Find a foreign company in Hanoi/your hometown/Northern Vietnam. Discuss why it come to Vietnam and why it chose that town.

Contents

1. Company overview21.1. Bridgestone Corporation21.2. Bridgestone Vietnam31.3. Bridgestone new passenger tire plant in Haiphong city42. Industry review: Tire industry52.1. Global tire market52.2. Vietnam tire market72.3. Bridgestone Vietnams competitors73. The location selection of Bridgestone: Vietnam73.1. Determinants of FDI73.2. Purpose of Bridgestones investment in Vietnam83.3. Discussion: Selection of Bridgestone to locate in Vietnam84. Conclusion115. References12

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1. Company overview1.1. Bridgestone CorporationBridgestone is a Japanese multinational auto and truck parts manufacturer founded in 1931. The company changed the name from Bridgestone Tire Co., Ltd. to Bridgestone Corporation in 1984. The corporate headquarters located in Tokyo.Bridgestone mainly engaged in the tire related business. The company has two business segments which are Tire segment and Diversified Product segment. Tires and tubes for passenger automobiles, trucks, buses, construction and mine vehicles, industrial vehicles, agricultural machinery, aircrafts and motorcycles, as well as the provision of retread materials, tire-related products and raw materials are among the first segment. This segment also provides automotive maintenance and repair services. The Diversified Product segment provides automobile related parts, urethane foams, electronic precision parts, industrial material related products, construction related products, roofing materials, sports products, such as golf balls and golf clubs, bicycles, as well as financial services.Bridgestone products are sold in more than 150 nations and territories around the world. Until now, the company has 66 tire plants in Americans (25 plants), Europe (11 plants), Middle East/Africa (3 plants), Oceania (1 plant), Japan (10 plants) and Asia (16 plants). It also have other plants to produce raw material and diversified products plants. The table below shows the location of Bridgestones tire plants in Asia.Table 1: Location of Bridgestones tire plants in AsiaCountry / RegionLocationProducts

ThailandRangsitTires

Nong KhaeTires

ChonburiTires

ChonburiTire Molds

ChonburiRetreading materials

IndonesiaBekasiTires

KarawangTires

TaiwanHsin-ChuTires

IndiaIndoreTires

PuneTires

ChinaShenyangTires

TianjinTires

WuxTires

HuizhouTires

Hong KongRetread tires for aircraft

QuingdaoRetread tires for aircraft

Source: http://www.bridgestone.com/corporate/locations/tire/asia_oceania.htmlAccording to Rubber & Plastics News (RPN)[endnoteRef:1] annual ranking of the world tire manufactures (based on revenue from the sale of tires), Bridgestone Corporation remains the worlds number one tire manufacturer, a position it has held for the last five years. Bridgestones estimated tire-manufacturing-related sales of $28.6 billion came in ahead of more than $2 billion ahead of No. 2 Michelin and nearly $9.5 billion ahead of No. 3 Goodyear. Continental A.G. retained the No. 4 spot at $10.9 billion. The company holds the highest proportion of the world's tire sales (15.2%). [1: http://www.rubbernews.com/article/20130909/ISSUE/309099985/bridgestone-remains-no-1-in-global-rankings]

1.2. Bridgestone Vietnama. HistoryBridgestone Tire Sales Vietnam Limited Liability Company (BSTVN) was established on April 1, 2010[endnoteRef:2]. By the end of 2012, the company started building a new passenger tire plant at Dinh Vu Industrial Park (Haiphong Province)[endnoteRef:3]. This year, in January, Bridgestone Bandag Retread Plant at My Phuoc III Industrial Park (Binh Duong Province) was inaugurated. [2: http://www.bridgestone.com/corporate/news/2010040101.html] [3: https://www.bridgestone.com.vn//news_details.php?id=32/bridgestone-celebrates-groundbreaking-for-new-passenger-tire-plant-in-vietnam]

b. Ownership structureAccording to Law on foreign investment in Vietnam (1996), chapter II, article 4, foreign investors may invest in Vietnam in any of the following forms:1. Business co-operation on the basis of a business co-operation contract;2. Joint venture enterprise;3. Enterprise with one hundred (100) per cent foreign owned capital.Bridgestone Tire Sales Vietnam Limited Liability Company (BSAP) is an enterprise with 100% of capital from Japan (95% of the companys ownership belongs to BSAP, another 5% is owned by Mitsubishi Corporation)[endnoteRef:4]. [4: http://www.bridgestone.com/corporate/news/2010040101.html]

