KEY AREAS, CAUSES OF FDI FIRM PERFORMANCE IN BINH DUONG INDUSTRIAL ZONES A qualitative approach In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In Finance By Ms.: Vo Kim Chung ID: MBA06004 International University - Vietnam National University HCMC August 2014 KEY AREAS, CAUSES OF FDI FIRM PERFORMANCE IN BINH DUONG INDUSTRIAL ZONES A qualitative approach In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In Finance by Ms: Vo Kim Chung ID: MBA06004 International University - Vietnam National University HCMC August 2014 Under the guidance and approval of the committee, and approved by all its members, this thesis has been accepted in partial fulfillment of the requirements for the degree. Approved: ---------------------------------------------Chairperson --------------------------------------------Committee member ---------------------------------------------Committee member --------------------------------------------Committee member ---------------------------------------------Committee member --------------------------------------------Committee member Acknowledge I would like to express my sincere gratitude to my advisor Dr. Nguyen Van Phuong for his continuous support, patience, motivation, enthusiasm, and immense knowledge. His guidance help me in all the time of research and writing this thesis. I am also grateful to research participants for taking time to answer my questions. Their inputs are very valuable to my thesis. I sincerely appreciate all my friends for their willingness to help and support me. Most especially to my family, thank you for giving me strengths and love to overcome all the difficulties. Without them, I could not have completed this thesis. -i- Plagiarism Statements I would like to declare that, apart from the acknowledged references, this thesis either does not use language, ideas, or other original material from anyone; or has not been previously submitted to any other educational and research programs or institutions. I fully understand that any writings in this thesis contradicted to the above statement will automatically lead to the rejection from the MBA program at the International University – Vietnam National University Ho Chi Minh City. - ii - Copyright Statement This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the author’s prior consent. © Vo Kim Chung/ MBA06004/2012-2014 - iii - Table of Contents CHAPTER ONE - INTRODUCTION ................................................................................................. 1 1. Background .................................................................................................................... 1 2. Problem statement ......................................................................................................... 8 3. Research objectives ..................................................................................................... 11 3.1. General Objective .................................................................................................. 11 3.2. The specific objectives of the study ...................................................................... 11 4. Research questions ...................................................................................................... 12 5. Rationale ...................................................................................................................... 12 6. Thesis structure ............................................................................................................ 12 CHAPTER TWO – LITERATURE REVIEW ................................................................................ 14 1. Managerial ties ......................................................................................................... 14 2. Institutional advantages ............................................................................................ 16 3. The RBV framework ................................................................................................ 17 4. Market orientation .................................................................................................... 19 4.1 Customer orientation ......................................................................................... 19 4.2 Competitor orientation ...................................................................................... 19 4.3 Functional coordination..................................................................................... 20 5. Human resource management .................................................................................. 21 6. Supply chain management ........................................................................................ 22 6.1 Supplier management strategy .......................................................................... 23 6.2 Development strategy of customer relationship ................................................ 24 CHAPTER THREE – RESEARCH METHODOLOGY .............................................................. 27 1. Study design ............................................................................................................. 27 2. Data collection, analysis, and writing ....................................................................... 30 3. Results ...................................................................................................................... 37 3.1 Theme 1: Support capacity of local government .............................................. 38 3.2 Theme 2: Ties with top managers of the other firms ........................................ 45 3.3 Theme 3: Market orientation ............................................................................. 47 3.4 Theme 4: Supply chain ...................................................................................... 49 3.5 Theme 5: Human resource ................................................................................ 51 3.6 Theme 6: Institution advantage ......................................................................... 52 3.7 Theme 7: Differentiation/ cost advantage ......................................................... 53 3.8 Theme 8: Firm performance .............................................................................. 56 CHAPTER FOUR – DISCUSSION ................................................................................................... 58 1. Discussion................................................................................................................. 58 2. Conceptual model ..................................................................................................... 59 CHAPTER FIVE – CONCLUSION AND RECOMMENDATION ........................................ 62 REFERENCES .......................................................................................................................................... 