Since Vietnam launched the reform Renovation, there are many foreign capital investments (FDI) and official development aids (ODA) which have been invested in Vietnam. The problem here is how to use them effectively and how to distribute them reasonably among sectors of the economy. In 2008, FDI hit a record high of more than USD 64 billion, triple the capital in 2007. Despite a number of difficulties of financial crisis, FDI in 2009 reached nearly USD 21. 5 billion and it is expected to reach USD 22-25 billion in 2010.
The flow of FDI into the country still remains high; however, this is not the core issue. The most important issue is how to use this capital more effectively. FDI inflows are mainly distributed to real estate industry, hotels, and restaurants (63%). There is growing concern about a number of projects designed to build golf courses, steel and cement plants, seaports, airports and industrial zones. The most important thing is how to develop them in harmony with long-term plans for local economic growth.
Vietnam needs to come up with specific sanctions to ensure local agencies follow an overall plan and not grant licenses for infeasible projects or those which cause a negative impact on the environment and the socio-economic development. ODA made up of averagely 15% GDP of Vietnam. About 20% of ODA is non-refundable aid, remain is confessional loan with favorable interest rate. ODA capital was used effectively in economic management, infrastructure & area development. However, 55% of the total committed ODA has been disbursed so far => lower than the average of ASEAN.
There are two policies that have an impact on Unilever and the wider community, named as social welfare policy and industrial policy. Social Welfare Policy consist of action or procedures, that are on the part of government and institution, striving to promote the basic well-being of individuals such as financial, employment, physical and mental health care, etc. Social welfare policy seeks to protect and directly improve people’s standard of living (BPP Professional Education, 2004, p.158).
The Government industrial policy might either hamper or promote the growth of new industries and it allows the government to take an active role to support investment, encourage a faster rate of economic growth in industry, and to stop the decline of manufacturing sector (BPP Professional Education, 2004, p. 155). 1. Vietnam Welfare policy and its impact on Unilever and the wider community According to BPP Professional Education (2004), social welfare seeks to protect and directly improve people’s standards of living.
In Vietnam, the welfare policy has been applied for everybody, especially disabled people, wounded soldiers, and the victims of dioxin. There are about 5 million Vietnamese, accounted for more than 6% of the population, are disabled. These people are treated equally to other normal ones. Vietnamese government lays down a strategy to build schools for disabled children so that they can have a chance to gain the knowledge like every student. Social health care and insurance system are two of the most significant strategies of Vietnam welfare policy.
Thanks to this strategy, people, especially the poor in remote areas, can have better health service. Periodically, Vietnamese government appoints doctors and nurses to remote mountainous areas for a campaign which provides free health care service for the poor. They also examine and deliver medicine to people for free. Insurance strategy supports people when they have got an accident or come down with diseases. However, there are some weak points in the health care system for the labor force. Employees may suffer from industrial diseases which cannot be cured at the local hospital.
Lack of modern equipment and medicine are also the problems that should be paid attention to. The social welfare policy of Vietnam has impacted positively on Unilever. Employees of Unilever have medical check-up periodically in order to detect diseases as soon as possible. Workers have to face with the high risk of getting injured when they are working. The insurance strategy allows injured employees to get lump-sum payment and rehabilitation tools. Female workers receive special regulations when they are pregnant or giving birth.
These welfare policies have helped the community raise the living standard, filling the gap between other classes in the society. However, Vietnam should adopt these strategies in a stricter way to ensure that everybody can receive the effect of them. 2. Vietnam Industrial Policy and its impact on Unilever and the wider community Vietnam carries out not only Welfare policy but also Industrial policy. “An industrial policy is any government regulation or law that encourages the ongoing operation of, or investment in, a particular industry” (Babylon. com, 2009).
There are many specific Industrial policies; one of which is related to innovation. In the agricultural, it is required to grow new varieties which have high productivity. Therefore, the government invests capital in doing research on new kinds of plants and cattle. In industry, each company has to find the way to ameliorate technology in order to gain higher productivity, save time and energy. In the case of Unilever, innovation policy pushes this company to produce more and more high quality goods as well as improve the technology, invest more capital in advanced equipment…
In fact, Unilever has made a lot of progressive products. For example, Surf Excel is a laundry detergent which helps washing clothes by hand in short time and it also helps us save water. Unilever has found the way to make ice cream healthier for people but still tasty. It is thanks to a new ice cream ingredient discovered by Unilever’s ice cream scientists. The mysterious ingredient is called ice structuring protein. It helps reduce the fat, sugar and calories as well as add more fruit. Now, people can eat ice cream without worrying about their shapes.
By combining ISP with stabilizers, Unilever has produced a kind of ice cream which does not melt so easily. It must be great news for small children and for hot countries. Unilever also applies pioneering technology to create a unique sensual shape for Magnum ice cream with almond pieces smothered in chocolate and caramel sauce. In addition, the packs of products are usually changed in order to attract customers and reduce the materials. To the wider community, innovation policy encourages every sector to be more creative in their work to produce largest amount of goods with least amount of material and fuel in the shortest time.
In fact, all every industries have tried their best to follow this important policy. The impact of macro-economic policy Macroeconomic policy is known as the government policy aimed at the aggregate economy, usually to promote the macro goals of full employment, stability, and growth. Common macroeconomic policies are fiscal and monetary (Economic Glossary, nd). There are two common macro-economic policies: fiscal policy and monetary policy.
