Case 6 Hewlett-Packard Company in Vietnam

I. CASE ABSTRACT In late 1995, John Peter, a marketing manager of Hewlett-Packard Asia Pacific Limited, a subsidiary of The Hewlett-Packard Company, was evaluating its strategic options for doing business in Vietnam. Vietnam represented a bright prospect for investment. The United States had lifted its embargo on the country in February 1994, and the country had adopted an open-door policy and normalized relationships with many other countries, including China. The current (1995) economic development in Vietnam was rather slow and limited, and the infrastructures and the political-legal systems appeared to be underdeveloped. However, the long-term prospects appeared very bright. Hewlett-Packards current operation in Vietnam was limited to the distribution of a small range of its products through local intermediaries. Either Hewlett-Packards competitors had some form of set up (for example, representative office) in Vietnam, or they planned to do so in the near future. John took a field trip to Vietnam and concluded that the future of the information technology market in Vietnam appeared bright. The market size was expected to be around US$500 million by the year 2000. The company has identified seven market segments for the IT market. Several business units within HP had begun to distribute some HP products in Vietnam. Decision Date: Late 1995 1995 Revenue: 1995 Profit: $24,991,000,000 $ 1,599,000,000

NOTE: 1. Vietnam and the U.S. government had not normalized relations in 1995. 2. In 1994, the U.S. government removed its embargo and Vietnam adopted an open-door policy.

____________ Copyright 2001 and 2003 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the Eighth and Ninth Editions of Strategic

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Case 6 Hewlett-Packard Company in Vietnam Management and Business Policy and Cases in Strategic Management.

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Case 6 Hewlett-Packard Company in Vietnam II. CASE ISSUES AND SUBJECTS Information Technology (IT) Industry Modes of Entry to Vietnam International Societal Environment Analysis (see Table 3.3) Task Environment Analysis Industry Analysis Culture and Business Practices International Entry Options Political/Legal Force Marketing Strategies Differentiation Strategies Currencies and Investment Regulations Practice of guan xi Competitive and Company Analysis Vietnams Infrastructure Modes of Entry into Vietnam

III.

STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS (See Figure 1.5 on pages 20 and 21)
Strategy Implementation
Review Objectives & Mission

Strategy Formulation
Strategic Posture Strategic Factors External Factors

Evaluation & Control

Internal Factors

Performance

Corporate Governance

1A

1B

5A

5B

Strategic Alternatives 6

O = Emphasized in Case IV. CASE OBJECTIVES

X = Covered in Case

1. To help the students familiarize themselves with Vietnam. 2. To allow the students to understand and discuss the process of normalizing relations between nations. 3. To discuss the role of a societal environment of another country and how it impacts foreign investment. 4. To illustrate the strategic management model as a company plans its entry into another nation. 5. To illustrate the problems of a company entering into a nation, especially one where normalization between companys parent nation and new country does not fully exist. The case author provided the following our (4) teaching objectives:

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Case 6 Hewlett-Packard Company in Vietnam 1. To familiarize the students with the country and business environment in Vietnam. Vietnam is an emerging market with a population of over 70 million. It is important for managers and potential managers, especially those in Asia, to be aware of this important market. 2. To allow students to examine the business environment and assess the attractiveness of the IT market in Vietnam. 3. To allow students to examine and evaluate the seven segments for the IT market in Vietnam and to appreciate the choice of the primary and secondary segments. 4. To allow students to grapple with the decision whether HewlettPackard should enter the Vietnam market in the immediate future or to delay the decision. If the decision is to go ahead, then students can examine the various possible modes of entry for the Vietnam market.

V.

SUGGESTED CLASSROOM APPROACHES TO THE CASE 1. We would have the students do library or Internet (www.odci.gov/cia/publications/factbook/index.html) research on Vietnam. Most of our students have little knowledge on Southeast Asia. It will supplement the case authors information. 2. This case works very well for a team strategic audit at the undergraduate level. We only assign as an individual strategic audit or paper at the MBA level. 3. This case is an excellent case for team presentation. Team needs to bring map to class for this region of the world to set the environment. 4. We suggest the placement of this case toward the end of the course. The case authors excellent teaching strategy is cited below. This case is best used in a class discussion, since it tends to invoke a certain degree of excitement in the classroom. The instructor may want to begin by asking if anyone in the class has visited Vietnam recently and allow one or two (if there are any) of these students to relate their experiences and observations for a few minutes. American students may have certain images about Vietnam due to their knowledge of the Vietnam War and they should also be allowed to air their observations before the instructor begins the discussion on the case itself.