68 APPENDIX ................................................................................................................................................ 78 - iv - List of Tables Table 1: FDI by economic sector (cumulative as at end of 2012) ................................................ 4 Table 2: FDI projects licensed and registered capital, by country of origin (Accumulation of projects having effect as of 31/12/2010)......................................................................................... 6 Table 3: FDI projects licensed by province (cumulative as at end of 2012) ............................. 8 Table 4: Characteristics of the interviews ......................................................................................... 29 Table 5: Topics covered by the interview guide .............................................................................. 31 Table 6: Challenge themes in firm performance ............................................................................. 31 -v- List of Figures Figure 1: Yuan Lu, Lianxi Zhou, Garry Bruton and Weiwen Li’ model (2010) .................... 18 Figure 2: Julie Juan Li and Kevin Zheng Zhour’s model (2009) ............................................... 18 Figure 3: Conceptual model depicting impacts of managerial ties, market orientation, human resource and supply chain on firm performance ............................................................... 61 - vi - Abstract This paper investigates the current issues of FDI firm in Binh Duong industrial zone, Vietnam. By conducting an extensive qualitative study comprised of 11 in-depth interviews with Executive managers and general director, we identify eight main themes that emerged from the data concerning the specific contents for FDI firm in Binh Duong industrial zone. Correspondents described how the managerial ties, market orientation, human resource and supply chain contribute to differentiation advantage, cost advantage and in turn lead to sustainable firm performance. In addition, respondents also noted challenges associated with implementing differentiation advantage, cost advantage. Based on prior studies and these challenges, we propose a conceptual model of managerial ties, market orientation, human resource and supply chain in FDI firm in Binh Duong industrial zone as influenced four main factors - managerial ties, market orientation, human resource and supply chain. Changes in any of the four factors can potentially influence both differentiation advantage or cost advantage and overall firm performance. The proposal and research approach have been approved by two discussion committees including members from Binh Duong Department of Science and Technology, Department of Planning and Investment, Department of Industry and Trade, Department of Labour, War Invalids and Social Affairs, and Economic Department of Binh Duong People’s Committee due to the suitability with the industrial development orientation of the province in May 2014. Keywords: Managerial Ties, Market Orientation, Human resource, Supply Chain, Foreign Direct Investment (FDI) and Firm performance. - vii - - viii - CHAPTER ONE - INTRODUCTION 1. Background Developing economies are experiencing massive institutional transformations, which present substantial opportunities and challenges for entrepreneurial firms attempting to grow their businesses. Furthermore, many developing economies are moving to market-based policies as a way of stimulating economic growth and reducing poverty. In doing so, most industrial sectors in such economies are experiencing rapid structural changes, increased environment uncertainty and unbalanced growth. These dynamics have inevitably shaped the managerial methods and the decision-making processes of many entrepreneurial firms. These could include decisions regarding how a firm pursues entrepreneurial opportunities and how customer value is created and delivered. As such, firms' entrepreneurial orientation and market orientation activities take on instrumental relevance in such economies. Firms' entrepreneurial - and market-oriented efforts are internal firm capabilities that, it is argued, can boost the success of entrepreneurial firms in challenging environments (Lee et al., 2001; Webb et al., 2011) Vietnam, a developing country, is currently not out of that flow of massive institutional transformations, since 1986. Foreign direct investment has been an important driver of economic growth in Viet Nam and is an integral part of the important economic liberalization process that is emerging from the country’s ongoing transition from being a planned economy, a process that was initiated in 1986 with the Doi Moi reform. Viet Nam has adopted a somewhat hybrid development trajectory (e.g., Beresford 2001, Fforde and Vylder 1996), often referred to as a “socialistoriented market economy” (Le 2008). -1- Firms’ performance, therefore, is important to the wealth and economic health of the whole country when they decided to shape a new era for economic development. In that, the roles of managerial ties and market orientation in emerging economies can enable a firm to achieve better performance. Institutional theory and social capital theory to enrich our understanding of the beneficial effects of market orientation, contending that network ties are important informal governance mechanisms that minimize the impact of institutional voids (North, 1990; Peng, 2003), such that network ties become increasingly relevant to firms when legal and regulatory institutions are less effective in regulating economic exchanges (Granovetter, 2005; Sheng et al., 2011). As such, they posit that because formal business-supporting institutions in emerging markets are under-developed (London and Hart, 2004), network ties (defined here as entrepreneurs' social ties with governmental authorities and with managers in other firms) may be a major facilitator of the effectiveness of firms' strategic orientation activities (Bruton et al., 2008; Li and Zhou, 2010). As mentioned, institutional advantage is another factor to be concerned. The significance of institutional advantage is proven by the effect of boosting firm performance, which was researched in China with the participation of foreign firms (Li & Zhou, 2010). Institutional advantage does not lead directly to superior performance; instead, it first leads to differentiation and cost advantages that consequently enhance performance. It helps a firm obtain a unique position and gain a cost leadership (Burgess & Steenkamp, 2006). Managerial ties help firms achieve an institutional advantage, which in turn enhances differentiation and cost advantages and consequently firm performance (Peng & Luo,2000). Entrepreneurial firms in emerging markets that suffer from institutional voids are able to increase the benefits of their entrepreneurial - and market-oriented