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According to the information of the Ministry of Planning and Investment, in 1998, more than 260 foreign direct investment projects were licensed with a total registered capital of US$4.06 billion
ASSESSING INTERNATIONAL JOINT VENTURES IN VIETNAM by Lai Xuan Thuy A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration Examination Committee: Dr. Fredric William Swierczek (Chairman) Dr. Truong Quang Dr. Bettina Buchel Nationality: Vietnamese Previous Degree: Bachelor of Science (Econ.) Economic University of Sofia, Bulgaria Bachelor of English Pedagogy University of Hue, Vietnam Scholarship Donor: The Government of Switzerland Asian Institute of Technology School of Management Bangkok, Thailand April 1999 i ACKNOWLEDGEMENT The author would like to express his deepest acknowledgement to the research advisor, Dr. Fredric William Swierczek for his intensive supports, valuable suggestions, guidance and encouragement during the time of the study. Many sincere thanks are also due to Dr. Truong Quang and Dr. Bettina Buchel for their valuable time, comments, and advice. Their constructive suggestions were of great help in successfully completing this study. The author would like to express his sincere gratefulness to Mr. Nguyen Minh, General Director and Ms. Thu Nga, Director Assistant at HBC, Mr. Anh Hung, General Director, Ms. Marilyn Glorioso, Chief Financial Controller, Ms. Thu Hang, Executive Secretary and Mr. Le Bo, Human Resource Manager at Century Riverside Hotel, Mr. Nguyen Nam, Deputy Director and Ms. Lan Huong, Office Assistant at Luck Vaxi Vietnam, Mr. Christophe Kaczowski, Project Manager at Thyssen Ascenseurs, Mr. Dinh Khanh, Chief of the International Relations Department in the Planning and Investment Service of Thua Thien Hue Province, Ms. Thanh Hai Project Assistants at MASCED, Ms. Minh Chau, Senior Lecturer at HCMC Economic University, and others for their precious information related to the research. The author would like heartily to dedicate this study to his beloved parents, his wife, Minh Ly and his children, Little Mai and Bao Thai who have always sacrificed to encourage and support him in life. Lastly but not least the author would like to express his faithful thanks to the Director of SAV Program and the Government of Switzerland for giving him opportunity and financial supports so that he could successfully complete his MBA study. ii ABSTRACT Based on the information from the questionnaires and direct interviews with managers of the international joint ventures, this paper focussed on assessing the joint ventures performance in Vietnam. The research results indicated that the joint ventures performed rather well in behavioral and learning, satisfactorily in strategic, but rather poorly in economic perspectives. The analysis also found significant differences in partners’ perception on success performance. The five key dimensions in success perceptions of the joint venture managers have found to be Functional efficiency, Competitiveness, Effectiveness and efficiency, Equity, and External customer relations. There are significant correlations between success factors and the operational results as well as between success factors and input, process and output indicators. Important problems and issues in the joint venture relationships have also discovered in the interviews with the managers. iii TABLE OF CONTENTS CHAPTER TITLE PAGE Title Page i ACKNOWLEDGEMENT .II ABSTRACT .III TABLE OF CONTENTS .IV LIST OF TABLES V LIST OF FIGURES VI INTRODUCTION .1 1.1.BACKGROUND AND RATIONALE .1 1.2.STATEMENT OF THE RESEARCH PROBLEM 2 1.3.RESEARCH OBJECTIVES 2 1.4.SCOPE OF THE STUDY .3 1.5.ORGANIZATION OF THE REPORT .3 LITERATURE REVIEW .4 2.3.JOINT VENTURE CONCEPTS 4 2.2.ADVANTAGES AND DISADVANTAGES OF THE JOINT VENTURE 5 2.3.MOTIVATION OF CREATING A JOINT VENTURE .6 2.4.BASIC TYPES OF JOINT VENTURES 7 2.5.PROBLEMS AND ISSUES OF INTERNATIONAL JOINT VENTURES 8 2.6.MEASURING SUCCESS IN THE JOINT VENTURE .12 5.1.1.Problems in measuring success of joint ventures 12 5.1.2.Theoretical aspects of measuring success in joint ventures .12 FOREIGN DIRECT INVESTMENTS IN VIETNAM .15 3.1.FOREIGN DIRECT INVESTMENT 15 3.2.IMPORTANT FEATURES OF FDI IN VIETNAM IN 1998 .18 RESEARCH METHODOLOGY 20 4.1.ANALYTICAL AND CONCEPTUAL FRAMEWORK 20 4.2.ASSUMPTION AND CONCEPT EXPLANATION .22 4.3.METHOD OF DATA COLLECTION 23 4.4.METHOD OF DATA ANALYSIS 23 RESULTS OF THE SURVEY .24 5.1.THE QUESTIONNAIRES RESULTS 24 5.1.3.Joint venture objectives 24 5.1.2.Assessing Joint Venture Performance 26 5.1.3.Results of Factor Analysis .32 5.1.4.Other issues of discussions .36 5.2.INTERVIEWS RESULTS 37 5.2.1.Problems Resulted From Differing Basic Objectives 38 5.2.2.Differences in partner size 40 5.2.3.Ownership and Control of the joint venture .40 5.2.4.Technology transfer .41 5.2.5.Brand name 42 5.2.6.Cultural Problems 42 iv 5.2.7.Management payment 43 5.2.8.Problems Related to the Government policies .43 CONCLUSION AND RECOMMENDATION 45 6.1.CONCLUSION 45 6.1.1.Joint venture objectives 46 6.1.2.Joint venture