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Case 6 Hewlett-Packard Company in Vietnam

The instructor should move the discussion progressively from (a) the analysis of the market and a go/no go decision; to (b) the analysis of the market segments, how they fit into our capabilities and choice of market segments; to (c) the analysis of the possible modes of entry and choice of an appropriate mode. It may not be productive to ask students up front for their decisions at the beginning of the class, as the issues involved may be fairly complex. At times, the class may encounter difficulties in analysis and decision due to lack of some information. Vietnam is a fairly obscure country and even students in Asia do not know much about it. Although the author seeks to provide as much information as possible in the case, students may still feel ill at ease because of their unfamiliarity with that country. The students can be asked to carry out library or Internet research to find out as much as they can about the Vietnam market. The instructor may also want to ask the students to make reasonable assumptions and move on with the analysis and decision making process. A. Student Assignments 1. Analyze the information technology (IT) market in Vietnam market. What are the attractive and unattractive aspects of the market at this time? Is this the right time to consider entering the market? What are the major advantages of doing so, and what are the barriers? 2. Examine the segments for the IT market in Vietnam. What are the attractive and unattractive aspects of each segment? How would you prioritize the segments in terms of their potential? 3. Analyze the competitors and HPs capabilities. How does HP measure up? Who represents HPs major threat? How should HP compete in order to capitalize on its key strengths? 4. Assess the various modes of entry into the Vietnam IT market. What mode would you recommend for Hewlett-Packard? B. Teaching Objectives and Issues This case is suitable for a MBA course or an advanced undergraduate course in international business, international marketing, Asia-Pacific marketing, strategic marketing, or marketing management. It can also be used in an executive program in general management, strategic marketing, or marketing management for senior and middle managers. The key issues in the case are whether Hewlett-Packard AsiaPacific Limited should enter the Vietnam market at this time, and if so, how (entry modes and detailed plans)? C. Research Basis for the Case The information in the case was provided by Mr. Dennis Khoo from the Hewlett-Packard Asia-Pacific Limited office in Singapore. HP

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Case 6 Hewlett-Packard Company in Vietnam has carried out relevant research to explore the Vietnam market. The author could not get Mr. Khoo to identify the primary sources of some of the information provided from HP files. None of the information provided in the case was disguised. The author does not have any information regarding what happened after this case was written. VI. DISCUSSION QUESTIONS 1. 2. 3. 4. 5. What are the strengths and weaknesses of Hewlett-Packard in Vietnam? What are the opportunities and threats facing Hewlett-Packard in Vietnam? What are the strategic factors facing Hewlett-Packard in Does Hewlett-Packard in Vietnam have any core competencies? what are they? Vietnam? If yes, If

Does Hewlett-Packard in Vietnam have a distinctive competency? yes, what is it?

6. What are the five forces in Porters model? Site how each one pertains to this case.

7. What are the five possible modes of entry into the Vietnam market? 8. What are the target (industry) segments for Hewlett-Packard entering Vietnam? 9. What is guan xi? What impact could it have on Hewlett-Packards options to enter Vietnam? 10. Discuss what it means that Vietnam is an emerging market and/or country. 11. Should Hewlett-Packard enter Vietnam in immediate future or postpone to a future time? Explain your choice. If you select future option then what must occur in Vietnam for Hewlett-Packard to enter country? 12. What are the seven information technology (IT) segments in the Vietnam market? What do you feel are the primary and secondary segments for Hewlett-Packard? How would you prioritize (1-7) each of these seven segments? 13. What are barriers to entry into Vietnam for Hewlett-Packard? 14. What would you recommend to Hewlett-Packard about entering Vietnam at this time? Be specific in your recommendation.

the

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Case 6 Hewlett-Packard Company in Vietnam VII. CASE AUTHORS TEACHING NOTE by Geok Theng Lou* A. Case Synopsis Presented earlier in Section I, Case Abstract. B. Teaching Objectives and Issues Presented earlier in Section IV, Case Objectives and Section V, Suggested Classroom Approaches to the Case. C. Teaching Strategy Presented earlier in Section VI, Suggested Classroom Approaches to the Case. D. Student Assignments Presented earlier in Section VI, Suggested Classroom Approaches to the Case. E. Case Analysis

