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AJC International Risk Analysis (Paper)
1. Marvin Siclait
Dr. Brown
POLS 4900
6 December 17
AJC Country Report:
Vision/Goal
Our goal is to optimize our investment by finding the best emerging market to either
import or export proteins. It would be in our interest to implement a long term strategy to insure
we receive the most value from our new operation. In other words, we should be willing to
actively assist an agricultural community to make the local industry more competitive and thus
our business. Focusing in on locations that may require active assistance will allow for easier
access to the market and the ability to take part in it’s potential future lucrativeness.
KDF (Key Decision Factors)
Because of the nature of our business, our decision factors are vastly dependent on the
market of our future endeavor, more specifically, the strength and accessibility. Next, we should
focus on qualities of the new location’s government —things like political stability and absence
of violence, control of corruption, and U.S relations. Finally we should also be willing to
leverage the quality of the logistical features, namely infrastructure, technology, and geolocation.
Regardless of the potential to make money, it would be difficult to do without having
access to our product, so the most import thing to leverage is market access to proteins. We’re
looking for a place that has relatively low barriers to trade and friendly policies toward foreign
participation in the market. Also, given the government’s ability to restrict or enhance the
market, we should be looking for the place with relative ease of doing business, stability, and the
least corruption. Ensuring that all these factors are sufficient will allow us to penetrate the market
and retain more wealth from our investment.
2. But besides getting access to the market, we’re interested in the opportunities it can yield.
A strong market is profitable and more evenly distributes the benefits to all it’s participant, so the
next place we want to invest will have a growing middle class and relatively large GDP growth.
The presence of a growing middle class indicates new consuming markets since there is an
increase in disposable income. The GDP growth indicates that different sectors of the market are
growing, which create new opportunity for investment, however, our company is more interested
in the growth of agricultural sectors, more specifically, the potential to supply international
demand for protein, or the potential to require imported protein to meet domestic demand.
Lastly, since our business requires us to transport the proteins we sell, we’re concerned
about moving our product from location to location. Other than the barriers to trade covered in
the market access, we’re looking for a place with great port access, technology/equipment, and
infrastructure to transport the products we either pick up or drop off.
See KDF Weights Below:
Markets …………………..75%
- Access ….50%
- Strength….25%
Governance ………………15%%
Logistics …………………..10%
A plethora of factors have spurred development and cause the economies of Vietnam,
Indonesia, and Thailand to grow over the past few years. Along with the ease of accessing their
markets , the relative strength of these countries’ economies have made them viable locations for
starting new business. All three of the countries fair similar to another under economic
overviews. However, in regards to our agricultural concerns, highlighting Vietnams’ economic
polices and strategy then contrasting them to Indonesia and Thailand’s, we will find Vietnam
buds the potential for our future investment, namely to import meats, however, Indonesia is also
in a beneficial position to export seafood.
3. Vietnam’ Economic Overview:
The conflicting ideologies of communism and capitalism have murmured through the political
and economic climate of Vietnam since the start of the 20th century. The reminisce of a former
colony division of labor left Vietnam’s original source of revenue (agriculture) to the south and
introduced manufacturing and industry the north.The attractive returns from selling agricultural
goods on the free market lead the south to adapt a capitalist mindset, on the other hand, the need
for manufacturing labor drove the north to adopt more statist strategies. Ultimately, communism
ended up presiding as Vietnam’s political system. As a result, Vietnam has a large amount of
extractive institutions to benefit the state, so their markets were relatively closed off, however,
the poor economic results lead the communist party to move towards capitalist strategies. As the
country has been gaining wealth, they have started making the economy more inclusive. With
accolades like adopting globalism and officially joining the WTO, Vietnam today has moved
more away from radical community economic ideology. Their new lens leans towards a
individual contemporary liberal ideology, specifically when it comes to free trade. During the
80’s there was an ideological political reform that lead the government to employ their socialist
oriented market strategy, which is in essence mercantilism. Like China, the communist
government is hoping to boost the economy, but retain highly centralized government authority.
Regardless, Vietnam’s market is much more open and even allows for a great amount of
foreign participation, especially in agriculture. E.g., according to export.gov “foreign
participation in this sector…is allowed without equity limitations,” i.e., foreigners are allowed to
own and do business in Vietnam, but of course not without consent of the Ministry Of Trade and
other local offices of authority. Also,
4. “Vietnamese traders are entitled to (I) export goods of all kinds, except goods on the list of those
banned from export, and (II) import goods according to the business lines stated in their business
registration certificates.” - export.gov
Most importantly, Vietnam has participated in a fantastic agricultural relationship with the U.S..
Strong bilateral trade agreements and the encouragement of foreign participation will allow for
easily importing beef and pork into the market, which because of the prosperous Vietnamese
economic conditions, is fortunate for our business operation.
Vietnam Economic Strength & Growth:
The countries wealth has grown tremendously over the past decade (see slide 9).
tradingeconomics.com says “GDP Growth Rate in Vietnam averaged 6.19 percent from 2000
until 2017, reaching an all time high of 8.46 percent in the fourth quarter of 2007 and a record
low of 3.14 percent in the first quarter of 2009.” The surge in the economy has flourished a
growing middle class, which resulted to a large increase in disposable incomes and consumption,
for example, export.gov references “rising incomes should also lead to a more diverse diet for
many Vietnamese, thus increasing demand for many foods and drinks not yet readily available or
locally produced.”
Consumption:
In addition, Vietnam is not able to produce our satisfy the demand from he rise in
disposable income with their own agricultural production. A fact to support the potential success
of our import strategy is their need for meat, for instance export.gov says, “Vietnam
has limited available pasture land to develop a beef industry large enough to meet the
growing demand…[a]ccordingly, Vietnam’s total beef imports have risen in the past three years.
