FOREIGN TRADE UNIVERSITY BUSINESS COMMUNICATION AN ANALYSIS OF TURKMENISTAN’S POTENTIALS. FOR BITI’S FOOTWEAR, Prepared by: Group 07 Va Neguyén Phuong 1915520029 Vai Thj Lan Anh 1915520504 Pham Thi Kim Lién 1915520510 Nguyén T Nga 1915520512 Nguyén Trin Thuy Vy — 1915520721 Hanoi - 04/2022TABLE OF CONTENTS PART ONE: EXECUTIVE SUMMARY PART TWO: FACTORS FOR ANALYSIS Section 1. Country Overview ‘A. Factual data B, Background Section I. Political and Legal Analysis A. Political ideology B. Political risk Legal system . International relations Se n II, Eeonor Analysis A. Economic system B. Economic development ©. Beonomie transition D. Financial markets E, Infrastructural forces Section 1V, Market Potential ‘A. Identify basie appeal B. Measure market potential ©. Select the market or site Section V. Footnotes and Bibliography o 03 03 03 03 o4 o4 05 or osPART ONE: EXECUTIVE SUMMARY ‘Company Overview ‘© Company’s name: Binh Tien Consumer Goods Manufacturing Co., Ltd (Bit’s) ‘© Year of establishment: 1982 ‘© Potential product line: Bit's Footwear ‘Targeted Market: Turkmenistan Political and Legal Analysis ‘© High level of political instability and bureaucracy ‘© Among the top corrupted country © Weak legal enforcement Analysis ‘© Planned economy with oppressive regime from the government ‘© Unstable GDP growth and GDP per capita ‘© Dominated by state-owned monopolies ‘© Excessive non-tariff barriers and restrictions on foreign investment ‘© Low human development index and other economic indicators © Poor quality logistics services ‘© Among the slowest and most expensive Intemet services with tight controls from the government Market Potential ‘© Low economic and trade freedom ‘© Limited consumption capability ‘© Major competitors: Rovshen Shoes, Gergek Conclusion Biti’s should not export products to Turkmenistan due to the unfavorable conditions.PART TWO: FACTORS FOR ANALYSIS Section 1. Country Overview A. Factual data 1. Geographic location: ‘Turkmenistan is a landlocked country in Central Asia, bordered by Kazakhstan to the northwest, Uzbekistan to the north, cast and northeast, Afghanistan to the southeast, Iran to the south and southwest and the Caspian Sea to the west. 2. Population: 6.12 million (2022) 3. Natural resources: ‘Turkmenistan’ gas reserves are estimated to be the world’s fourth largest, representing about 10 percent of global reserves. In addition to cotton and natural gas, the country is rich in petroleum, sulfur, iodine, salt, bentonite clays, limestone, gypsum, and cement, which are all potential inputs to ‘chemical and construction industries. 4, Main industries: ‘Natural gas, ol, petroleum products, textiles, food processing Background 1. Historical development: ‘Turkmenistan GDP increased consistently from 2000 to 2015, however the number dropped afterward and fluctuated horizontally till now. % oe oa aoa] walt asim ss a 2 so sa all : apasitst naszon4s23 ae | | I ° 00 2008 10 215 120 TRADINGECONOMICS.COM | WORLD BANK ‘Turkmenistan GDP Growth in 25 Years (Sbillion) 2. Histories of key industries: (Gas industry in Turkmenistan)‘Turkmenistan holds 265 uillion cubic feet (Tef) of proven gas reserves as of 2017, ranking 6th in the ‘world and accounting for about 4% of the world’s total natural gas reserves of 6,923 Tef, ‘Turkmenistan has proven reserves equivalent to 190.9 times its annual consumption, This means it has about 191 years of gas left (at current consumption levels and excluding unproven reserves). Proven Gas Reserves Gas Production in Turkmenistan ‘© Turkmenistan produces 2,910,379.78 million cubic feet (MMef) of natural gas per year (as of 2015) ranking 13th in the world, Turkmenistan Gas Consumption and Production (MMcf) Section II. Political and Legal Analysis A. Political ideology 1. Wide vs. narrow participation.Turkmenistan is reputed as one of the most repressive regimes where there are almost no political rights and civil liberties. The country takes the framework of a presidential republic. The President, who is both head of state and head of government, determines al political, economic, social and cultural programs; as well as the basic directions and strategics in domestic and forcign policy. Broad powers are granted to the Ministry of Justice over the registration process and the authority to monitor party meetings, which makes it extremely difficult for genuinely independent political partis to organize, nominate candidates and campaign. Independent political groups have no chance to participate in or challenge the existing power structures. Elections are tightly controlled, resulting in almost definite vietories for the president and