activities by leveraging social ties with -2- governmental institutions to gain preferential access to valuable market information and resources, and to obtain official support for entrepreneurial innovations with fewer institutional delays. In addition, because of the under-developed marketsupporting systems in emerging markets, firms' entrepreneurial - and market-oriented capabilities can be facilitated by leveraging ties with managers in other firms including suppliers, customers and competitors. In emerging markets such ties: allow sharing of resources and market wisdom; reduce supply and distribution costs through smooth coordination of logistical efforts; and minimize partner opportunism (Li and Zhou, 2010; Sheng et al., 2011). Besides market orientation, managerial ties and institutional advantage, human resources and supply chain management are other factors leading to firm success; but they accomplish that success in different ways. These factors affect performance through differentiation and cost advantages, whereas the latter leads to an institutional advantage, which in turn benefits performance through differentiation and cost advantages. Several studies indicate supply chains directly influence the differentiation and cost of a firm's products and services and its exposure to risk and improving supply chain management practices has a positive impact upon improved firm performance (Mark Johnson, Simon Templar, 2011). On the other hands, human capital also relates strongly to performance (Crook, T. Russell; Todd, Samuel Y.; Combs, James G.; Woehr, David J.; Ketchen Jr., David J, 2011); Becker et al. (1997) suggested employee skills, attitudes and employee behaviors to form discretionary effort, which in turn affects business performance. By joining the World Trade Organization (WTO) in December 2006, Viet Nam had further opened its economy to be able to receive higher FDI inflows. Vietnam increasingly emerges as an alternative destination for the multinationals -3- enterprises, as illustrated by Intel’s decision to build a chip assembly and testing plant in Vietnam, and the appearance of outsourcing activities (Chaponnière, Jean-Raphael; Cling, Jean-Pierre; Zhou, Bin, 2008). By 2012, Viet Nam registered around 211 billion USD of total registered capital from over 14,500 FDI projects. The sectoral composition of FDI in Viet Nam is mainly concentrated in manufacturing, and real estate. As Table 1, Manufacturing alone accounts for the largest share of the number of FDI projects (58.0 per cent of the total) and this volume highlights some potential for intra and inter-sectoral linkages and spillovers. Table 1: FDI by economic sector (cumulative as at end of 2012) Number Sector Manufacturing of Total valid projects registered capital (mill USD) 8,072.00 105,938.7 Real estate activities 388.00 49,760.5 Accommodation and food service activities 331.00 10,605.8 Construction 936.00 10,052.0 87.00 7,488.9 Information and communication 828.00 3,941.7 Arts, entertainment and recreation 137.00 3,629.2 Transporation and storage 350.00 3,492.8 Agriculture, forestry and fishing 493.00 3,263.0 Electricity, gas, stream and air conditioning supply -4- Mining and quarrying 78.00 3,182.0 902.00 2,898.3 76.00 1,321.7 28.00 1,234.2 82.00 1,222.2 1,336.00 1,101.5 Other service activities 121.00 732.9 Education and trainning 163.00 462.9 Administrative and support service activities 114.00 193.3 14,522 210,521.6 Wholesale and retail trade; Repair of motor vehicles and motorcycles Fiancial, banking and insurance activities Water supply, sewerage, waste management and remediation activities Human health and social work activities Professional, scientific and technical activities TOTAL Source: General Statistics Office, Viet Nam Most FDI in Viet Nam comes from Asian countries. As at the end of 2012, of the total accumulated capital of effective FDI projects in Viet Nam, seven of the ten largest foreign direct investors came from Asian countries, namely Japan, China (Taiwan Province), South Korea, Singapore, China (including Hong Kong), Malaysia and Thailand (See Table 2). The invested capital by these countries accounts for more than half of accumulated FDI in Viet Nam, with US and European investors playing a less important role. With this pattern of diversification of investors, Viet Nam is reducing the risk of depending on particular countries for FDI. Foreign investment has -5- been established unevenly in the various cities and provinces of the country, the six biggest recipients of FDI being Ho Chi Minh City, Hanoi, Dong Nai, Baria- Vung Tau, and Binh Duong (See Table 3); these provinces account for nearly 50 per cent all foreign investment flows at the national level. With this pattern of diversification of investors, Viet Nam is reducing the risk of depending on particular countries for FDI. Foreign investment has been established unevenly in the various cities and provinces of the country, the six biggest recipients of FDI being Ho Chi Minh City, Hanoi, Dong Nai, Baria- Vung Tau, and Binh Duong; these provinces account for nearly 60 per cent all foreign investment flows at the national level. Table 2: FDI projects licensed and registered capital, by country of origin (Accumulation of projects having effect as of 31/12/2012) Number of projects TOTAL Total registered capital (in USD million) 14,522 210,521.6 Japan 1,849 28,699.6 Taiwan 2,234 27,129.1 Singapore 1,119 24,875.3 Korea Rep. of 3,197 24,816.0 British Virgin Islands 510 15,386.4 Hong Kong SAR (China) 705 11,966.7 Of which -6- United States 648 10,507.2 Malaysia 435 10,196.4 54 7,506.0 Thailand 298 6,063.7 China, PR 893 4,697.2 France 381 3,142.7 United Kingdom 161 2,617.3 Australia 276 1,313.2 Fed. Russian 86 1,056.0 F.R Germany 196 1,053.7 Other countries 298 1,733.1 Cayman Islands Source: General Statistics Office, Viet Nam -7- Table 3: FDI projects licensed by province (cumulative as at end of 2012) Number of projects WHOLE COUNTRY Total registered capital (USD million) 14,522 210,521.6 4,034 48,753.7 Northern midlands and mountain areas 375 4,106.5 North Central area and Central coastal area 879 44,386.0 Central Highlands 137 811.2 8,273 99,002.7 Bình Phước 102 759.3 Tây Ninh 200 1627.5 Bình Dương 2,246 17,969.3 Đồng Nai 1,101 19,945.4 287 26,298.0 4,337 32,403.2 775 10,707.9 Red River Delta South East Bà Rịa - Vũng Tàu TP.Hồ Chí Minh Mekong River Delta Source: General Statistics Office, Viet Nam 2. Problem statement In recent years, foreign investment has poured into Viet Nam, in the form of either joint ventures or wholly-owned subsidiaries, with an attempt to grab the huge potential of this growing market. Vietnam increasingly emerges as an alternative destination for the multinationals of this sector, as illustrated by Intel’s decision to -8- build a chip assembly and testing plant in Vietnam, and the appearance of outsourcing activities (Chaponnière, Jean-Raphael; Cling, Jean-Pierre; Zhou, Bin, 2008). The impressing growth of FDI flow into Vietnam has also become a growing concern in Vietnam's economic literature. While a large number of recent empirical studies investigate the triangular relationship between inward FDI, international trade and economic growth of Vietnam, there are only a few works examining the main determinants of FDI into Vietnam. In this vein the pioneer work is develop by Nguyen and Haughton (2002), who investigate the impact of US - Vietnam Bilaterlal Trade Agreement (BTA) on FDI flow into Vietnam. In a survey work, Mirza and Giroud (2004) tend to analyze the motivation of firms investing in Vietnam as well as identify several country specific characteristic attracting FDI flow into Vietnam. According political, stability, government policies, local market size and quality of labour force have made Vietnam become a wellknown destination on the world FDI map. However, according to Nguyen and Nguyen (2007), the contribution of Mirza and Giroud (2004) suffer many critical issue since it is based on a data sample quite small, only consisting os twenty - two foreign invested form in Vietnam, Nguyen and Nguyen (2007) also provide an empirical analysis of the determinants of FDI distribution across Vietnam's province. The argue the in term of FDI provincial distribution, market size, labour force and infrastructure play an important role in attracting inward FDI to Vietnam. By contrast, government policy captured by the provincial competitiveness index (PCI) does not seem to be a key FDI determinant at the provincial level. In addition, in recent years, some empirical studies on the factors affecting firm performance, such as the research find that both managerial ties and market orientation can lead to firm success in China—but in different ways (Julie and Kevin, -9- 2009). Market orientation enhances firm performance by providing differentiation and cost advantages, whereas managerial ties improve performance through an institutional advantage (i.e., superiority in securing scarce resources and institutional support). Institutional advantage, in turn, leads to differentiation and cost advantages and consequently superior performance. Moreover, capabilities could be a mediator linking resources and the international performance of entrepreneurial firms in an emerging economy (Lu et al., 2010), in which the researcher was able to demonstrate support for the mediating role of capabilities in the relationship between resources and international performance. In their research, Wang et al. (2011) offered empirical support for utilizing resource management theory to investigate the effects of managerial ties. They expanded on the social ties literature by suggesting the mediating effect of resource acquisition on the managerial ties– performance relationship. They also incorporated contingency theory to better understand the boundary conditions of the managerial ties literature and resource management perspective. The study had pushed future research to deepen our understanding of the mediating and moderating mechanisms of managerial ties in emerging economies. Additionally, Li et al. (2012), made a contribution in giving an integrated view of organizational learning, social relationships, and opportunity capture. Basing on empirical evidences, the researcher argues that both managerial ties and market orientation can lead to firm success. Managerial ties foster firm performance through an institutional advantage, whereas market orientation enhances performance by achieving differentiation and cost advantages in the Vietnamese emerging economy. However, the situation in Vietnam generally and Binh Duong specifically could be different from previous study, esp. for FDI enterprises operation - 10 - in Vietnam. Therefore, it is a need to know how firm performance will be affected by those analyzed factors, which is believed to put a helping hand in the development policy of Binh Duong province, showing how we could strengthen the government – firm relationship to achieve the highest goal of each party. The topic “KEY AREAS AND CAUSES OF FDI FIRM PERFORMANCE IN BINH DUONG INDUSTRIAL ZONES” is chosen to clarify the situation and further suggestion will be given for a stable development. 3. Research objectives 3.1. General Objective Generally, the study shows the roles of managerial ties, market orientation, human resource and supply chain in an emerging economy of Vietnam and investigates in the current issues of these factors as well as their impacts on the competitive advantage of a firm, esp. FDI firms in Binh Duong province. 3.2. The specific objectives of the study:  To provide an overview of the current issues of Managerial ties, market orientation, human resource and supply chain at FDI firms in Binh Duong Industrial zone;  To contribute in illustrating underlying explanations about how Managerial ties, Market orientation, Human resource and Supply chain help firms achieve differentiation advantages or cost advantages to enhance firm performance;  To give practical recommendations for governmental authorities and firms, after analyzing the empirical findings in Binh Duong province, which is believed to be able to reflect how the policies could be developed and how government authorities and firms could interact with each other for mutual benefits and longterm relationship. - 11 - 4. Research questions From problem statement, the study raises the following research question:  Do managerial ties, market orientation, human resource and supply chain have positive effect on FDI firm performance in Binh Duong?  What are current issues of managerial ties, market orientation, human resource and supply chain of FDI firms in Binh Duong?  What are the causes of current issues occurring of FDI firms in Binh Duong? 5. Rationale Based on prior studies and our findings, we propose a conceptual model of differentiation advantage or cost advantage in FDI enterprises in Binh Duong industrial zones, Vietnam as influenced by four main factors: (1) Managerial ties; (2) market orientation; and (3) Human resources and (4) Supply chains. Changes in any of the three factors can potentially impact both differentiation advantage and cost advantage; then the overall organizational performance is affected as a result. Unlike many previous studies on the relationship between each of independent factors and overall organizational performance, we propose a more practical model to investigate influences of all interactions among factors as well as each factor on overall organizational performance, which is suitable to the current situation of Binh Duong province. In order to achieve the research objective to have an overall look at the current circumstance and to find ways in solving appearing problems, we structure the remainder of the sections as the next part. 6. Thesis