1. Analysis of IT Market and Decision on Market Entry The IT market in Vietnam is in its infancy. The current market segments are government (35%), multinational corporations (35%), small- and medium-sized enterprises (25%), and home offices (5%). The market size is estimated to be US$30 million in 1995 and is forecasted to be US$500 million in the year 2000. The Porters five forces model can be used to examine the attractive and unattractive aspects of the market. Entry and Exit Barriers Computer products have limited intrinsic proprietary attributes and most innovations are easily imitated. The computer industry in Vietnam, especially the low end segment, is characterized by fierce price retaliation and low switching costs from one manufacturer to another. The fact that the Vietnamese market favored U.S. brands is a positive factor for HP. One barrier to entry for American multinationals is the problems associated with the lack of normalized ties between the UNITED STATES and Vietnam. Although the trade embargo has been lifted, ties have not yet been normalized, and thus, American banks are not able to provide credit. This is a key necessity in doing business in Vietnam, especially in larger projects, as hard currency is still hard to come by. American IT companies such as UNlSYS have invested heavily in at least 2 large IT bids, only to find that their European and Japanese competitors have the edge against them when it come to extending credit.
*

Reprinted by permission of the case author.

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Case 6 Hewlett-Packard Company in Vietnam Another barrier to entry is the practice of guan xi. As in other Asian countries, guan xi (explained in the case) is an important factor in doing business in Vietnam. Local and regional competitors can have some advantages over American multinationals. For example, they may have a better understanding of this culture and practice, and may have built up their own networks since they may have entered the market before the trade embargo was lifted. However, HP is already known in the Vietnamese market for its printer and high-end PC products, which is sold through the reseller channel today. HiPT, HPs main channel of distribution in Vietnam today have strong ties with MOSTE and through them, HP may be able to leverage these ties to its benefit. Since the computer industry in Vietnam is still in its infancy, and competitors have just entered or are just beginning to enter the market, other barriers to entry like distribution channels and customer loyalty are low. Overall, there are low to moderate barriers to entry. There will probably be few barriers to exit except big losses if large amount of investments have been committed there. One possible exit barrier may be obligations to joint venture partners, especially local ones who may demand large compensation for opting out of any cooperative ventures. Another possible exit barrier may be obligations to customers in Vietnam, especially those whom we are serving in other markets as well. These customers may expect continued service support, which we may find difficult to withdraw. Bargaining Power of Suppliers IT expertise is the most important supplier of production. However, skilled local expertise in IT is somewhat limited. With a hardworking and well-educated workforce in abundant supply in Vietnam, HP can quickly train a local first-tier workforce by structured training and on-the-job training in Singapore. In addition, HP can hire exVietnamese HP personnel currently working in HP facilitates in the UNITED STATES or other experienced personnel to Vietnam to facilitate the management of the entity. Bargaining Power of Buyers Computer products are increasingly becoming less differentiated and buyers are fairly sensitive to quality, technology, and price. The buyers in the foreseeable future will be the public sector and major foreign companies. The deal sizes are forecast to be large as the government departments and foreign companies make initial investments in information technology infrastructure. These large customers tend to have moderate to strong bargaining power, especially since alternative suppliers may be available. Different types of computers, such as personal computers, minicomputers, RISC based workstations, and mainframes, can to a certain extent be substitutes for one another. However, due to the price differences, these substitutes generally serve slightly different market segments. In addition, most large players carry a full range of computers.

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Case 6 Hewlett-Packard Company in Vietnam Intensity of Rivalry In more developed markets like United States, Western Europe, Australia, Singapore, Hong Kong, and Japan, the computer industry is highly fragmented and intensely competitive, with the largest manufacturers market share at only 10 percent to 20 percent. Since Vietnam is still an emerging market, competition in Vietnam is not as intense. It is expected, however, that demand will build up over the next few years and more players will enter the market. In the short term however, there is a window of opportunity for first mover advantage in getting market share, as there are no clear leaders in the market yet. With clearly thought-out and well-defined strategies, it is possible for the leading computer companies to develop a loyal customer base. Overall, the attractive aspects of the market are: (a) the potential growth is high, since in the past few years, the market has doubled in size and growth is expected to be more rapid over the next few years; (b) competition is currently not intense and there are few substitutes; and (c) the IT2000 plan by the Vietnam government shows that it is committed to the business area. The unattractive aspects of the market are: (1) the IT boom is at least two years away; (2) there is a lack of infrastructure for IT in Vietnam; (3) the business environment, including the legal framework, is uncertain; (4) there is a lack of IT personnel in Vietnam; (5) the IT market in Vietnam is currently generally small; and (6) the entry barriers for the market are low. Is this the right time to enter the market? Students will give a yes or no answer, but they must support their answers. For yes, the support could be: (1) some of our competitors, such as IBM, have already developed a presence there; (2) we currently have contacts and ties in the market; (3) it will take time to build up the business, and we have to start now; (4) we need to have a presence in the Vietnam market to serve some of our home customers who are there; (5) the HP brand is already well known in the Vietnam market; and (6) the barriers of entry in the market are low. For no, the support could be: (1) the current political, legal and business environment is uncertain and there is too much risk; (2) there is currently a lack of funds and credit squeeze in Vietnam; (3) the market size is still small and will not be attractive in the near future; (4) we can still serve home customers in Vietnam with our operations from other parts of Asia, for example, Singapore. What are the advantages for going into the Vietnam market now? Some advantages are: (1) to gain early market share; (2) there is no clear leader in the market yet, so we may be able to establish leadership in the market; and (3) we can make above average profits. What are the barriers for doing so now? Some barriers are: (1) the relationship between the United States and Vietnam is not normalized now, and as a U.S. company, there is still some risk in doing business in that country; (2) there is a lack of IT personnel in Vietnam; and (3) there is credit squeeze and lack of funding in the country.

