsung

opened a $700 mllllon planL ln vleLnam's ac
nlnh provlnce ln november 2010 lL ls
Samsung's 7
Lh
planL operaLlng ouLslde of
korea lL produced approx 378 mllllon
phones ln 2010 or 14 of LoLal
manufacLurlng for Lhe company Samsung
reporLedly made Lhe move Lo keep costs |ow
and keep product marg|ns hea|thy
1herefore lLs sLraLegy ls exporLdrlven
nokla and Samsung Lwo of P1C's largesL global compeLlLors who also command more markeL
share boLh recenLly enLered vleLnam Lo manufacLure Lhelr smarLphones 1herefore P1C can
look Lo Lhem for examples on how Lhey could poLenLlally enLer Lhe markeL
nokla's 10 exlsLlng manufacLurlng
slLes
23
orLer's llve lorces Analysls
An analysls of orLer's llve lorces shows LhaL threats are pretty s|gn|f|cant wlLhln Lhe
moblle/smarL phone lndusLry ln vleLnam 8lvalry ls probably Lhe largesL facLor slnce many
mulLlnaLlonal flrms wlll look Lo capLure boLh low labor cosLs and Lhe growlng smarL phone markeL
ln Lhe counLry wlLh Lop companles llke nokla and Samsung openlng new manufacLurlng planLs ln
Lhe reglon
ower of
Suppllers
ower of
Suppllers
- Low 1here are many suppllers of commodlLlzed producLs
dlfferenLlaLlon of lnpuLs and volume ls lmporLanL Lo suppllers
ower of
uyers
ower of
uyers
- Med|um uyers are fragmenLed and are mlxed beLween Lhose LhaL
are brand loyal and Lhe growlng number seeklng dlverslflcaLlon 1he
rapld developmenL of lnnovaLlon and Lechnology ls causlng moblle
producLs Lo go down ln prlce 1here ls also low bargalnlng leverage
1hreaL of
new LnLranLs
1hreaL of
new LnLranLs
- Med|um 1here are many challenges (admlnlsLraLlve lnfrasLrucLural
eLc) LhaL exlsL Lo enLer Lhe counLry Powever vleLnam ls openlng up
lLs moblle markeL Lhe consumer base ls growlng and Lhere are cosL
advanLages Lo manufacLurlng ln Lhe counLry
1hreaL of
SubsLlLuLes
1hreaL of
SubsLlLuLes
- Low Moblle phones are becomlng an essenLlal parL of peoples' llves
and Lhey cannoL easlly be subsLlLuLed wlLh oLher elecLronlc producLs
Powever Lhe growlng varleLy of poLenLlal Lypes of phones may be a
LhreaL as more smarLphones enLer Lhe markeL
8lvalry 8lvalry
- Very h|gh 1here are many dlfferenL companles compeLlng ln Lhe
vleLnamese phone markeL and vylng Lo caplLulaLe on growlng demand
for cell phones/smarL phones
24
2
S) S)
llnanclal reakdown
When looklng aL Lhe aLLracLlveness of enLry lnLo vleLnam a few flnanclal conslderaLlons make a
large sLaLemenL abouL Lhe feaslblllLy of such a move
1 1he amounL of forelgn dlrecL lnvesLmenL ln vleLnam 1hls number was sLeady over Lhe pasL
few years buL has been splklng recenLly
hLLp//wwwbuslnesslnaslacom/asla/asla_fdlhLml
2 llnanclng of a large enLry lnLo vleLnam speclflcally from 1alwan has been made much easler
by Lhe creaLlon of a relendlng body for vleLnam1alwan Lrade worLh uSu $20 mllllon Also Lhe
1alwanese MlnlsLer of llnance has dlrecLed 1alwanese banks Lo expedlLe Lhe process of lendlng
Lo vleLnam
hLLp//LalwanLodayLw/cLasp?xlLem17690cLnode413
3 Shlpplng cosLs
CosLs Lo lmporL a conLalner uSu $940
CosLs Lo exporL a conLalner uSu $76
hLLp//wwwbuslnesslnaslacom/asla/asla_procedure_reglsLraLlonhLml