structure Chapter 1: Introduction - 12 - The introductory section will look at the reasons and factors what initiated the research. It will provide the general background of the research, aims and objectives, scope and limitations which are expected from the research and give the overview about the structure of this study. Chapter 2: Literature review This chapter builds internal validity and reliability, raise theoretical level, and sharpen the research model. It will begin to introduce the concepts Managerial ties include government support and ties with the other firms, Market orientation, Human resource, Supply chain, Critical success factor and some previous research results. Chapter 3: Research methodology This section will describe how the author studies a problem through general means which can help to achieve the goal of the study. Methodology section will introduce overall methodological approaches and indicate how they fit the overall research design. Chapter 4: Discussion In this chapter, discusses the findings of the study, reports the results of qualitative research approach, how to mine the data for all possible analytic ideas and theoretical avenues that have the potential to develop conceptual model. Chapter 5: Conclusion and Recommendations This section will describe the implications and conclusions of the research are delineated and future research suggestions and directions based on this study are presented. - 13 - CHAPTER TWO – LITERATURE REVIEW 1. Managerial ties Managerial ties refer to“executives' boundary-spanning activities and their associated interactions with external entities”(Geletkanycz and Hambrick, 1997: 654). Because economic actions are deeply embedded in networks of interpersonal relations, ties are important means for coordinating exchanges (Granovetter, 1985). Managers can use the social capital inherent in managerial ties to influence theallocation of resources and shape economic actions (Batjargal & Liu, 2004). The economic transitions make the role of ties more evident. In other words, managerial ties substitute for reliable government and the established rule of law (Xin and Pearce, 1996). Empirical studies further find that ties with government officials, as well as with top managers at other firms, positively affect firm performance (Peng and Luo, 2000). Managers function through their vital ties to the external entities on which their firms depend. In this sense, managers are brokers armed with useful ties and contacts (Geletka-nycz and Hambrick, 1997). For example, closer ties with government officials (e.g., political leaders, officials in industry bureaus and regulatory and supporting organizations) help firms achieve more institutional support such as interpreting regulations, enforcing contracts, settling negotiations, and erecting entry barriers to counter the threats and uncertainties inherent in a transitional economy (Peng and Luo, 2000). In addition, ties with government officials help firms obtain scarce resources, such as access to capital, land, and human resources. Although market-based mechanisms have been introduced into Vietnam, state regulatory regimes still exert considerable influence on firms' operations and Vietnam - 14 - local government still retains the power to allocate scarce resources and grant projects (Nguyen, Ngoc A. and Nguyen, T.,, 2007). Because foreign firms are unfamiliar with the prevailing social norms and practices in local market, they may suffer from a liability of foreignness, the additional costs of a firm operating in an overseas market that a local firm would not incur (Ramasamy et al., 2006). Network with local managers at other firms helps overcome this liability. For example, tight linkages with suppliers enable the firm to acquire quality materials and services and timely delivery. Connections with top managers at other firms in the same industry facilitate information exchange, which sometimes can reveal scarce“insider”information (Li et al., 2008). That is, ties with the business community provide opportunities for shared learning, the transfer of inside information, and resource exchange to adapt to the unfamiliar market. In summary, managerial ties with government officials and the business community enable firms to achieve superiority in terms of gaining support and scarce resources. We further argue that institutional advantage leads first to differentiation and cost advantages and then to better performance. First, an institutional advantage enables a firm to secure scarce resources more effectively than its competitors can. Because of the “economics of shortage”of production factors (e.g., materials, capital, labor, information) in many emerging economies (North, 2005), a firm can achieve a differentiation advantage if the scarce resources it acquires are unavailable to others. Even if the resources are available to others, a firm with an institutional advantage can acquire them at a lower cost, which grants the firm a cost advantage. Second, because of the weak legal institutions, the interpretation and reinforcement of rules and regulations are subject to local authorities 'discretion (Luo, 2007). If a firm can obtain legitimacy, social support, and approbation from the government, it likely builds a - 15 - unique corporate and brand image. Furthermore, the social capital generated from institutional support signifies the reputation of and goodwill toward a firm, which helps the firm conduct business more efficiently than others in fast transitioning environments in which opportunistic behavior is salient (Peng et al., 2005). 2. Institutional advantages Although extant literature has mainly focused on differentiation and cost advantages, recent research suggests that in emerging economies, competitive advantage often arises from nonmarket, institutional connections (Guillen, 2000; Peng et al., 2005), which they refer to as institutional advantage. A review of this literature suggests that institutional advantage offers essentially two benefits: superiority in obtaining scarce resources and superiority in gaining support from dominant institutions. First, as the Chinese market, Vietnamese market also is characterized by underdeveloped capital markets, a scarcity of skilled labor, and a lack of reliable market information (Li et al., 2008), business success rests critically in a firm's ability to secure scarce resources. Guillen (2000), for example, finds that close ties within business groups enable firms to gain a resource advantage including securing technology and knowhow, arranging financial packages, obtaining land and establishing plants, hiring and training workers, and so forth. With this advantage, business groups excel in repeatedly entering a variety of industries, which is difficult for new entrants to duplicate or overcome (Li, 2005). Second, because market-supporting institutions such as legal systems and stable political structures are particularly difficult to develop in emerging economies (North, 2005), support from dominant institutions is critical for business success. For - 16 - example, the Vietnamese government still plays a highly significant role in shapping, and even interfering in, economic actions through its initiation of new regulations and policies, grants of special permits, and imposition of various restrictions (UNIDO, 2011). Therefore, institutional support represents political capital that helps build a firm's public reputation, social legitimacy, and political effectiveness and that the firm can use to seize potential opportunities or counteract threats (Peng et al., 2005). In summary, institutional advantage offers a firm both tangible (i.e., securing resources) and intangible (i.e., support from dominant institutions) benefits. 