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Case 6 Hewlett-Packard Company in Vietnam 2. Analysis of Market Segments The case provides two bases of segmentation: (1) by industry and (2) by customer benefits sought. We shall examine the segments by industry and relate these segments to the benefits they look for. The first segment is the financial services industry. This industry is experiencing regulatory liberalization and investment in this sector is expected to total around US$1.32 billion. It is experiencing explosive growth and has government support. This sector is seen as crucial for other developments. This sector, however, may not take off due to the current lack of hard currencies in Vietnam. The positive aspects of this sector are: (1) it tends to view IT as a tool for competitive advantage and will likely invest in IT and become a heavy user of IT; (2) this sector may not be price sensitive; (3) global integration is probably a requirement and HP has this capability; and (4) this segment will be very demanding when it comes to reliability and service since IT is critical to their operation and HP is capable of providing this level of reliability and service. The negative aspect of this segment is that the technology required is fairly standard and entry barrier, thus, may be low. Overall, this sector represents an attractive segment for HP. The second segment is the telecommunications segment. This sector is still in its infancy. Although explosive growth is expected for this sector, the timing is uncertain. The sector is currently a public monopoly, and may not be opened up in the near future and, thus, real explosive growth may come much later. The positive aspect of this market is: (1) it may be a heavy user of IT; (2) it requires complex technology which HP probably has the capability; and (3) reliability is an important requirement and HP has this capability too. The negative aspects of this sector are: (1) it may develop its own IT technology; and (2) the sector is currently government-based and this type of customer may have strong bargaining power. Overall, this sector represents a fairly attractive segment for HP since HP is quite familiar with the requirements of this sector. The third segment is the hotel and tourism segment. This sector currently has investment of US$2.2 billion and growth is expected to surge. The positive aspect of this segment is that reliability is an important requirement and HP has this capability. The negative aspects of this segment are: (1) it may be price sensitive, (2) the technology is fairly standard and entry barrier may be low; and (3) this sector may be a light user of IT at the initial stages of development since management may elect to adopt a manual system of operation. Overall, this sector may not be an attractive area for HP as growth potential is uncertain and HP is not familiar with this sector. The fourth segment is the manufacturing sector. IT growth in this sector is expected to be slow as Vietnam is expected to attract low value-added and labor-intensive manufacturing operations. Even if IT is utilized, the technology involved may be fairly rudimentary at the initial stages. The Vietnam population lacks the skill to handle sophisticated IT equipment at this stage. Overall, this sector is attractive to HP only in the long run as the sector moves into more sophisticated manufacturing operations, since HP has strong expertise in this area. 6-10