performance 46 Table 6.1. Ranking success factors by level of partner’s satisfaction 47 6.1.3.Problems in the joint venture relationships 50 6.2.RECOMMENDATIONS 50 6.2.1.Recommendations to the joint venture managements .50 6.2.2.Recommendations to the policy makers 51 6.3.FURTHER RESEARCH SUGGESTION .52 REFERENCES 52 APPENDIX .54 APPENDIX 1: A CASE OF HBC .54 APPENDIX 2: MAJOR CHARACTERISTICS OF THE RESPONDENTS 58 APPENDIX 3: LIST OF THE INTERNATIONAL JOINT VENTURES .58 APPENDIX 4: THE SURVEY QUESTIONNAIRE 59 LIST OF TABLES v TABLE TITLE Table 2.1. Major reasons for joint ventures Table 2.2. Basic types of joint ventures Table 2.3. Areas of Problems in the Joint Venture Table 3.1. Licensing new projects and capital raising in 1997-1998 Table 3.2. General information about FDI projects in 1998 Table 4.1. Framework for assessing joint ventures Table 5.1. Respondents’ perceptions on the joint venture objectives Table 5.2. Comparison between Vietnamese and foreign managers Table 5.3. Overall Performance of the Joint Ventures Table 5.4. Respondents’ Evaluation of the Joint Venture’s Performance Table 5.5. Comparison of the respondents’ evaluation on the JV’s performance Table 5.6. Partners’ Perceptions on the Input, Process, and Output Table 5.7. Correlation Matrix of Input, Process, and Output Table 5.8. Results of factor analysis Table 5.9. Factor Scores: Comparison between Vietnamese and Foreign Partners Table 5.10. Correlation Matrix of Success Factors and Operational Results Table 5.11. Regression analysis of Success Factors on Operational Results Table 5.12. Correlation Matrix of Factors and Input, Process, and Output Table 5.13. Regression analysis of Factors on Input, Process, and Output Table 5.14. Respondents’ views on decision-making, communication Table 5.15. Major areas of the joint venture problems and issues Table 5.16. Comparison between utility fees for SOEs and non-SOEs* Table 6.1. Ranking success factors by level of partner’s satisfaction PAGE 6 7 9 17 19 21 24 25 26 27 29 31 31 32 33 34 34 35 35 36 38 44 48 LIST OF FIGURES vi FIGURE TITLE Figure 3.1. Trend of Foreign Direct Investment for the period 1988-1998 Figure 3.2. Foreign Direct Investment Structure by Sectors Figure 4.1. Analytical framework of the research PAGE 15 16 20 vii Chapter 1 INTRODUCTION 1.1. Background and Rationale Since 1988, Vietnam has been accelerating in the process of transformation from the centrally- planned as having been for more than forty years to a freer market-oriented economic mechanism and merging with the regional and global economies. The “Doi moi” policy of the Government has actually been effective in pushing the economic development of this planned- to-be-80-million-by-2000 nation. It has created more opportunities and favorable conditions for exploiting the internal and external development factors, encouraging investments of different forms, especially foreign direct investment under various modes, including joint venture as one of the most important cooperative strategies for companies to enter and win this rigorously competitive emerging market. According to the information of the Ministry of Planning and Investment, in 1998, more than 260 foreign direct investment projects were licensed with a total registered capital of US$4.06 billion. In addition, 133 projects were approved to increase their investment capital with the amount of US$769 million. Therefore, at the end of the year, a total of US$4.83 billion of direct foreign investment capital were registered. The investment of these projects come from 32 countries around the world, leading by Russia with one project of US$1.3 billion and Singapore with 36 projects and US$893.005 million. More than 70 percent of the projects are joint ventures. Although the renovation policy of the Government has created better environment for investment, a trend of reducing foreign direct investment has been observed during the last recent years. In comparison with 1997, the number of FDI projects licensed and newly registered capital in 1998 was reduced by 21.5 % and 10% respectively. The number of failed joint ventures has been growing, while others have been trying to change the ownership to wholly owned foreign companies. Investors may start to rethink and adjust their strategies to enter the Vietnamese market through joint venture. On the other part of the landscape, the situation is more optimistic. Many international joint ventures have actually found their position in this difficult market, namely Vinacpecial, Proconco, Mekong Concrete Mix, VN/CN Catering Service, and others (Phong, 1995). Some of the joint ventures are continuing to successfully expand the market share and realize benefits such as Telstra, Long An Mineral Co., Chinfon-Haiphong Co., and so on (MPI Report No. 11 BKK/KCN January 1, 1999), despite the current financial crisis in the region. In 1998, the Government awarded certificates of merit (CM) to four foreign invested enterprises: Ajinomoto Monosodium Glutamate (Japan), Vedan MSG (Taiwan), CP Vietnam (Thailand) and Proconco Animal Feed (France) for their outstanding achievements in business activities and implementing social programs for the community. Then, what is actually the situation of the joint ventures in Vietnam? Have the joint ventures been running well? And do they have a future? Many of recent research concentrated on the 1 legal, cross-cultural, compatibility, and conflict aspects of the joint ventures to identify factors for more effective foundation and operation of the joint venture. This study is focusing on assessing the joint venture’s performance with the major objective to help the joint venture partners as well as the potential investors to have an insight into the current situations of the joint ventures in Vietnam and adjust their corporate strategies. 