3. The RBV framework: According to the resource-based view (RBV), a firm's competitive advantage stems from its unique assets and distinctive capabilities (Barney, 2001). However, a firm's unique resources do not automatically translate into superior performance; rather, unique resources lead to market positional superiority which then lead to superior performance (Barney, 2001; Zhou et al., 2008). Competitive advantage literature commonly points to two types of positional superiority: differentiation and cost (Porter, 1985). Cost advantage, or cost leadership, arises when the firm operates at a lower cost than its competitors but offers a comparable product. The primary cost drivers include economies of scale, capacity utilization, and process management, etc. Differentiation advantage is achieved when customers consistently perceive a firm's offerings as superior to those of its competitors. A firm can differentiate itself in various ways, such as providing superior service, offering innovative features, developing a strong brand name, launching effective promotion, and so on. Previous research models: - 17 - The research of Julie Juan Li and Kevin Zheng Zhour (2009) describe both managerial ties and market orientation can lead to firm success—but in different ways. Market orientation enhances firm performance by providing differentiation and cost advantages, whereas managerial ties improve performance through an institutional advantage (i.e., superiority in securing scarce resources and institutional support). Figure 1: Yuan Lu, Lianxi Zhou, Garry Bruton and Weiwen Li’ model (2010) The research of Yuan Lu, Lianxi Zhou, Garry Bruton and Weiwen Li (2010) investigates the relationships between capabilities, resources, and international performance among entrepreneurial firms in an emerging economy, indicate the mediating role of capabilities in the relationship between resources and international performance. Figure 2: Julie Juan Li and Kevin Zheng Zhour’s model (2009) - 18 - 4. Market orientation Many studies have strongly advocated that firms should adopt a market orientation to achieve competitive advantage. Market orientation places the highest priority on the profitable creation and maintenance of superior customer value (Slater and Narver, 1995). It includes three behavioral components customer orientation, competitor orientation, and inter functional coordination and emphasizes the need for the entire organization to acquire, disseminate, and respond to market intelligence from both buyers and competitors (Zhou et al., 2008). 4.1 Customer orientation: A customer orientation emphasizes understanding target customers sufficiently to continuously create superior value for them (Narver and Slater, 1990). Because customers' needs change rapidly, a customer orientation requires a clear understanding of both the present and future demand dynamics of target customers. With its external focus on collecting, analyzing, and disseminating information about customers, a customer oriented firm can anticipate its customers' changing needs and respond to them through continuous innovation (Zhou et al., 2009). With the knowledge of what customer desire, a customer-orientedfirm can make its market offerings more appealing by adjusting its marketing mix. Because customer orientation aims to achieve longterm customer satisfaction, the firm is highly motivated to provide offerings that uniquely meet the particular needs of its target market (Day, 1994). 4.2 Competitor orientation: A competitor orientation focuses on watching competitors closely, matching the marketing initiatives of competitors quickly, and understanding both the shortterm strengths and weaknesses and the long-term capabilities and strategies of current and - 19 - potential competitors (Narver and Slater, 1990). Because its emphasis is to“meet and beat the competition,”a competitor orientation enables a firm to compare its capacities and offerings with those of its competitors. After scrutinizing its value chain compared with that of its competitors, the firm can identify possible ways to streamline and reduce costs (Porter, 1985). Moreover, with a clear understanding of its own and its competitors' strengths and weaknesses, the firm may choose to pursue a unique, untapped position and achieve a differentiation advantage (Day, 1994). 4.3 Functional coordination: Finally, inter functional coordination focuses on the dissemination and use of market information through coordinated efforts across the whole firm and emphasizes the collective use of the organization's resources to deliver superior customer value (Narver and Slater, 1990). The basic idea is that every employee of a company can contribute something of value to customers, so if the firm can coordinate and integrate its financial, human, and other resources, it can provide goods and services that better suit its customers' needs. In addition, by improving cooperation among different departments, inter functional coordination can lead to greater efficiency and thereby decrease production and administration costs (Jaworski and Kohli, 1993). With its three behavioral components (customer orientation, competitor orientation, and inter functional coordination), a market orientation enables the firm to respond to market intelligence in a timely and efficient manner and deliver superior value to meet the unique needs of its market. Thus, it is a source of cost and differentiation competitive advantages. - 20 - 5. Human resource management As the research of Paul and Anantharaman, 2003, human resource practices will ‘‘cause’’ higher performance, the fact that see ‘‘how’’ something is done is supposed to be much more important compared to just ‘‘what’’ has been done. The intervening steps in the human resources management (HRM) performance relationship is considered to be important in the further argument of Becker and Gerhart, 1996 The human resources management -outcomes are separated in to ‘‘employee skills’’ (employee