As it can be seen from Business Report for 94th Fiscal Period of Bridgestone Corporation, most of the companys major subsidiaries all over the world have 100% of capital owned by Bridgestone, only Thai Bridgestone Co., Ltd and P.T. Bridgestone Tire Indonesia have the ownership of 69.2% and 54.3%.[endnoteRef:5] [5: Page 15 to 17: http://www.bridgestone.com/ir/library/business_reports/pdf/business_report_for_the_94th_fp.pdf]

Entry mode studies show that foreign ownership modes can be explained by three consideration, which are transaction costs, exploitation/exploration capability and institutional constraints.Transaction cost considerations will make foreign investors to seek more share and control when their capital investment is designed to have single function (assets specificity). Exploitation/exploration capability considerations will cause the investors to choose the form Joint Venture or Wholly foreign owned subsidiaries (WFOE). If they want to get additional returns from exploration (broadening their resources and knowledge base via a host country partners distributional networks or local knowledge), they will choose the first form (Joint Venture). On the other hand, if the firm expect higher return from exploiting the firm-specific resources and capabilities, their option will be WFOE. Institutional constraints reminds firms to make decision about the ownership not only base on host countries regulations, but also on perceived political risk.In case of Vietnam, most of Bridgestone Vietnams capital of 700 thousands USD is invested in manufacturing plants, which are site specificity (a type of asset specificity), because it is difficult or impossible whether to relocate or to adapt to another use. Since the main purpose of building a new manufacturing plant in Vietnam is to export, the company wants to exploit their capacities instead of exploration. Because of these reasons, Bridgestone chose the form Wholly Foreign Owned Subsidiaries to enter Vietnam market.1.3. Bridgestone new passenger tire plant in Haiphong cityVietnam is the third destination of Bridgestones tire plants in Southeast Asia after Thailand (5 plants) and Indonesia (2 plants). This new tire plant in Haiphong will be completed and become active in 2016.New Plant Overview:1. Planned construction siteDinh Vu Industrial Zone, Hai Phong City, Vietnam

1. Products producedRadial tires for passenger cars

1. Site areaApproximately 1.02 million square meters

1. Start of operationsPlanned for March 2014

1. EmployeesApproximately 1,900 employees (planned for 1sthalf of 2016)

1. Production capacityApproximately 24,700 tires per day (planned for 1sthalf of 2016)

2. Industry review: Tire industry2.1. Global tire marketa. Global tire marketThe average growth of the global tire market is often around 10% to 15%. The growth of this industry rises and falls depending on the economic situation. In 2011, global total output products was 14.68 million metric tons, increased 5% compared to the previous year. It is predicted that the global demand will rise 4.7% annually through the next 2 years and reach 3.3 billion units in 2015.[endnoteRef:6] [6: http://www.rubberworld.com/RWmarket_report.asp?id=750]

Figure 1: Global tire output product (thousand tons)

b. Asia Pacific tire marketAsia-Pacific region is by far the largest market for tire. It accounts for 60% of the world total tire output (2011) and half of the global tire demand (2010)[endnoteRef:7]. The Asian tire industry has grown at a brisk tempo recently, posting a compound annual growth rate of 22% during the period from 2008 to 2012. The Asia/Pacific region will account for more than 90 percent of growth of tire in unit terms through 2015.[endnoteRef:8] [7: Freedonia Group in Rubber World February 29th, 2012.] [8: http://www.rubberworld.com/RWmarket_report.asp?id=750]

Source: International Rubber Study Group

Figure 2: Global tire output by regions (2011)

c. Radial tire demandIn developed countries, Radio tire takes more than 90% of the total tire in use. This number in developing countries is 60%. Radial tire with it outstanding features is becoming more popular and gradually replaces Bias tire.