1.2. Statement of the research problem Knowing how well a joint venture is running is practically important for the managers and participants in the venture to adjust and develop their business strategies. Based on the information from the questionnaires and in-depth interviews with the joint venture managers, this paper is focused on evaluating the performance of the joint ventures in Vietnam. The major problem of the research is therefore to clarify the current performance of the joint ventures, that is, to answer the question of how well the joint ventures have been performed in Vietnam and what problems they meet in their operations. 1.3. Research objectives The general objective of the research is to help understand the current performance situation of the joint ventures in Vietnam, their achievements and future position in this newly emerging market. Based on the systems analysis approach, an extensive literature review, and in-depth situational analysis, the research would provide useful information for the current joint venture managers to understand the actual situation of the joint ventures and have necessary strategic adjustments. The research also helps potential investors to have more objective views on the situations of the international joint ventures in Vietnam, which would be useful for them in preparing and adjusting their entry strategies into the country. For the policy makers, the research would be an important source of information to give them an insight into the current performance of the joint ventures to have necessary policies for supporting the foreign direct investment companies in general and joint ventures in particular to achieve their goals. Specific objectives of the research can be stated as follows: 1. To develop an analytical framework for evaluating joint ventures; 2. Based on the survey, to evaluate the joint venture performance; 3. To identify the major success factors and how they affect the operational performance of the joint venture; and 4. To make important recommendations for the joint venture managers, potential investors, and policy makers in making necessary adjustments on the strategies and policies. The author would also make a suggestion of further research in the fields of interest for a deeper and more complete assessment of the joint ventures in the country. 2 1.4. Scope of the study The study was focused only on the joint ventures in the Central part of Vietnam, mainly Thua- Thien-Hue and Danang, the two major economic centers in the region. So it limits the generality of the research findings. The research did not deal with the issues of partner selection, negotiation, and termination phases of the joint ventures. Instead, the study was focusing only on the joint venture operational performance, based on the interviews and questionnaire data from the managers, currently working in the joint ventures. Therefore, it limits the wholeness of the finding information. 1.5. Organization of the report The report is divided into six chapters. As principle, the first Chapter is an introduction to the research study. The second Chapter is an extended literature review on the issues of joint venture and joint venture success measuring. Understanding the joint venture and problems related to its assessing would help easier understand the finding information. In Chapter 3, an overview of the foreign direct investment in Vietnam is made to provide an insight into the situations, in which international joint ventures are operating. Occupying about 70% of FDI projects, the joint ventures have actually played important roles in the economic development of the country. Chapter 4 deals with the issues of the research methodology. Conceptual and analytical frameworks are built to guide the research and support understanding the research results. Chapter 5 is the research result. It is subdivided into three sections. In the first section, the questionnaire results are discussed to give an overall landscape of the joint venture performance, based on the subjective information from the questionnaires. In the second section, factor analysis was employed to find key success indicators and how they affect operational results of the joint venture. And the last section is the interviews result of selected managers from the joint ventures to address the operational problems related to the joint venture performance. In Chapter 6, important conclusions about the research finding are made to give an extracted summary on the problems studied. Appropriate recommendations are also made for both policy makers and businessmen interested in the joint venture and its issues. The author also makes suggestions for further research. Additional issues of decision making, communication, and conflict solving approaches are also discussed in Chapter 6 to make clearer picture of the joint venture situations. Especially, a real case of financial performance in a joint venture was also discussed additionally in the appendix section as an illustration of the findings (see Appendix 1). 