international financial management report topic direct foreign investment

EX: In 1994, at the time of the US embargo against Vietnam, PepsiCo entered the Vietnamese market when it entered into a joint venture with the IBC International Beverage Company with th

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

DAI HOC TON BUC THANG

INTERNATIONAL FINANCIAL MANAGEMENT

REPORT TOPIC DIRECT FOREIGN INVESTMENT

Instructing Lecturer: DO THI MY HUONG

Group: 8 - NOI

Studen£s name: Nguyễn Anh Kiệt - 719H0393

Trần Gia Bảo Trân - 719H0801

Huỳnh Quang Sang - 719H0500

Major: INTERNATIONAL BUSINESS

Academic Year Code: K23

HO CHI MINH CITY, 04/2022

TABLE OF CONTENTS

Question 1; Historical methods of PEPSICO since it penetrated into the Vietnamese market

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Question 4: In your opinion, is this firm a good or bad FDI? Give explanations and reasons

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PART I: INTRODUCTION

In terms of governments and businesses, foreign direct investment has been a critical component Corporations will easily buy new products and technology, as well as sell their existing products to international customers, by purchasing a controlling interest in foreign assets Governments will also build opportunities and boost economic activity by attracting foreign direct investment

Foreign direct investment is extremely important to international investors and foreign direct investment in has played an essential role in the development of emerging markets At the same time, businesses investing abroad will notice higher growth rates and diversify their profits, benefiting investors To understand how MNCs engage in FDI, the motivations for initiating direct investment abroad include revenue-related and cost-related motives from the perspective

of foreign investors will be discussed below in this report In addition, foreign direct investment also presents both advantages and disadvantages for not only the investor but also the host

country At the micro level, investments carry some risks that need to be considered carefully On

a macro level, it can cause problems for a country's domestic labor market and capital draw in the long run

In this report, we choose PepsiCo, a company that has invested in Vietnam for nearly 20 years as a typical example because it is the largest American food and beverage company in the world, with products with present in more than 200 countries At the same time, it shows the existence and development of Pepsico corporation when reaching out to the world At the same time, an analysis of the benefits and limitations of foreign direct investment for the host country

as well as whether the advantages outweigh the disadvantages for Vietnam will be presented in the next report below

PART H: BODY Question 1; Historical methods of PEPSICO since it penetrated into the Vietnamese market 1.1 Historical methods of international business of PepsiCo

In the early 1990s, PepsiCo began to penetrate the Vietnamese market PepsiCo Group is one of the first foreign-owned beverage companies to set foot in Vietnam since 1991 in the form

of a joint venture Accordingly, at the end of 1991, the International Beverage Company (IBC) was established, under a joint venture between the Saigon Tourism and Trading Company (SPCo) and Marcondray - Singapore with a capital contribution ratio of 50%-50%

In 1994, a new member joined the company, Pepsico Global Investment Company and PepsiCo officially entered the Vietnamese market when a joint venture with IBC International Beverage Company with the birth of two companies The first products were Pepsi and 7 Up from the early days when the US lifted the embargo against Vietnam in 1994 Current capital

ratio is: SP Company Yes 40%, Macondray Company Inc 30% and Pepsi Cola International

30% In 1998, due to capital investment and business development requirements, the company's shares changed again: Pepsi Cola International 97% and SP.Co 3% according to Decision No 291/GPDC7 dated December 28, 1998 Capital investment is 110 million dollars, legal capital is

70 million dollars

On April 28, 2003, Pepsico Global Investment acquired a 3% stake in Vietnam, International Beverage Company became a 100% foreign owned enterprise and changed its name

to PEPSICO Vietnam International Beverage Company Male PepsiCo's products are now

available nationwide with big and famous brands such as Pepsi, Poca, 7Up, Mirinda, Aquafina, Sting, Twister, Lipton Tea, Quaker Soya

April 2013 - The strategic beverage alliance Suntory PepsiCo Vietnam was established between Suntory Holdings Limited and PepsiCo, Inc in which Suntory accounted for 51% and PepsiCo accounted for 49% with the launch of new products Olong Tea + Plus and Mountain

Dew

Historical international business method since Suntory Pepsico entered the Vietnamese market from the initial joint venture method into the current 100% foreign owned enterprise

1.2 Advantages of international business of Suntory Pepsico

The Suntory-Pepsico joint venture in Vietnam is applied to both take advantage of experience, production technology and take advantage of sales experience and wide system

in the market

The international joint venture allows Pepsico to enter the Vietnamese market more quickly and at a lower cost and quickly penetrate the distribution channel of the domestic market, increasing the likelihood of the success of the joint venture partners already have relationships with key suppliers and customers, and are fluent in the language and customs procedures