his supporters 2. Democracy vs. totalitarianism. Since the dawn of Turkmen independence, the ideas of Islamism or Pan Turkism were rejected by the President, President Niyazov declared the "Turkmen model of development” putting ‘emphasis on the consecutive transformation of Turkmen society from the Soviet system to democracy. ‘The main principle of such democracy was “the protection of the overwhelming majority of the population in the current uneasy conditions and secure government aid not to sell anybody down the river” In 2016, the constitution again declares Turkmenistan to be a secular democracy, but the country shows its flawed democracy and with such an authoritarian government controlled by the president and his inner circle, Turkmenistan appears to be operated in a more totalitarian way. While Turkmen government bas expressed strong interest in adopting best practices and ‘models from other countries, the overall democratization process remains slow. 3, Pace of political progress: The ruling Democratic Party of Turkmenistan, led by long-time President Gurbanguly Berdymukhamedoy, recently nominated his son, Vice Chairman Serdar Berdymukhamedov, as its next presidential candidate. Undoubtedly, Serdar has gained victory in the election, and the future of ‘Turkmen political transition is being questioned. Serdar is likely to maintain his father’s policies and unchallenged power. He is already known for being authoritarian in his multiple positions within the ‘Turkmen administration, However, there might be changes, Serdar has broader government experience, and he has also spent significant time outside of Turkmenistan, Being of a different ‘generation, he may have greater openness of the digital age, which might exert an influence on his leadership style in accordance with the modemity requirements, Turkmenistan can benefit from a new president being more open to dialogue with the West, A. ‘more transparent, open, and rule-based country could attract lucrative investment, opening up ‘opportunities for the development of both social welfare and the economy B. Political risk 1, Level of political risk Turkmenistan has a very unstable political climate, shown by the level of risk and the political stability index.Very Low Risk Acceptable Risk 025 mo 2 eT 2018 2019 2020 ‘Turkmenistan: Political Stability Index (2013-2020) 2, Sources of political risk: ‘The high level of political risk comes from poor legislation, an inefficient judicial system, absence of reliable statistics, ack of transparency (the country refuses to join the Extractive Industries ‘Transparency Initiative or EITD, the high level of government regulation (9/10 rating for level of regulation), and corruption (8/10 rating for corruption). Companies investing in Turkmenistan have to confront serious political risk factors including, state interference, appropriation of assets, corruption, wider investor abuse and instability and transparency risks inherent within the regime's nature. Coruption can be considered Turkmenistan’s largest political risk, with Transparency International ranking it 161* out of 180 countries surveyed in 2021. The US State Department In general, despite the projected economic recovery, the figures for GDP growth and GDP per capita of Turkmenistan are seemingly not stable. 2 Level of human development: According to Human Development Reports 2020 by the UNDP, Turkmenistan’s HDI score is, 0.715, which is ranked 111th out of 189 countries and regions. > This is below the average of 0.753 for high ranking countries and below the average of 0.791 for European and Central Asian countries. 4. Country classification: ‘Turkmenistan has been classified as an upper-middle-income country since 2012. 5, Macroeconomic indicators Both the unemployment rate and inflation rate of Turkmenistan have experienced a considerable increase by more than a half compared to those of 2020 (around 4.4% and 12.45% respectively) (Trading Economies, 2022). RULE OF LAW ees According to globalEDGE, Turkmenistan’s economic freedom score is 46.2 with the 165th rank in the world’s index. This is below regional and world average, meaning that it is among the ‘world’s most repressed countries. Other indicators including business freedom, trade freedom remain rather low (37.5 and 74.2 respectively) indicates that the country has a tightly authoritarian economy, which is dominated by state-owned monopolies and bureaucracy. In addition, itis not an open market 10due to excessive nonetarff barriers and restrictions on foreign investment in certain sectors imposed by the government » These factors are not favorable for foreign businesses like Biti's to enter. C. Economic transition 1. Capital availability Turkmenistan is @ gas-rich country. The country possesses the world’s fourth largest reserves ‘of natural gas and substantial oil resources. 