3 [...]... combines a result-oriented approach with a process approach It takes into account on the one hand the acquisition of knowledge and the attainment of learning goals, and on the other, the learning processes which support these ends (Buchel et al., 1998) Chapter 3 14 FOREIGN DIRECT INVESTMENTS IN VIETNAM 3.1 Foreign Direct Investment During the period from 1988 to 1998 foreign investors promised to invest... features of FDI in Vietnam in 1998 In 1998, foreign direct investments in Vietnam have some important changes in terms of structure, location, and investors The investment structure has considerably been changed to meet the requirements of the industrialization and modernization process of the country From the newly licensed project in 1998, one hundred and ninety three were in the manufacturing sectors,... suffered by the financial crisis have maintained their investments in Vietnam In 1998, Taiwan has 67 investment projects in Vietnam with $253 million, the same level of 1997 and Hong Kong has 23 projects with $225.3 million, 91.14% compared with the level of 1997 The direct investment from the European countries to Vietnam has strongly increased in 1998 These countries have received investment licenses... effort of the Vietnamese Government in encouraging FDI into the country 17 In 1998, the local People’s Committees gave licenses for 120 FDI projects, increased 203% in comparison with the number of projects they licensed in 1997 This reflects the decentralization in the FDI licensing of the government The more detail information about the foreign direct investment in 1997 and 1998 is shown in Table 3.1... classified into dominant partner joint ventures, when only one of the partners plays a dominant role in the decision making; shared management joint ventures, where each partner play an active role in decision making; or independent joint ventures, where 7 the joint venture’s general manager enjoys extensive decision making autonomy (Killing, 1983) A distinction should be made between joint ventures... partners involved in the joint venture’s mission, Lei and Slocum (1991) classify joint ventures as specialization or shared value-adding ventures Specialization ventures are those, in which each partner brings and contributes a distinctive competency in a particular value-adding activity While in shared value adding joint venture partners participate and share in the value-adding activity together Joint... and capital markets and involves examining variables such as free cash flows, returns on investment, net yearly profit, and increase in the shareholder’s value Typical criterion for evaluating a joint venture includes decrease in unit costs through better use of production capacity or increase in turnover as a result of a sales cooperation in a growing market From the strategic point of view, the important... the company in dealing with local companies and government agencies The high score of this variable indicates that joint ventures have been successful in building and maintaining good relationships with the local authorities Behavioral factors are very important in forming the working and other relationships between partners in the joint venture Good relationships would create favorable working environment... firms to organize production and marketing on a regional rather than a country level Joint ventures have increased in various forms and have become more strategic rather than tactical in nature According to Czinkota, Rivoli, and Ronkainen (1989) joint ventures can be defined as “the participation of two or more companies jointly participating in an enterprise in which each party contribute assets,... higher level of investment in inventive activity Joint ventures also enable firms to spread the risk associated with financially ambitious projects If channeled in this manner, joint ventures can increase output and lower costs and prices For many companies in the developing countries, joint venture could help obtain also investment capital and knowledge 5 However, collaboration among direct rivals may . the finding information. In Chapter 3, an overview of the foreign direct investment in Vietnam is made to provide an insight into the situations, in which. emerging market. According to the information of the Ministry of Planning and Investment, in 1998, more than 260 foreign direct investment projects were