A joint venture helps Pepsico to limit risks rather than owning the whole thing, because each partner only bears the risk for its own capital contribution

The joint venture between SP.Co and Marcondray-Singapore - Pepsi Cola International helps to improve the competitiveness of domestic enterprises in the beverage industry 1.3 Disadvantages of international business of Suntory Pepsico

There is a conflict, ownership dispute between the participating parties due to disagreement

on investments or profit sharing

There is a situation where large companies acquire small companies due to their inexperience and small scale

The possibility of great risk if the joint venture company has a deadlock

Language, thinking and cultural barriers between the parties' cooperation

Encountered many legal problems when joint ventures related to culture projects The firm Pepsico will not reap any rewards from the investment until the subsidiary is built

and a customer base established

Questions 2: The motives for initiating PEPSICO including revenue-related motives and

cost-related motives

2.1 Revenue - Related Motives

“+ Attract new sources of demand:

When a company reaches the limit of growth in the home country, such as stiff competition, or develops enough to reach near-perfection in the domestic market category

Therefore, in general, businesses can look to foreign markets to make full use of their inherent

potential as well as find potential needs from other countries (especially in countries with low barriers to entry like economic, political, to help MNCs penetrate and expand easily) EX: PepsiCo's products are enjoyed by consumers in more than 200 countries and regions

around the world and consumed by a huge amount more than a billion times a day Thanks to

market expansion strategies by region and user segment, PepsiCo generated $70 billion in net sales in 2020, including convenience food and supplement categories including Lays , Doritos,

Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream PepsiCo's product

portfolio includes a wide range of exciting foods and beverages, including many iconic brands that generate more than $1 billion annually in estimated annual retail sales

“+ Enter profitable markets:

Some businesses create opportunities for themselves by entering certain markets where those industries are currently highly developed However, a particularly common negative problem with this strategy is that companies that have been successful in this new market, set out policies to prevent new competitors from entering, they have used measures to reduce the price

of products when other new entrants have just begun to enter the market

EX: Currently, Pepsi has more than 22 brands in its portfolio Besides carbonated drinks, Pepsi will provide healthy snacks and low-calorie drinks To boost up and to the perch brand, unlike Coca Cola - a brand that focuses on valuable media, Pepsi wants to target the young generation, who are rich in energy and enthusiastic "flaming fire" PEPSICO will focus on customers from

13 to 35 years old, from all walks of life from middle to upper class, from modern people to people with minimalist lifestyles Besides, the price of products from the brand is also very diverse, suitable for all choices of users

“+ Diversify internationally:

Because the economies of countries may not transform at the same time, the corporation may take advantage of the consistent net cash flow that comes from selling items across countries The corporation can lessen the volatility of net cash flow and hence the possibility of a

liquidity shortage by spreading worldwide sales and manufacturing Furthermore, if shareholders and creditors view the MNC's risk to be reduced, the firm may have a cheaper cost of capital

with more steady cash flows

EX: The impact of the Covid-19 outbreak has caused PEPSICO's goods trade to be delayed and

short in Vietnam, but the outbreak is also a time to show that Vietnam needs to restructure the

market, open up, diversify market diversification, especially the market such as Africa, the Netherlands, America, Japan, to avoid the risk of depending on certain markets

2.2 Cost - Ralated Motives

+ Fully benefit from economies of scale and use foreign factors of production: Establish a subsidiary in new markets where goods can be produced inexpensively and can be sold

domestically or be exported and efficiency has lower costs of labor, land, capital or

technology

+ Use foreign raw: Establish a subsidiary in a market where raw materials are cheap and accessible Sell the products in that market and elsewhere

+ Use foreign technology: Participate in a joint venture or acquire an existing overseas plant

to learn about foreign production processes, so as to improve its own operations

+ React to exchange rate movements: Establish a subsidiary in a new market where the local currency is weak but is expected to strengthen overtime