2. Cultural issues: 93.3% of the Turkmenistan’s population follows Islam (World Atlas, 2022) therefore the national cultural is deeply entrenched with Islamic norms. » Even though there are no signs of cultural conflicts in Turkmenistan, the country is deeply ingrained by the Islamic cultural beliefs, which can be a challenge for Asian companies like Biti's to enter due to cultural differences. 3. Environmental degradation: Even though the environment has been mentioned as “a matter of concern” by the government, litle action is done in practice. No significant measures have been put in force with regard to the National Strategy for Climate Change under the government of Turkmenistan. Pollution and lack of high-quality water supply are two major problems that Turkmenistan is facing. + In general, the policies implemented by the government are rather ineffective and far from attaining environmental recovery. D. Financial markets 1. Exchange rates with key currencies and recent trends: As a consequence of the instability in the intemational oil and gas market in 2015, the Russian ruble depreciated significantly, leading to the devaluation of the manat to an exchange rate of Sl: TMT 3,50 as Russia constitutes around 20% of Turkmenista 1's exports. Valid as iti, this rate should have been devalued long ago. 2. Presence of currency controls/restritions: Plummeting global prices for oil and gas have slowed Turkmenistan’s economy and put pressure on its national currency. The Government of Turkmenistan started initiating significant limitations on foreign currency exchange in October 2015, New limitations on foreign currency ‘exchange have spurred a higher black market exchange rate for USD, and the government introduced an amendment to the Administrative Offenses Code levying higher fines for illegal foreign exchange transactions. As of April 30, 2019, black market exchange rate was 18.80 manat per U.S. dolar. — Foreign companies may have to downsize or halt their business due to the inability to repatriate their profits and pay off debts denominated in dollars, therefore itis not favorable for Bit’ E, Infrastructural forces 1, Transportation (logistics)Invernaonal Logistics Taehing comm Yor £2 [Ente] cms tinerctre Se coeenmnesonane TOE Timm 208 WAC SCC Turkmenistan has @ Logistics Performance Index score (LPI) of 2.41 (2018) with a low LPI ranking (126th out of 189), Low LPI indicates poor quality of logistics services and other trade-and transport-related infrastructure = The logistics conditions in Turkmenistan are not favorable for foreign businesses like Bit’. 2. Communications: Only around one-fith of Turkmenistan’s population use the Internet (the World Bank, 2022), In addition, the country is known for having the world’s slowest and most expensive Internet services, coupled with tight controls from the government. + Unfavorable Internet conditions may dampen the e-commerce growth, which means that itis challenging for Biti’s to utilize e-commerce platforms to reach the potential customers if entering Turkmenistan, Section TV. Market Potential A. Identify basic appeal 1. Suitability of climate: The business environment makes Turkmenistan not a suitable destination for Biti’s due to ‘many factors, some of which are excessive government interference and low economic indicators. 2. Absolute product bans: ‘The Cabinet of Ministers tightly controls licenses to export or import the following goods: © Culturally valuable goods; ‘© Antique printed products and manuscripts; © Archaeological artifacts; © Numismaties; © Artpicces; ‘© Collections of materials on mineralogy and biology; ‘© Wild plants, bones of fossil animals, ivory, hors, hoofs, corals and other such materials, 3, Access to financing: According to OFCD, the issue of aceess to finance remains one of the most concerning issues for Central Asian countries, including Turkmenistan (OECD, 2012). Even though SMEs continue to develop, their contribution to national GDP remains low compared to the OECD average of 55% (OECD, 2012), Although Turkmenistan is currently receiving more FDI, weak legal frameworks, limited financial and banking systems, and strict state control make it difficult for SMEs to receive financial 12support (OECDiLibrary, nd). These problems may lead to difliculties for SMEs in Turkmenistan in performing the contract with Viemamese enterprises. B. Measure market potential 1. Level of footwear