Fiscal policy involves the use of government spending, taxation and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output and employment (tutor2u, nd). Monetary policy directly affects cash flow and the economy of the country, monetary policy affects economic activity through the four points that interest rates, exchange rates and control money supply, control over bank lending and credit (BPP Professional Education, Business Environment, 2004, p. 151). These are two important policies of macroeconomic policy in Vietnam.
They are an effective tool which helps the government guide the whole economy. It is obvious that fiscal policy affects every business. Fiscal policy involves taxation, government spending, borrowing and repaying debt. There are 4 types of taxes: income tax, profit tax (corporation tax), Value Added Tax (VAT), import tariff and quota. These taxes are collected in different methods (direct or indirect) such as on individual earnings, on savings, on business profits…. From May 1st to December 31st 2009, many tax rates in Vietnam were reduced. Corporate income tax will reduce 30%, VAT reduce 50%.
The tax on products made of aluminum decrease from 3% to 0% (Finance Minister’s circular 115/2010/TT-BTC). Vietnamese government also reduces the tax on toys which help improve the intelligent from 20% to 10%. A VAT of 10% applies on consumption goods, 5% applies on goods and services involve in agricultural production, education, health care (Government, 2008). However, this level of tax is still higher than many countries in the world. Fiscal policy impacts Unilever directly. Annually, Unilever has to pay corporate income tax for government.
In the year ending December 2009, Unilever paid about VND 25 billion for corporation income tax. The corporation tax is fixed at 25% profit of the company. Unilever has also pay VAT for purchasing raw materials to produce, accounted for i?? 1,257 million by the year 2009 (Unilever Financial report, 2009). (This amount of tax mentioned here is paid for all Unilever companies around the world). The stakeholders, including shareholders, management, and employees, have to pay income tax. The level of tax they have to pay depends on the level of salary they receive.
In Vietnam, the lowest salary level at which employees have to pay income tax is VND 4 million per month. Vietnam was experiencing an economic crisis in 2009. Thanks to monetary policy, the whole economy of Vietnam escaped from being ruin. At that time, the State Bank of Vietnam had to subsidize the interest rates, postponed the time pay taxes in order to disburse. In the second quarter of 2009, GDP increased by 4,5% and reached 5,8% in the third quarter. In 2010, Vietnam government change the exchange rate between VND and USD to 13%, 3% higher than that in the same period of 2009.
This helps maintain the balance of the whole economy and subdue the inflation. Unilever has always wanted to expand the business. This means that the company needs to borrow more money from the bank. Now, the interest rate is higher. Therefore, Unilever has to pay more money to invest into the business. Not every material Unilever uses is available in the host coungtries. Sometimes the company has to import raw materials from abroad. The exchange rate rising also means that more money would be paid. Monetary policy also strongly impacts on the stakeholders.
While the interest rate stays at high level, stakeholders would rather keep money in the bank than investing into business. It could be not good for the operation of the company. 2. The impact of Global Economy The economy is now dealing with the consequences of 2009 financial crisis. The depression started in the United States and then led to others countries. According to VOA news, East Asia has been hardest hit. In February, exports from China fell twenty-six percent from a year ago. The World Bank estimates that up to three trillion dollars of public and private loans in developing countries must be repaid this year.
Some nations have enough foreign currency reserves, but others will struggle to find new financing to pay their existing debts (Mario Ritter, 2009). When it comes to Vietnam, in the first quarter of the year 2009, the impacts of crisis became obvious when the GDP only increased by 3. 1%. In the first eight months, the export rate of Vietnam was only 14. 2% and the import rate was worse – less than 28. 2%. Accumulated foreign currency significantly decreased from USD 23 billion (2008) to USD 16. 5 billion (August, 2009). Growth rate and investment rate of Vietnam in the period from 1997 to 2009
As can be seen from the chart above, growth rate of Vietnam in the first quarter of 2009 is lowest in the period from 1997 to 2009 (only 3. 1%). The rate of investment was only 36%, 8% less than the previous year. Although it was not a great depression, it still took Vietnam a long time to recover. Because Unilever plays a part in Vietnam’s economy, global economy crisis has great influence on Unilever and its stakeholder. The company has to narrow the business, cut down the expense and even the workforce. Stakeholders find it difficult to decide whether invest money or not.
In this report, the mission, values, and objectives of Unilever are identified. It is shown that Unilever create a concise mission and the company is trying their best to achieve it. In fact, Unilever has succeeded in attaining the objectives for the three stakeholders. This report also clarified the objectives of Unilever’s stakeholders and the responsibilities of Unilever. Unilever should be proud of what they have done because they have achieved almost every objective and fulfilled the responsibilities. Vietnamese government has adopted many strategies in order to transfer the economy from planned economy to market economy.
However, at this time, Vietnam is still a mixed economy. Although Vietnam has a rich resource of labor, land, natural resource and capital, sometimes this country has not used them effectively. Furthermore, the social welfare, industrial policies as well as the fiscal and monetary policies of Vietnam government has positive impacts on Unilever. However, with the recession on the Global economy, Unilever’s operation has to face with a lot of challenge in order to survive in the economy and become the strongest brand.