competences, cooperation), ‘‘employee attitudes’’ (motivation, commitment, satisfaction) and ‘‘employee behavior’’ (retention, presence) Paauwe, 2004; Lepak et al.,2006. from Human resources management influences performance in relation to contextual factors from the external environment such as business strategies (Schuler and Jackson, 1987), the ‘‘resource-based view’’, i.e., HRM influences performance according to the human and social capital held by the organization (Barney, 1991), and the ‘‘AMO theory’’, i.e., HRM influences performance in relation to employees ability, motivation and opportunity to participate (Appelbaum et al., 2000). Specifically, the theoretical frameworks used for explaining the HRM-performance relationship did not provide a specific structure that defines the precise mechanisms through which HRM policies influence business performance (Wright and Gardner, 2003). This research design did not consider the intervening steps, or the mediating variables, between HRM policies and business performance. By the deep interview, the research explores the reality in FDI enterprises’ judgment about the Vietnamese labor in the current circumstance. For example, suggested that HRM policies shape employee behaviors that consequently have an impact on business performance. Wright and Snell (1998) suggested that HRM policies improve - 21 - employee skills that affect employee behaviours, which in turn have an impact on business performance. At the other hand, Becker et al. (1997) suggested employee skills, attitudes and employee behaviors to form discretionary effort, which in turn affects business performance. Furthermore, although it was accepted that HRM is positively related to organizational performance, there was a great need for additional evidence to support the HRM-performance relationship from different contexts. Hence, this research conduct the interview for 11 FDI firms in Binh Duong industrial zone to find out the true story about the essential of human resource management to the firms’ performance and the requirement of FDI firm for Vietnam labor. Specifically, while a few investigations have been initiated in other parts of the world such as in emerging markets and in transitional countries, the literature highlights that most of studies examining the relationship between HRM and organisations performance have been conducted in the United States and to a lesser extent in the United Kingdom. Therefore, the question that arises is whether the US/UK-oriented models, however appropriate they might be for Vietnamese. This paper investigates how HRM influences organizational performance in the Viet Nam manufacturing context. Therefore, it would be interesting to push forward the debate on the HRMs role in improving organizational performance to countries such as Vietnam. 6. Supply chain management With the increasing demand of consumers for the quality, variety of products and customer service, the rising prices of raw materials became significant challenge for many firms especially for FDIs who have almost import. In the research released in 1980, Porter said that latest weighs the importance of the consumer and the ability - 22 - to link the needs with the capabilities of providers will optimize product distinction and limit costs. Then in 1985, Porter continued to develop the theory and point out its eastern partnership to competitive advantage of business. The research laid the foundation for the development of strategic supply chain management and its relationship to the competitiveness and performance of the business. Based on the materials of research on supply chain management strategy and its relationship to business operations, there are two notable impacts aspect that is: strategic management and strategy development to customer relationships. 6.1 Supplier management strategy: Nowadays, the purchase of materials with acceptable prices from suppliers becomes more difficult. Supplier management strategy is crucial for a firm to achieve competitive advantage in terms of cost. This requires a comprehensive approach to manage the business interactions between a company and its suppliers. According to Inman and Hubler 1992, by strategically managing the supplier, a lot of businesses successfully form a block key supply to ensure the quality of products purchased as well as time saving. Recent studies have also shown that the management of the distribution system could be set stably in order to achieve the objectives of sustainability, improvement of efficiency and improve the ability to provide and serve the customers. The partnership can be viewed as a necessary component in the process of exchange among the members of the distribution channel allowed the members of the distribution system to achieve the objectives set out and best meet the expectations of the consumers in the end. According to Joffre et Koenig (1992), the coordination in the distribution process is a prerequisite to develop between enterprises in terms of resources as well as the efforts of the relationship. Perspectives of cooperation in - 23 - relation to exchange is one of the effective means to develop and control or reduce competition among the subject. More than that, it would be advantaged for cooperation to the members of the distribution system, efforts to achieve the objectives of sustainability, improvement of efficiency in the relations and improve the ability to provide and serve the customers. 6.2 Development strategy of customer relationship: In a recent survey of European manufacturers, Van Hoek (1999) pointed out that to speed up the distribution process and improve customer service, manufacturers as well as the retail business today have to raise the flexibility, credibility in the transportation and distribution top out of structure and supply chain management. One of the strategic objectives of the function of the transportation and logistics is to reduce inventory in the supply chain, at the same time maintain or improve customer service (Houlihan 1988; Jones and Riley, 1987). A supply chain can complete this task by effectively redistributed product in the distribution system by using suitable delay strategies and effective speculation (Davis 1993; Pagh and Cooper, 1998; Scott and Westbrook 1991) some researchers have focused on the relationship between customer relationship management strategy and operations of the business. For example, Deshpande, Farley, and Webster (1993) found that customer orientation was positively related to the company activity. Ellinger, Daugherty, and Keller (2000) examined the relationship between the performance of distribution and service company activity (including consideration of corporate profit, sales growth and customer satisfaction) and indicate a relationship incredibly active. Therefore, the research and exploration of influence factors other relations strategy will