Figure 3: Global radial tire consumption

2.2. Vietnam tire marketVietnam tire market is relatively small. Its values is only around 16,800 billion VND, accounting for 0.34% of the global tire market[endnoteRef:9]. This is could be explained by the fact that most of the tire demand is for motorcycle, which has a low value (only equal 1/10 of car tires value). Only about 1.4 million cars are being used, so that the demand for car tires in Vietnam is very small, 4.3 million car tires per year compared to more than 1.3 [9: Bao Viet securities]

2.3. Bridgestone Vietnams competitorsSince the main purpose of Bridgestone to invest in Vietnam is export (further explanations are in part 3 of this assignment The location selection of Bridgestone: Vietnam), the main competitors of Bridgestone are other largest companies in producing tires (the top 10 worlds largest tire makers according to RPN ranking), such as Michellin, Goodyear, Pirelli, Yokohama, etc.Figure 4: Market share of global tire market

Source: Tire Business (Aug 29, 2011)3. The location selection of Bridgestone: Vietnam3.1. Determinants of FDIBased on Dunnings Eclectic Theory, many empirical studies of FDI have found the main determinants of FDI to include market size, always measured by GDP; infrastructure development; labor costs and productivity; the level of openness; government policies; and geographical proximity. Market size is the level of the economy development, often measured by GDP per capita. The higher economic growth, the strong FDI inflows.Better infrastructure (especially in transportation and communication) in the host country will be clearly more attractive to the foreign investors, because it helps them reduce transaction cost.The cheaper labor cost, higher level of openness and better government policies (economic and political stability, investment promotion, etc.) can help host countries generate more FDI.3.2. Purpose of Bridgestones investment in VietnamSince Vietnam tire market is small, focusing on Vietnam domestic market will not help Bridgestone maximize their profit.According to articles on The Saigon Times Daily[endnoteRef:10] and tirebusiness.com[endnoteRef:11], a hundred percent of output from Bridgestone manufacturing plants in Haiphong will be primarily exported to Europe, North America and Japan. These articles also stated that despite spending hundreds of millions to expand plants in Nong Khae, Thailand, and Karawang, Indonesia, to supply export markets, Bridgestone said it determined that a new plant in Vietnam was necessary in order to respond to the continuing growth in demand. [10: http://english.thesaigontimes.vn/Home/business/investment/21566/] [11: http://www.tirebusiness.com/article/20120702/NEWS/307029987/bridgestone-breaks-ground-on-vietnam-plant]

3.3. Discussion: Selection of Bridgestone to locate in Vietnama. Available of raw materialsIn 2012, Vietnam exported 1.01 million tons of natural rubber, earning USD2.85 billion, up 23.8 percent in volume but down 12.6 percent in value from 2011, announced the Vietnam Rubber Association. With the exported volume, Vietnam had surpassed Malaysia and became the worlds third largest natural rubber exporter after Thailand and Indonesia. Earlier, the Association of Natural Rubber Producing Countries (ANRPC) forecast that Vietnam would ship about 955,000 tons of rubber abroad in 2012, up 17 percent from 2011, and surpass Malaysia to become the worlds third biggest natural rubber exporter. As of the end of 2012, Vietnam has about 910,500 hectares of rubber plantation area, exceeding the planned target of 800,000 hectares by 2015. Currently, the countrys rubber productivity reached 1.7 tons per hectare, ranking third in the world.Figure 5

