International Business (Foreign Direct Investment Thesis

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For instance, McDonald's has a solid partnership with Starbucks that came as a natural solution to the increased consumption of coffee in its restaurants. Starbucks happens to be the world's leading specialty coffee retailer with a worldwide presence that matches that of the fast food producer.

4.

Other factors affecting decision

Vietnam is an Asian country with strong oriental cooking habits, which might not be very compatible with McDonald's typical menu of cheeseburgers and fries with a Coke on the side. Furthermore, the local food seems to be relatively healthy, which again is not something that cam be said by McDonald's food.

In 1990s, the company tried to enter this market, but didn't due to the lack of suitable business partners. A few years later, KFC and Lotteria entered the market and consolidated their position. Therefore, at this point the restaurant chain would need a couple of strong breakthrough strategies to be able to enter the market and gain a decent market share.

The law regulating the franchise activity is not a very permissive one. In the past, there was no provision in it regarding 100% of the foreign invested franchise companies. This meant that only local companies were franchisable. When KFC entered this market, the fast food producer had to partner with a local business to be able to expand in the country. Therefore, all the locations were owned by the corporation with its partner. Considering this aspect of the franchising law and the fact that changes in laws are quite frequent in emerging economies because the economies themselves are volatile, a joint venture with a local business could be a viable option.

Conclusion

McDonald's should enter the Vietnamese market and the market entry could be done in more phases. In the first phase, the food producer could establish foreign direct investment facilities, strategically located close to high population density areas with the purpose of producing a part of its food products at a lower cost for neighboring countries in which it already established its presence. The advantages are first of all cost-related, second of all good in terms of potential networking to find a suitable market partner and finally it give the company more time to learn about local habits and how the business should adjust to them.

Once McDonald's is more or less familiar with the local market from all perspectives, consumer, suppliers and potential partners, the best solution is to partner with a local company and reduce further the business risk. The ideal partner has an already established market presence and enjoys the consumer's recognition and a good reputation.

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Also, this partner should add to the local flavor, being able to come with its own contribution to the restaurant chain menu (e.g. In Germany McDonald's serves beer, in India the Big Mac is made of lamb or chicken and in Norway it prepares a sandwich made of salmon with dill sauce). The local flavor in this case would have to be of Asian origin to gain the local consumer's trust.

The market expansion of the joint venture restaurant chain could only be done via corporate-owned restaurants until the Vietnamese law regarding franchising will change to include the 100% foreign invested franchise companies having the option of franchising. This also brings up another essential characteristic of a suitable business partner, which is that of having strong investment capacity to be able to match both McDonald's expansion intentions the market demand for its products/services.

Reference list:

IMF -- International Monetary Fund, accessed June 09, World Economic Outlook - Vietnam.

Ministry of Foreign Affairs, accessed June 09, http://www.mofa.gov.vn/en/cs_doingoai/

Ministry of Planning and Investment: http://fia.mpi.gov.vn/

Thuy, L.T. 2005. Technological Spillovers from Foreign Direct Investment: the Case of Vietnam. University of Tokyo, www.e.u-tokyo.ac.jp

Figure 1 shows the FDI distribution by country between 1998 and 2003. In terms of foreign direct investment, in 2003 Vietnam was attracting foreign investors from 64 countries, the Asian ones accounting for the largest proportion in investment value. Singapore alone had 288 projects with $7,370 million

IMF Estimates (2008)….....

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