imports: In 2020, Turkmenistan imported $1.29M in Footwear Parts, becoming the 106th largest importer of Footwear Parts in the world, In the same year, Footwear Parts was the 284th most imported product in Turkmenistan, Turkmenistan imports Footwear Parts primarily from: Turkey (G1.11M), China ($1274), Haly ($55.3k), Uabekistan ($1.71, and Germany ($786). ‘The fastest growing import markets in Footwear Parts for Turkmenistan between 2019 and 2020 were China ($123k), laly ($47.94), and Uzbekistan ($1,718) 2 Level ofsaex | | | | | | | | Revenue (© LexmerFactnee @ LuueyFoemear © OinerFeotear © Snesers © Texte x ther Fomuesr Nob Data shot is ig curren change rates Dat ai not eect maak ips oF ual Source: Statist 3. Market potential indicators: ‘To calculate the Turkmen market's market potential the following eight dimensions are used: Market size, market intensity, market growth rate, market consumption capacity, commercial infrastructure, market receptivity, economic freedom, and country risk are all important factors to consider (globalEDGE, 2020). To begin with, Turkmenistan’s population ranks 113th in the world (Worldometer, 2021), with urban populations accounting for 51.6 percent (World Bank, 2018), demonstrating the country’s limited market size. Second, the upper-middle GNP per Capita, PPP in 2018 for around 14,5708 indicates moderate market intensity (World Bank, 2018). The real GDP 13‘growth rate in 2018 stayed at 6.2 percent, indicating solid market expansion, however itis still lower than the average rate from 2013 to 2018. (World Bank, 2018). Furthermore, consumer expenditure is only around $4.85 billion USD, showing a limited market consumption capacity (Trading Economics, 2019). The Economic Freedom index is quite low, with a score of (46.5). (2020 Index of Economie freedom, 2020), Furthermore, as noted in the Economy section, Turkmenistan has one of the world’s weakest commercial infrastructures, Its trade as a percentage of GDP is not only low, but has dropped sharply from $3.6 percent in 2017 to 35.2 percent in 2018, indicating @ lack of ‘market receptivity (World bank, 2018). Finally, country risk is significant, as evidenced by the high Business Risk Rating, Country Risk Rating, and Political Risk Rating (serv, n.d), Finally, nearly 8 categories reveal negative or moderate results, indicating that Turkmenistan is a tough business market. C, Select the market or site 1. Field trips: Secondary research is used instead of primary research in this study. Due to the COVID 19 epidemic and limited resources, field excursions are not possible; consequently, information is ‘obtained mostly through publications or past reports. 2. Competitor analysis: a, Number of competitors According to the research we found, there are 3 major shoe brands in Turkmenistan: Rovshen Shoes, The MB shoes, Gergek. Turkmenistan imports Footwear Parts primarily ftom: Turkey ($1-11M), China ($127k), Italy (855.34), Uzbekistan (81.714), and Germany ($786), . Market shares of cach competitor: The annual sales of these businesses ate quite large (sold hundreds of thousands of paits of shoes) but the company does not publicize the data, so we do not have a basis to calculate the market share, c. Appeal of competitors to segments oF mass market ‘* Rovshen-branded shoes have been produced since 2003. The company specializes in the production of classic men’s shoes. All shoes aro made from high quality genuine leather according to the designs of Italian shoe designers. © The MB shoe brand is in great demand in Turkmenistan due to its high quality and affordable price. Shoes are made of natural materials with many different colors and shapes that can meet all needs and uses, © The private enterprise Gergek, the well-known and leading company not only in Turkmenistan but also in Central Asia, has been engaged in the manufacturing of various footwear since 2015. Last year it won the nomination of “Industrialist of year” in the 4competition “Entrepreneur 2020”, organized by the Union of Industrialists and Entrepreneurs of Turkmenistan. 4. Customer loyalty to competitors ‘The Turks are thought to have significant loyalty to the top competitors in the footwear sector, as well as high switching costs. The big brands have been around in Turkmenistan for a long time, and ‘Turkmens use their products frequently enough for them to take the lead, If Bitis decides to export to ‘Turkmenistan, it will face price and quality competition, Section V Footnotes and Bibliography Statistical Review of World Energy - British Petroleum. (n.d.). Turkmenistan Natural Gas. 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