Source: FPT Securities

b. Consumer demand - Geographical proximity Infrastructure developmentAs mentioned before, all Radial car tires produced from Bridgestone Vietnams manufacturing plant in Haiphong will be firstly exported to North America, Europe and Japan. In the future, the company may expand its exporting market to Indochina and other Asian-Pacific countries. These fact could be explained by the huge demand for radial care tire in North America and Europe (figure 4) and the potential market in Asian-Pacific region, which account for half of the global tire demand.Since the main target market of Bridgestone is North America and Asia-Pacific, the location of Vietnam is an important reason for the company to make this decision.The country is located in the center of Southeast Asia. It is a neighbor of China, situated parallel to the great sea trade routes of Asia. Bridgestone could easily export its products to America through seaway from Vietnam, and it could also expand and strengthen its market in Indochina.Haiphong itself also has geographical advantage in comparison to other provinces in Vietnam. It is a coastal city and it has the largest harbor in Vietnam. Haiphong Port is about to be capable of receiving 50,000-ton vessels. Haiphong lies on Kunming Laocai - Hanoi- Haiphong Economic Corridor which is a big advantage to export.Vietnam average GDP growth is approximately 5.9% annually from 2008 to 2012. Vietnams government continues to urge the development of infrastructure within the country. Around 9-10 percent of GDP has been invested in transport, telecommunications, energy, water, and sanitation in recent years. According to Global Competitiveness Report of World Economic Forum, Vietnams infrastructure score was 3.6 between the year 2011 and 2012.[endnoteRef:12] Compared to other countries with largest rubber exporting volume like Thailand, Indonesia, India and Malaysia, Vietnam has a relatively adequate infrastructure condition for Bridgestone to doing its business. However, since the score is still low in comparison to other countries in this group, infrastructure development is not an important reason for Bridgestone to invest in Vietnam. [12: Global competitiveness report: http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf]

Figure 6: Infrastructure score 2011-2012Figure 7: Quality of infrastructure 2011-2012

Infrastructure is not an advantage of Vietnam, but it is a bonus point for Dinh Vu Industrial Park (Haiphong city). Dinh Vu Industrial Park Joint Stock Company has invested more than 154 million USD to build the plants comprehensive facilities. Especially, there are 3 modern ports which have been completed and have a large capacity that a 20,000-ton vessel can entry.c. Labor marketVietnam has a population of 88.78 million (2012), of which 60 percent are currently below the age of 35. Besides that, the labor force is growing at the average rate of around 3.5%, this will provide an ample supply of labor over the next two decades.Figure 8: Vietnamese working age population (15-year-old and above)

Vietnam is recently listed as one of five markets with the cheapest labor cost in the word with USD 0.39 per hour under the ranking of The Richest[endnoteRef:13]. Compared to China and other largest rubber exporters in the world, labor cost is definitely an advantage of Vietnam, as the country has the second lowest minimum wages among this group. [13: http://www.therichest.com/]

Figure 9: Minimum wages per hour (USD)

Source: Wikipedia

d. Special policies of Vietnam and Haiphong governmentVietnams export tariffs for tire products 0% compared to 8% of China[endnoteRef:14]. Thus, Bridgestone may gain larger profit from the potential growth of exporting tires from Vietnam. [14: BaoViet securities]

In an interview with Tuoi tre Thu Do Newspaper, the CEO of Bridgestone Vietnam, Motoki Nagasawa stated that Haiphong government did give the company many supports in supplying land, electricity, water as well as human resource.[endnoteRef:15] [15: http://autodaily.vn/2013/04/tgd-bridgestone-vn-chung-toi-se-gan-khach-hang-hon-nua/]

4. ConclusionBridgestone is the worlds largest tire maker. Three years ago, before Bridgestone made its investment in Vietnam, among the 5 largest rubber makers, there are only 2 countries did not have Bridgestones manufacturing plants which are Vietnam and Malaysia. Two years later, in 2010, Bridgestone decided to build its next plant in Vietnam, instead of Malaysia. This could mainly due to the strategic location, cheap labor cost ($0.3 per hour compared to $1.24 of Malaysia) and zero export tariff for tires of Vietnam.

5. References