EX: In 1994, at the time of the US embargo against Vietnam, PepsiCo entered the Vietnamese market when it entered into a joint venture with the IBC International Beverage Company with the launch of the first two products, Pepsi and 7Up from the United States the first day when the embargo against Vietnam was lifted in 1994 And in 2003, the company was renamed PepsiCo Vietnam International Beverage Company Many beverage products are not released such as: Sting, Twister, Lipton Ice Tea, Aquawna In the following years, through the merger and acquisition of factories, the company expanded its production and business to officially become one of the largest beverage companies in Vietnam An example of PEPSICO company expanding production and business in both the field and source of raw materials as well as the user market According to evaluation articles, after 35 years of progressive corporate renewal, Vietnam's economy has developed strongly Vietnam is an in 5 national family with the fastest economic

growth in the world over the past 30 years Vietnam's average GDP growth rate reached 7% per

year in the period 2009-2019 In the commercial year, Vietnam is in some of the countries in the

world with a positive GDP growth There are also factors that show that Vietnam's economy is attractive to global businesses thanks to its cheap labor force, stable exchange rate and low

inflation

In 2010, PEPSICO showed Vietnam as an important country in its market expansion strategy by Pepsico announcing to continue investing in Vietnam 250 million USD for the next three years and opening a new factory in Vietnam Can Tho At the same time, 2 years later, PEPSICO bought, sold and imported the San Miguel factory in Dong Nai _ The largest PepsiCo factory in Southeast Asia was inaugurated in Bac Ninh

Questions 3: Analyze the impact of Covid 19 pandemic on this MNC’s value based on valuation model

3.1 Impact of Covid 19 on the economy of Viet Nam

From an economic point of view, Covid-19 can be considered a pandemic that has far- reaching effects on world economies Evidence demonstrates that the effects of the pandemic have spread to different spillovers such as travel, tourism, supply chains, stock market volatility and oil price volatility Of course, the beverage industry is equally affected by difficulties in importing and exporting goods and materials Likewise, this pandemic has created an overall panic among consumers and companies that have distorted the way consumption patterns are established and created market anomalies COVID-19 has also posed an unprecedented challenge

to MNCs like PEPSICO as the virus spreads rapidly and causes an economic slowdown

As the covid pandemic rages, it may take weeks or months for currency markets to focus

on controlling the spread of the virus, and some countries may lose ground Also, there's more going on in the world of money than the evolution of the pandemic Policy changes are still important but will also pose political risks to countries and MNCs over the 2020 pandemic, so monitoring the relative progress of the virus is important to understand currency movements

The Covid-19 epidemic has complicated developments, disrupting socio-economic

activities of countries around the world; The US-China trade conflict continues In the country,

natural disasters and epidemics have a significant impact on the activities of the economy and

people's lives; unemployment and underemployment rates are high However, with drastic and effective solutions in realizing the dual goal of "both disease prevention and socio-economic development", Vietnam's economy still achieved positive results with maintaining growth Although GDP growth in 2020 is the lowest in the 2011-2020 period, before the negative impacts

of the Covid-19 epidemic, it is a success for our country with the highest growth rate in the group of countries in the world Along with China and Myanmar, Vietnam is one of three countries in Asia with growth this year; At the same time, the scale of our country's economy reached more than 343 billion USD, surpassing Singapore (337.5 billion USD) and Malaysia (336.3 billion USD), making Vietnam become the leading country in the world The country has

the 4th largest economy in Southeast Asia (after Indonesia 1,088.8 billion USD; Thailand 509.2

billion USD and the Philippines 367.4 billion USD) billion USD)

3.2 Exposure to exchange rate:

& Vietnam in 2019 before the Covid epidemic occurred:

In the second quarter of 2019, the foreign exchange market experienced strong fluctuations Specifically, the USD/VND exchange rate increased by 0.84% in just 5 weeks from

the end of April, peaking at 23,360 VND/USD (bank rate) However, in June, VND had a strong

recovery when the USD/VND exchange rate continuously decreased, the total decrease of the whole month was 0.43% Accordingly, the bank rate decreased by 100 VND/USD, to 23,260 VND/USD for buying and 23,380 VND/USD for selling The free exchange rate decreased by

115 VND/USD on the buying side and 110 VND/USD on the selling side, respectively at 23,300/23,320 VND/USD The central exchange rate was adjusted up and down alternately, ending June at 23,066 VND/USD - an increase of only 1 VND/USD compared to the end of May For the whole 6 months, the USD/VND exchange rate increased by 0.41 %, while the central rate increased by 1.06% from the end of 2018 until the end of June 2019 Compared with some countries in the region such as the Philippines, Malaysia, Singapore , Vietnam is in the group of countries with a stable local currency

Many favorable factors for a stable trend in the third quarter of 2019 according to BIDV's research, stated that "Interbank VND/USD interest rate differential is expected to remain stable

at a positive level, term 1 week fluctuated around 0.7 - 1.2% Market sentiment is expected to remain steady, easing concerns as international pressures are expected to ease On the other hand,

Vietnam's macroeconomic context is still stable such as stable growth, low inflation, and foreign

currency inflows are still maintained, which are the core factors to help the domestic foreign exchange market no longer suffer The foreign exchange market in the third quarter of 2019 still has many favorable factors to maintain a stable trend from the beginning.”