Case 6 Hewlett-Packard Company in Vietnam The fifth segment is the utilities sector. This sector is expected to experience explosive growth, but the incorporation of IT in the short and medium term may be uncertain. The sector may also not be opened up to the private sector and the government-related customer is likely to have strong bargaining power. HP appears to lack extensive experience in this sector. Overall, this sector may only be fairly attractive to HP since it lacks experience in this sector. The sixth segment is the oil and gas sector. The sector appears to be taking off with huge growth and with a fairly high degree of privatesector involvement. This sector, however, may not be a heavy user of IT and HP seems to be quite inexperienced in this sector. The last segment is the government sector. The positive aspect is the government focus on IT and its IT2000 plan. The negative aspects of this sector are: (1) it has relatively high bargaining power; (2) it will likely be price sensitive; (3) it lacks the funds and skilled manpower to manage IT; and (4) it may be a relatively light user of IT in the near future. This sector represents only a mild opportunity for HP and the company may want to participate in this sector mainly to improve its profile in the country. Some students may suggest other segments, for example, the retail sector. These can be analyzed in the light of other information provided in the case and those from other sources. For the retail sector, the technology required may be fairly standard and so entry barrier may be low. The retail sector is not really taking off in Vietnam and their operation tends to be labor-intensive, requiring light usage of IT. How can the segments be prioritized? One way is to identify some criteria and to assess the segments against these criteria. Some useful criteria that can be used are: (1) probable level of usage of IT; (2) price sensitivity; (3) speed of IT diffusion in the segments; and (4) customer buying criteria and their fit with company capability. Since resources are limited, it is important that HP focuses its efforts where they can have the most effect. Based on the case information, one way to prioritize the segments is to rank the target industries against the benefit segments. The level of investment the industries and HP is likely to receive, the adoption rate of IT in each industry, as well as their fit to HPs installedbase and presence worldwide can analyzed. Exhibit TN-1 of this note shows the relevant analysis. From this analysis, finance and telecommunications are the top segments HP should target. Utilities and government are selected as secondary target segments. 3. Competitive and Company Analysis We can examine the competitors and the company by focusing on various areas. Performance Exhibit 6 of the case provides some figures. In terms of revenue, IBM is number one with HP a distanced second with less than 40 percent of

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Case 6 Hewlett-Packard Company in Vietnam IBMs revenue. DECs revenue is about half of HPs while UNISYSs and Compaqs were around half of DECs. In terms of net income in 1994, both IBM and DEC had made losses, with both of them facing increased losses from 1993. UNISYS had the highest net profit margin of around 7.3 percent, while both HP and Compaq had net profit margin of around 6.4 percent. In terms of productivity, Compaq had achieved the highest revenue per employee of US$716,021 while HP was a distanced second with revenue per employee of US$234,719.

Exhibit TN-1 Industry

Analysis of Target Segments Benefit Segment Investment Adoption Rate HP Presence Level of IT in Sector High High Yes High Medium High High High High Low Low Medium Yes No Yes No

Financial Services Mission critical, mission sensitive Telecommunications Mission critical, mission sensitive, or Technology Hotel and Tourism Economy Manufacturing Utilities Oil and Gas Geographical presence Mission critical, mission sensitive Technology

Government Size

Depending on sectors

Low In specific (initially) countries to High (mature) Medium to High (IT-2000 No High plan)

In terms of size based on capitalization, assets, and employment, the various players can be rated as follows: IBM: large Hewlett-Packard: medium DEC: medium Compaq: medium Bulls: small UNISYS: small Involvement in Asia-Pacific Region DEC IBM Ten percent of its activities are in the Asia-Pacific, including Japan. They have a representative office in Hanoi since 1992. IBM has representative office in Hanoi since 1992. Its considered a global player and has strong presence in the AsiaPacific. 6-12

Case 6 Hewlett-Packard Company in Vietnam UNISYS Has 5 percent of activities from Asia-Pacific region and 7 percent from Japan. UNISYS has a representative office with 15 marketing staff stationed in Vietnam targeting to set up a subsidiary operation there. They recently installed equipment for the banking sector for SWIFT in Vietnam. Compaq Compaqs products are widely available in the Asia-Pacific region. They have established strong and intensive distribution network in the region. They also have production facilities in some Asia-Pacific countries. There is no information on their current level of involvement in the Vietnam market. Bull HP Considered a global player but has only small set-ups in many Asia-Pacific countries. Has strong and long (over 25 years) presence in many AsiaPacific countries such as Hong Kong, Singapore, Japan, Taiwan, and Korea. Also has presence in emerging Asia-Pacific markets such as the Philippines, Indonesia, and China. HP is currently represented by several distributors in Vietnam. Key Areas of Operation/ Differentiation DEC Leading supplier of networked computer systems, software and services. Has a strong client base in government, banking and finance, insurance, and telecommunications. Experienced in healthcare, transportation, utilities and retail. IBM IBM is a total solution provider. It has 1500 consultants Worldwide and provides insights, experience, and specialized skills to customers. Key focus is in finance, retail, and manufacturing. UNISYS Manufactures and markets computer-based networked information systems and software. Offers related services such as IT outsourcing and systems integration. UNISYS specializes in business-critical solutions based on open information networks in transaction-intensive environments. Focuses on airlines, public sectors, financial services, and telecommunications. Compaq Leading manufacturer and supplier of PCs (desktops, portables, and servers) in the world. 6-13