4 Currency
Mlnlmum wage vnu 830000 or uSu $40
8aLe of mlnlmum wage lncrease 11
lnflaLlon raLe 1224
hLLp//wwwbuslnesslnaslacom/vleLnam_workershLml
0
1000
2000
3000
4000
000
6000
7000
8000
9000
2003 2004 200 2006 2007 2008
Iore|gn Investment |n USD (m||||ons)
26
llnanclal reakdown
1he followlng are rough esLlmaLes of whaL lL cosLs Lo manufacLure a smarLphone ln 1alwan and
ln vleLnam
CurrenL ManufacLurlng CosL ln 1alwan
CurrenL ManufacLurlng CosL ln vleLnam
27
2
6) 6)
LnLry AssessmenL
29
Acqu|s|t|on
Io|nt Venture
Greenf|e|d
Cutsource
Cont|nue
Lxport|ng
from 1a|wan
Cpt|on ros Cons
L
n
L
e
r
l
n
g
n
o
L

L
n
L
e
r
l
n
g
ln addlLlon Lo conducLlng a flnanclal assessmenL of wheLher lL would be feaslble Lo
manufacLure ln vleLnam lL ls also helpful Lo welgh Lhe pros and cons of Lhe dlfferenL
modes of enLry (or nonmodes of enLry) LhaL P1C could poLenLlally pursue As a resulL
of Lhls analysls lL would make Lhe mosL sense for P1C Lo __________
(+) no need Lo puL sLeel ln Lhe
ground
(+) lull conLrol and fasL enLry
(+) no need Lo devoLe slgnlflcanL
resources
() ulfflculLy flndlng a sulLable
company Lo acqulre
() ConfllcLs beLween Lhe Lwo parLs
of Lhe company
(+) Caln knowledge of vleLnamese
markeL from parLner
(+) Access Lo exlsLlng dlsLrlbuLlon
neLwork/suppllers
() Loss of proprleLary knowledge
and poLenLlal leakage of Lechnology
() Pave Lo share Lhe proflLs
() need Lo merge dlfferenL culLures
(+) 1oLal conLrol
(+) no rlsk of loslng Lechnology
(+) CreaLer learnlng opporLunlLy
(+) Can LransplanL culLure
managemenL and morals more
easlly
() CosL of puLLlng sLeel ln Lhe ground
() ressure Lo make proflLs and be
successful Lo mlLlgaLe Lhe cosL
() Pard Lo geL ouL
() Lack of knowledge of local markeL
(+) Lower cosL no L overhead
P8 managemenL eLc
(+) Lower rlsk
() ulfflculLy malnLalnlng quallLy of
producLs
() Less conLrol over bulldlng brand
and markeLlng
() LfforL needed Lo Lraln parLner Lo
manufacLure Lo Lhe P1C sLandard
() Could lose compeLlLlve advanLage
by noL havlng full conLrol
(+) no rlsk no cosL
(+) ln llne wlLh Lhelr currenL
sLraLegy
() oLenLlal opporLunlLy cosL of noL
manufacLurlng ln vleLnam
1o be compleLed aL end of pro[ecL
30
hLLp//wwwbkmufg[p/reporL/ecorev2010e/Lcorevlew_20100331pdf
hLLp//Lhlnkprogressorg/ygleslas/2011/09/07/313227/chlnaloslnglowwageapparel[obsLo bangladesh
andsouLheasLasla/
hLLp//wwwleslngaporegovsg/wps/porLal/!uL/p/c/
04_S8k8xLLM9MSSzy8xz9C0os3guf4CMlMu_1A3g2ul0Mvx
8ukAuk8rlC7s7epl?gwCLLn0ML0dP?39x?2n_l0nldlL?CPk6xvol
[hauq4eLnbCoMl8ev288[zdvvyA3nkLcuvL8ALmkx4!/dl3/d3/
L2d!CSLvuuL3CS9ZCnZ3LzZfMugy1u181lllC1vSL8CCz!CM1AwMuAwMuA!
/?WCM_CLCAL_CCn1Lx1/wps/wcm/connecL/le/My+orLal/MarkeL+Culde/
MarkeL+lnformaLlon/SouLh+LasL+Asla/vleLnam/news/
vleLnam+lrom+lsolaLlon+Lo+lnLernaLlonal+lnLegraLlon
hLLp//aslasLanfordedu/evenLs/sprlng08/slldes4021/0061ranpdf
hLLp//wwwcfolnnovaLloncom/conLenL/lLLlmeleavechlnavleLnamandoLherlccs
hLLp//conLenLusaLodaycom/communlLles/Lechnologyllve/posL/2011/0/samsunghLcandapplefuel
smarLphonemarkeLgrowLh/1
hLLp//wwwsalgongpdallycomvn/uslness/2011/3/90319
hLLp//censcom/cens/hLml/en/news/news_lnner_37400hLml
31