In summary, the exchange rate situation of Vietnam after 2019 is lower than in 2018

specifically, in the fourth quarter of 2018 it increased by 1.8%, in the first quarter of 2019 increased by 1%, in the second quarter of 2019 it increased by only 0.3% However, with the USD/VND exchange rate being stable and not excessively increasing by 2.5-3%; This is considered a supportive increase for interest rates, credit growth and the goal of controlling

inflation At the same time, the State Bank of Vietnam controls interest rates and exchange rates

in line with the macro balance, market movements and monetary policy objectives, synchronously combining monetary policy tools and intervention measures foreign exchange market when necessary to stabilize the foreign exchange market One of the focus of monetary policy management from now until the end of 2019 of the State Bank is to continue to stabilize the exchange rate through controlling VND liquidity

Exchange rate in 2020:

Although there was a period of steep climb in the first few months of 2020, the USD/VND exchange rate has since fallen deeply so far The value of the US dollar slipped due to double shocks from the loosening monetary policies of the Central Banks of countries around the world, the negative outlook on US economic growth in 2020

Specifically, the first four months of 2020 are the period of strong growth of the USD/VND exchange rate The central rate climbed to 23,245 VND/USD on February 25, up 0.4% compared to the beginning of the year due to the strong increase in USD price, this is also a new peak established during the past 3 years However, this peak was quickly broken about 2

months later, the central rate continued to climb to a new level of 23,272 VND/USD on April 24

Accordingly, the buying price of USD at banks fluctuates around 23,075-23,300 VND/USD, and the selling price in USD ranges from 23,230 to 23,510 VND/USD On the free market, the buying price fluctuates at 23,170-23,450 VND/USD and the selling price ranges from 23,180- 23,500 VND/USD

While in the past, the selling price of USD on the free market was always lower than at

the bank, now the reversal is much higher Also, to stabilize the exchange rate, on March 24,

2020, the State Bank adjusted the USD selling rate at the SBV's Exchange with the buying - selling exchange rate at the State Bank of Vietnam level of 23,175-23,650 dong/USD, keeping the buying price unchanged and reducing the selling price by 257 dong (equivalent to more than 1%) compared to the level announced on March 23 Thus, the selling price at the State Bank Exchange was about 100 dong cheaper than the banks at that time

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Analysis of buying prices in USD on the free market from the beginning of 2020 to December 29, after the intervention of the State Bank, the upward momentum of the exchange rate was reduced The selling price of USD on the free market is back lower than the USD price

at the bank At the same time, the State Bank kept the USD selling rate at the Exchange fixed at 23,650 VND/USD in the next 3 months On July 16, the State Bank increased the selling price of USD at the Exchange to VND 23,873/USD and accordingly the USD selling rate at the Exchange was managed according to the fluctuations of the central exchange rate

After the sublimation period, the uptrend of the central exchange rate USD/VND slowed

down and entered a period of steady decline from May 19 until now As of December 29, 2020,

the central rate of USD/VND returned to the starting level of early 2020, approximately 23,150 VND/USD The USD/VND exchange rate at banks and on the free market both declined and

went sideways after the intervention of the State Bank from March 24, 2020 As of December 29,

2020, the buying and selling price of USD at banks was popular at 23,010-23,220 VND/USD and the buying and selling price on the free market was popular at 23,290-23,320 VND/USD In which, the buying price in USD at banks decreased by 0.3% compared to the beginning of 2020 while the selling price decreased by only 0.04%

12

Contrary to developments in the banking market, the USD/VND exchange rate on the free market in mid-December tended to increase slightly by 0.5% and 0.6% compared to the beginning of the year and were 280 dong and 100 dong higher than banks, respectively because

of the difference in the domestic gold price - the world gold price is at a high level, up to more

than 3 million VND/tael as of December 29, 2020 One of the factors that caused the exchange

rate to decrease was the weakening of the USD

During the regular Government meeting in early September, Prime Minister Nguyen Xuan Phuc said foreign exchange reserves had reached about 92 billion USD This is a record level of foreign exchange reserves of Vietnam The figure by the end of this year can reach 100 billion USD, 5 times higher than 20 billion USD at the beginning of the term Therefore, after

nearly a year of maintaining the buying price at 23,175 VND/USD since November 29, 2019, the