Case 6 Hewlett-Packard Company in Vietnam Strong in both consumer and corporate computing markets. Strong in indirect marketing through distribution channels for their products. Bull HP Open systems with stress on global coverage. Open systems, client-server computing system. UNIX computing. Global support. The strengths and weaknesses of the various competitors are summarized in Exhibit TN-2 of this case. Overall, Hewlett-Packard is in a strong competitive position and is in good shape to enter the Vietnam market. For open systems, HPs key threats are from UNISYS and Bull who also have expertise in this area, but both these competitors are weak in size and influence. For the attractive finance and telecommunications sectors, HPs key threats come from DEC, IBM, and UNISYS who have experiences in these areas. Of these, both IBM and DEC are formidable threats and HP may want to develop stronger market presence in Vietnam since both these players already have a presence in this market. Initially, the Vietnamese customers may not have the resources and expertise to use complex computer systems, and they may start with stand-alone computers and simple server systems. Here, Compaq may be a strong contender. Vietnam is an emerging market and the premium price position of HP may not work well in this market. Initially, HP should focus on simple computer systems and stress on quality and value for money. They may want to use their extensive experience in computer education to help customers learn to assimilate the tool. 4. Modes of Entry The case listed five possible modes of entry into the Vietnam market. These modes can be evaluated using some common criteria. Students may also identify other possible modes of entry. Control Control over its strategy and operation will be greatest with the direct presence option, followed by majority joint venture with local partner, cooperative venture/ franchising, distribution (ex-HP employee) and distribution (independent partner).

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Case 6 Hewlett-Packard Company in Vietnam

Exhibit TN-2 Company Compaq DEC Strengths Leader in Intel PC desktops and servers. Strong current demand for ALPHA products, worldwide support, and service infrastructure. Weaknesses New entrant in missioncritical, mission-sensitive enterprise computing market. Weak financial position. No strong UNIX client-server offerings. Uncertainty in long-term future of new ALPHA products. Functional silos (independent corporate entities within HP) create chunks within products and solution offerings, which competitors could attack.

HP

The best performer among computer hardware and service vendors. Recognized as leader in opensystems client-server computing. Number one in UNIX computing. Number three in Intel PC servers. Number one in customer satisfaction. Worldwide support and service infrastructure. Strong network management offering. Huge installed base of mainframe customers. Largest IT company status and enormous resources. Worldwide support and service infrastructure. Number two in Intel PC worldwide. Strong in selected focus industries and areas.

IBM

Mainframe market growth was stagnant. Lacked a credible open-system client-server image. Spent millions on OS/2 with little results.

UNISYS

Mainly a system integrator in selected industries today. Downsized over last several years.

Costs and Profits The issue of costs and profits are not so clear cut. The options involving greater commitment (for example, direct presence, or majority joint venture) will result in heavier fixed costs and overheads. Variable costs, may

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Case 6 Hewlett-Packard Company in Vietnam however, be lower due to HP performing many of the tasks and marketing functions. The options involving less commitment (for example, using distributors) may result in lower fixed costs, since all the set-up and overheads will be borne by the distributors. Variable costs may be higher since these distributors will have to be paid a margin for performing various tasks and functions. Overall, the costs and profits will depend on volume and turnover. If turnover is low, overhead and fixed turnover is high, margins paid to distributors become an erosion of the profit margin. If long run profit is the key driving force, options involving greater commitment may be favored, since if we engage distributors in the market, they may become entrenched, and it may be difficult to break a distributor relationship in the long run. The long-term use of distributors may result in continuous payment of margin and may represent an erosion of our profit margin. If distributor power is high, it may also represent a threat in the future. The use of options involving greater commitment will result in high fixed costs and overheads, and steps have to be taken to generate volume and contribution for these overheads, unless the headquarters are willing to bear the overheads for a period of time. Resource and Investment Requirements Resource and investment requirements will be highest with direct presence, followed by majority joint venture with local partner, cooperative venture/ franchising, and distribution. Market Knowledge and Contacts A local partner will be able to provide the local knowledge and contacts. As such, the options of using distributor (local partner), cooperative venture/ franchising with local partner, and joint venture with a local partner will enhance this area. Going all alone ourselves (direct presence) may be weakest in providing local knowledge and contacts. Speed of Market Penetration The use of distributors or cooperative ventures/ franchising may enable HP to penetrate the market quickly. Direct presence and majority joint venture will result in slower penetration of the market since HP has to go through the process of setting up the business from scratch and this involves time and efforts. Decision There is no right or wrong answer here. It is a matter of where the priority is. If control is important to HP, then a heavier commitment (direct presence) is called for. If risk and uncertainty is considered too high in the Vietnam market, then management may opt for less commitment.