” More importantly, the demand for pork (which we should focus on selling) has risen along with
beef, but pork is more than half of Vietnamese total meat consumption, so there is a lot of
5. potential in the investment. Analogously, poultry demand has also risen, however, recently it
seems Vietnam is attempting to instill a what seems like an import substitution tactic. “In 2015
and early 2016 Vietnam importers reported continued pressure on the veracity of U.S. chicken
meat prices and financial losses due to Vietnamese Customs authorities using reference prices to
calculate higher import duties,” perhaps a method to protect and develop their poultry industry?
But still, Vietnam’s domestic poultry industry is not efficient enough to meet local demand, so
there is still an opportunity to sell chicken, however, this alludes towards a larger problem that
our company can leverage (see slide 12).
Shared Value:
Vietnam has a large problem with sanitation, particularly in proteins (see slide 11), which
is beneficial to our company because “U.S. food products are favored by consumers for their
high quality, safety, innovation and consistent supply. Exports of high value and consumer-
oriented U.S. agricultural and food products to Vietnam have seen rapid growth in recent years.”
The country’s poor quality growth has remained stagnant of over the years. We have an
opportunity to provide more sanitary chicken, as well as, partner with groups to help make the
farming industry more competitive and ad value to the area. As Porter & Kramer would say, “by
increasing access to inputs, sharing technology, and providing financing, companies can improve
supplier quality and productivity while ensuring access to growing volume” (Porter & Kramer,
7). If our company is willing to help reconceive the market and actively assist the meat
industries farmers with their problem of sanitation, we can create more long term opportunities
in the future from the competitive market. Another area that will need to be invested into is
infrastructure. According to the LPI index, Vietnam currently has the worst in logistical
6. infrastructure, but Indonesia and Thailand aren’t much better. In addition , Vietnam has great
coastlines and port access, which is really conducive to how we sell protein.
Thailand:
Still, a point of opposition may reference how Thailand appears as a better point of entry
for our new location, moreover, because of the macro implications of their barriers to trade and
foreign participation, it could be said Thailand fares better than Vietnam (see slide 10), however,
Thailand regularly practices import substitution and has remained an almost entirely export
economy. In regards to agriculture, it’s one of Thailand leading domestic industries and they
seek to protect their nationals with barriers, particularly non tariff barriers (see slide 10). “ While
Thailand’s average [tariff ]..rate averaged 10.7 percent in 2014, ad valorem tariffs can be as high
as 50 to 80 percent, and the ad valorem equivalent of some specific tariffs (charged mostly on
agricultural products) is even higher.” In contrast, Vietnam may have a slightly higher average
tariff rater ranting from 15-20% (export.gov, Market Access), but their ad valorem tariffs
average around 8% (worldbank.org, Vietnam Tariff Schedule). Aside from market factors,
Thailand is not the most politically sound, e.g., in the past few years the country has gone under
a political coup and the country is currently under military rule of the NCPO (National Council
for Peace and Order). In short, Thailand may have some appealing characteristics, but for our
business Vietnam is a better.
Indonesia:
Nonetheless, when it comes to Indonesia, they seem like a very good potential place for
investment on a macro analysis of the market as well, however, a large cultural barrier is the
abundance of Muslims. Moreover, there is a huge domestic demand for the proteins we sell, but
do to religious beliefs, meat must be prepared and slaughtered through the Halal process, which
7. is comparable to how devout Jewish followers are required to eat Kosher. More steps are
required to have a sellable product, but that doesn’t seem to be the only reason stopping foreign
imports. Although democratization is spreading, due to the large amount of corruption and
extractive institutions, Indonesia can still be classified as a neo-patrimonial state, in addition,
Indonesia uses this cultural barrier as an excuse to further protect their domestic market, which is
a common“trend toward protectionism [that] enjoys broad political support in Jakarta, and is
likely to continue under President Jokowi” (Rianto Patunru and Sjamsu Rahardja). It would
prove to tough to penetrate Indonesia’s domestic market, however, the country’s large
agricultural industry may provide other opportunities. There is an abundance of fisheries and
seafood in the numerous islands of Indonesia. Fortunately, in regards to exporting, the country is
very open to supporting their domestic sellers with international demand. Also, because of the
constant trade of American services for Indonesian goods, there is a great bilateral relationship
between the two countries, which means there is a great opportunity to export seafood to our
U.S. customers, especially since American domestic shrimp consumption is steadily on the rise.
E.g., “ U.S. shrimp imports…average annual growth rate of 3.3%.” Also, there is an established
consuming market thriving on an external supply… “U.S. shrimp consumers rely heavily on
imports, which provided 93% of the total supply in 2011” (Xiaojin Wang). Supply to the US
from Indonesia should also be easy because of how strict the are about demanding quality
domestic goods. According to export.gov profile report, “The Indonesian government and related
industrial players have been very active in formulating standards for products and services.”
Conclusion:
8. Based off the current status of each countries’ market, governance, and logistics, AJC has
determined that Vietnam will allow for the most opportunity to sell protein domestically and
Indonesia will allow for the best potential to export seafoods.
Vietnam proved to have assimilated toward more open market policies, which stimulated
economic growth and a growing middle class. The extra disposable wages in Vietnam have
driven the countries demand for previous non consuming markets, which has created a unique
opportunity to supply proteins. In addition, Indonesia is also moving toward more liberal
polices, so they may be a designation to import to in the future, however, the country is devoted
to increasing it’s domestic industries, especially agriculture, which creates a great opportunity to
leverage their abundant amount of quality seafood, bilateral relations, and the U.S.’s domestic
demand.
Slides:
9.
10. Bibliography
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