State Bank Exchange Department lowered the buying price of USD to 50 VND, to 23,125 VND/USD in afternoon session 11/24/2020 The decrease in USD buying price of the State Bank

of Vietnam Exchange was stronger than in 2019 in the context that the State Bank bought a large

amount of foreign currency from commercial banks, equivalent to more than 30,000 billion

VND Besides, the supply of USD in Vietnam is assessed to be abundant thanks to the trade surplus The General Department of Customs said that in the first 11 months of 2020, the trade balance of goods was estimated to have a record trade surplus of 20.1 billion USD (the same period last year, the trade surplus was 10.8 billion USD) The fact that the State Bank lowers the price to buy USD will reduce the attraction of foreign currencies, help the supply of foreign

currencies stay in the market more, and contribute to stabilizing the domestic exchange rate in

the context that the demand for foreign currencies tends to increase at the end of the year five Exchange rate in 2021:

The USD/VND exchange rate experienced a year of ups and downs, mainly due to impacts from the international market And the most encouraging thing is that the US recognizes that Vietnam is not a currency manipulator This is the result of the careful, flexible and synchronous exchange rate management by the State Bank in the past year In 2021, the central exchange rate of the Vietnamese Dong against the USD announced by the State Bank of Vietnam

13

increased by 0.1%, while the exchange rate on the interbank market decreased by about 1.6% compared to the beginning of the year

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MANNA ABA A OOMNN A TH AH ODOC ONNN TAH OOONN

On the free market, the exchange rate of Vietnam dong against the US dollar increased by 0.5% due to the widening gap between domestic and international gold prices Currently, the domestic gold price is about 11.2 million dong/tael higher than the world gold price The factors affecting the exchange rate this year mainly come from the international market, in which the two main factors are the US economic growth slowing down due to the impact of the Covid-19 pandemic and the Federal Reserve the US (Fed) kept the loose monetary policy to stimulate the

economy affected by the pandemic, so the dollar only increased slightly by 0.1% compared to the

beginning of the year

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Tỷ giá trung tâm từ đầu năm 2020 đến 31/12/2021

SCSNNA RB OMN RBH TBR TCONN HAH RH FBR ONN AH C CC 6 na SG

+ The buying price of USD decreased sharply: Since the beginning of the year until now, the State Bank has adjusted 3 times to reduce the buying price of USD Specifically, on June

8, 2021, it decreased by 150 VND/USD, on August 11, 2021, it changed from buying for a

6-month term to buying spot, and at the same time reducing the purchase price by 225 VND/USD The third time to reduce the purchase price of USD by 100 VND/USD on November 5, 2021, to 22,650 VND/USD The downward adjustment of the buying price is

an inevitable consequence in the context that both the central exchange rate and the selling price of the State Bank and the USD price in the interbank market decreased compared to the beginning of the year At the same time, the State Bank sharply reduced the buying price

in USD on the basis of abundant domestic foreign currency supply when Vietnam's trade balance in the first 11 months had a surplus of 225 million USD and the estimated amount of remittance Returning to Vietnam reached a record of 18.1 billion USD, despite the Covid-19 epidemic

+ The selling price of USD also dropped sharply: In the morning of December 7, 2002, the central exchange rate continued to be adjusted sharply by 27 dong compared to the previous

session, listed at 23,237 dong/USD, marking the third strongest increase session

consecutive Meanwhile, the selling rate was suddenly adjusted by the State Bank of Vietnam, down sharply by 706 VND/USD compared to the previous session, down to

23,150 VND and remained fixed until now Thus, after continuously increasing hot in the

15

first week of December, the State Bank has stabilized, when sharply lowering the selling price of USD to create intervention supply The listed operator's selling price as above is 742 VND/USD lower than the ceiling price, reflecting the message of willingness to create supply at low prices, cool down the market and create liquidity for banks

According to Mr Hoang Cong Tuan - Head of Macro Research Department, the exchange rate will be stable soon, specifically that "Although in 2021, there will not be too many foreign exchange reserves However, Vietnam is still running a surplus on the overall balance Therefore, the pressure on the exchange rate is not much, while the USD has appreciated again, but the increase is not high And with the Omicron variant that has just appeared, the possibility

of the US raising interest rates quickly in the first half of 2022 is almost nonexistent Therefore,

Mr Tuan believes that the exchange rate in the coming time will be very stable and only fluctuate at 0.5% compared to the present, but the general trend is not yet showing that the Vietnamese dong depreciates against the USD As for the Vietnamese dong to appreciate, we certainly don't expect it, because comparing the factors, we don't have too many advantages”

3.3 Exposure to interest rate

% In 2020:

16