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Case 6 Hewlett-Packard Company in Vietnam It is also possible to use a combination of some options. HP can use primarily distributors, but set up a branch office in Vietnam to control and support the operation of distributors. This will help to maintain the image of HP, yet lessen the resource and investment requirements. STUDENT STRATEGIC AUDIT/STUDENT PAPER

VIII.

I. CURRENT SITUATION A. Current Performance 1995 annual sales $25 billion 90,000 employees worldwide Second in IT market; 1999, first in net income Strong reputation and brand identity Industry leaderopen systems technology and solutions Initial step formed relationships with Vietnamese distributors 1994 net income = $1.6 billion; Revenue = $25 billion Headquarters in Singapore B. Posture 1. Mission To provide customers with devices superior to any competitive offering in performance, quality, and overall value. 2. Objectives Profit To achieve sufficient profit to finance our growth and to achieve corporate objectives through self-generated resources. Customers To provide products and services of the highest quality and the greatest possible value to customers, thereby gaining and holding their respect and loyalty. Fields of interest To participate in those fields of interest that build upon our technology and customer base, that offer opportunities for continuing growth, and that enable us to make a needed and profitable contribution. Growth To let growth be limited only by our profits and ability to develop and produce innovative products that satisfy real customer needs. People To help HP share in the companys success which they make possible; to provide employment security based on their performance; to ensure them a safe and pleasant

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Case 6 Hewlett-Packard Company in Vietnam work environment; to recognize their individual achievements; and to help them gain a sense of satisfaction and accomplishment from their work. Management To foster initiative and creativity by allowing the individual great freedom of action in attaining welldefined objectives. Citizenship To honor our obligations to society by being an economic, intellectual and social asset to each nation and each community in which we operate. 3. Strategies Build up many major customer accounts with multinational corporations with offices worldwide. Have a large network of subsidiaries and associated companies in different countries in AsiaPacific. Boast diversified products and services in computation, measurement, and communications. Possess low overhead cost. Possess efficient distribution and marketing channels. 4. Policies Getting the highest return out of the companys most important asset, its people. Getting the best output from a given technology. Giving the customer the best performance for price paid. II. CORPORATE GOVERNANCE A. Board of Directors B. Not given

Top Management Heads of seven SBUs CSOComputer Systems Organization CPOComputer Products Organization TMOTest and Measurements Organization APOAnalytical Products Group MPGMedical Products Group WCSOWorldwide Customer Support Organization

III. EXTERNAL ENVIRONMENT (EFAS see Exhibit 1) A. Social Environment 6-18

Case 6 Hewlett-Packard Company in Vietnam

1. Economic (O) Vietnam economy opening up/U.S. embargo lifted (T) Vietnam under-urbanized (T) Lack of fully convertible currency (O) Lowered corporate income tax (T) Bad banking system (O) Low wages in Vietnam (T) High inflation 2. Political-Legal (T) Political instability 3. Sociocultural (O) Young population (O) Well-educated workforce (O/T) Guanxi 4. Technological (T) Industries are inefficient B. Task Environment (O) (T) (O) (O) (T) (T) (O) IT market in Vietnam has potential Bad Telecommunications System IT 2000 Financial services market High competition Dropping computer prices Cellular

IV. INTERNAL ENVIRONMENT (IFAS see Exhibit 2) A. Corporate Environment Decentralized decision making Divisional structure; seven SBUs

B. Corporate Culture Focus on capable, innovative, well-trained, and enthusiastic people Gaining customer respect Employees should share in HPs success Pleasant work environment Satisfaction and sense of accomplishment from work Recognize individual achievements C. Corporate Resources 6-19

Case 6 Hewlett-Packard Company in Vietnam 1. Marketing Quality brand identity (+) Highly diversified products (+) Good relationships with major multinational corporations (+) Respond quickly to changes in consumer market (+) Tracked consumer buying preferences (+) 2. Finance Profitable and growing company (+) Consistently strong sales (+) Increasing costs of revenue (-)

3. Research and Development Past 5 years reinvested 10 percent of revenue (+) 4. Operations Experience with emerging markets (+) High customer satisfaction ratings (+) Client/Server computing (+) Leader in open systems (+) Diversified products and services (+) Inadequate communication between SBUs (-) Inability to provide support to end-users through channel members (-) 5. Human Resource Management Recruit local people (+) Commitment to employees (+) 6. Information Systems None mentioned V. STRATEGIC FACTORS (SFAS see Exhibit 3) VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY A. Strategic Alternatives 1. Stability Pro: Minimize risk and costs Con: Forego on emerging markets 2. Retrenchment Pro: Preserve liquid assets Con: Lose current and future market share 3. Growth Pro: Gain market share and increase revenue Con: Increase risk and cost

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Case 6 Hewlett-Packard Company in Vietnam B. Recommended Strategy Growth. To take primary advantage of emerging SoutheastAsia markets and increase revenues and sales VII. IMPLEMENTATION Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: IT 2000 2 Establish relationship with MOSTE Asian Management Team (AMT) Head of CPO John Peters Government Commitment Monthly U.S. Embargo and Relations 1 Evaluate the environment AMT John Peters John Peters Environment Monthly High Competition 2 Stay ahead AMT COP John Peters Market Share Monthly Financial Position 1 Maintain position Head of finance department Finance Department Top Management Revenue and net income Monthly Experience with emerging markets 1 Sustain and utilize experience AMT John Peters Top management Business relationships Monthly Quality Brand 1 Maintain quality identity AMT 6-21

Case 6 Hewlett-Packard Company in Vietnam Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: Strategic Factor: Priority: Action Plan: Set up by: Implemented by: Reviewed by: Factor Reviewed: How Often: VIII. John Peters Top management Customer ratings Monthly Political environment 2 Keep abreast with political changes AMT John Peters Top management Political climate Quarterly Guanxi 1 Develop and maintain local contacts AMT John Peters Top management Good relationships Monthly Diversified products and services 1 Respond to market fluctuations AMT John Peters Top management Sales Monthly Good relations with multinationals 1 Maintain and seek new relationships Marketing department John Peters Top management Number of contracts and relationships Monthly

EVALUATION AND CONTROL Covered in Section VII.

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Case 6 Hewlett-Packard Company in Vietnam IX. EFAS, IFAS, and SFAS EXHIBITS

Exhibit 1
EFAS (External Factor Analysis Summary)
Key External Factors Opportunities U.S. embargo/relations IT 2000 program Guanxi IT market in Vietnam Well-educated Vietnamese work force Threats Completion Slow banking and finance systems Inefficient telecommunication systems Political environment Lake of technology in manufacturing industry .15 .10 .05 .05 .05 4 4 4 3 4 .60 .40 .20 .15 .20 HPs knowledge and experience Major Rivals/HP ahead of most Extensive experience with this industry Extensive experience with this industry HP aware of uncertainties .20 .15 .10 .10 .05 4 4 4 4 4 .80 .60 .40 .40 .20 Business units taken initial/ad hoc steps Open systems center to assist MOSTE Asian management team advantage Signed up distributors/wholesalers/ resellers The HP Way A commitment to employees Weight Rating Weighted Score Comments

TOTAL SCORES

3.95

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Case 6 Hewlett-Packard Company in Vietnam IX. IFAS, EFAS, and SFAS EXHIBITS

Exhibit 2
IFAS (Internal Factor Analysis Summary)
Key Internal Factors Strengths Experience with emerging markets Quality brand identity Financial position Relationships with multinational companies Products and services Weaknesses Quality of end-user support Communication between SBUs .10 .10 3 3 .30 .30 Difficult Often acted as separate companies .20 .15 .15 .15 .15 5 5 5 4 4 1.00 .75 .75 .60 .60 Extensive in Asian markets Strong reputation Profitable and growing Good with many major accounts Diversified Weight Rating Weighted Score Comments

TOTAL SCORES

4.30

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Case 6 Hewlett-Packard Company in Vietnam

IX.

SFAS, EFAS, and IFAS EXHIBITS

Exhibit 3
SFAS (Strategic Factor Analysis Summary)
Duration Key Strategic Factors IT 2000 program U.S. embargo/relations Competition Financial position Experience with emerging markets Brand identity Relationships with multinational company Guanxi Political environment Products and services TOTAL SCORES Weight .15 .15 .10 .10 .10 .10 .10 .10 .05 .05 1.00 Rating 4 4 4 5 5 5 4 4 3 4 Weighted Score .60 .60 .40 .50 .50 .50 .40 .40 .15 .20 4.25 X X X X X X Comments S X X X I X X X X X X X X X X X X X X X Diversified L X X X X Open systems center to assist MOSTE Business units taken initial/ad hoc steps Major Rivals/HP ahead of most Profitable and growing Extensive in Asian markets Strong reputation Good with many major accounts Asian management team advantage HP aware of uncertainties

X.

FINANCIAL RATIO ANALYSIS

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