contribute to improve the supply chain management process for efficient enterprises and sustainable development in emerging economies like Vietnam. - 24 - Supply chain management is a developing stage of the logistics (logistics). The economic and Social Commission for Asia and the Pacific (Economic and Social Commission for Asia and the Pacific-ESCAP) noted that logistics has evolved through three phases: phase 1 – distribution (Distribution) that is managed in a systematic way the activities related to each other in order to supply products goods to the customers most effectively. This phase consists of the following business activities: transport, distribution, storage of goods, warehouse management, packaging, labeling, packaging. Phase 2-system is Logistics: this phase coordination management of both sides on the same system as providing materials and product distribution. Phase 3 is the period of supply chain management. According to the ESCAP then this is the strategic concept of governance relations chain from raw material suppliersmanufacturers-to consumers. Supply chain management concepts focuses on developing relationships with partners, incorporating tight between producers with suppliers, consumers and other stakeholders such as the shipping companies, warehouse, logistics and information technology companies. For the company, supply chain management are very large because it solves both the input and output of the business effectively. By changing the input material or optimising the rotation of materials, goods and services, supply chain management can help to save costs, increase business competitiveness. There are many companies have reaped great success thanks to know the strategy and appropriate management solutions. In contrast, there are some companies failed because the wrong decision as picking the wrong source of material, choose the wrong warehouse location, calculating the amount of the reserves is inconsistent shipping organization, confusing, overlapping (Mabert and Venkataramanan 1998) - 25 - Many studies have explored the relationship between direct and indirect supply chain management strategies and operations of the business. In the survey of North American manufacturers, Stank, Keller, and Daugherty (2001) points out that supply chain management leading to the improvement of logistical services. The more unified supply chain, the higher the production that company will reach(Armistead and Mapes .1993). But there is a lot of research has been conducted tax issues related to the importance of supplier management as well as customer relationship management, but the interactions between them worship as the level that affect the success of the management of supply chains and business operations has no been implemented specifically. With an emerging economy, Vietnam's Binh Duong in General and in particular, our research, the effective relationships between the factors the impact of supply chain management strategy will create a solid foundation for the long-term development of the industry and promote the process of attracting foreign investment in the integration and improvement of the high economic position. - 26 - CHAPTER THREE – RESEARCH METHODOLOGY 1. Study design The proposal and research approach have been approved by two supreme committees due to the suitability with the industrial development orientation of the province in May 2014. Based on approved factors and expertise’ suggestions, the interview structure was shaped and conducted with the participants of 11 head of companies in Binh Duong industrial zones. The research is expected to figure out and solve current problems affecting firms’ performance of companies in the area, as the requirement of Binh Duong Department of Science and Technology, Department of Planning and Investment, Department of Industry and Trade, Department of Labour, War Invalids and Social Affairs, and Economic Department of Binh Duong People’s Committee. The researcher tried to contact with many corporation to arrange appointments with potential research participants. A letter briefly describing in details the purpose of the study and the planned interview was sent by email to participants. Follow up by telephone was made 1 or 2 weeks after the letter, to participants who had not yet responded. We initially contacted with 30 participants, but many of them did not reply. Of the 30 corresponds, 11 correspondents agreed to have an interview. Informed consent was discussed in detail at the beginning of the interview. We conducted the interviews from May to July 2014, participants also required us to assure that we would not use any sensitive stories during the conversation to against them. Therefore, all respondents are assured that their voluntary participation will remain anonymous. Participants were purposively selected to cover different industrial fields, specialties, and nationality (see Table 1). Industry specialties were chosen as textiles, apparel, footwear and support industry. - 27 - Qualitative interviews were conducted with 11 in-depth interviews with two director and their assistant from paper company, one director and his assistant from chemical company, one director his assistant from plastics company, one director furniture company, one finance manager from apparel company, one finance manager and his assistant from textiles company, one finance manager his assistant from footwear company; one manager assistant from a chemical company, one human resource manager from a stuffed animals company. Research participants were in Binh Duong province, Vietnam, with ages ranging from 33 to 55. The interviews were semi-structured and the interview guide contained the topics to be covered (Table 2) and suggestions for key questions. The sequence of topics depended on the answers received, and the interviewer made sure that all topics were covered, using prompts. Managerial ties, market orientation, human resource, and supply chain are thought to contribute in differentiation and cost advantages of the firm, as the information gathered from the interviews. Each interview took between 60 and 90 minutes, most interviews were recorded with the permission of the participants being interviewed. After the interviews, the recordings were transcribed into computer files. Interviewees were asked about their own evaluation of in business performance and differentiation advantage or cost advantage of firms in Binh Duong in general and their firm in particular. To facilitate the interview conversation, each participant received a list of related issues to achieves differentiation advantage and cost advantage of FDI firms, which included themes such as general information of his/her firm, demography, ties with government, ties with the other firms, market orientation, human resource and supply chain and others. - 28 - Table 4: Characteristics of the interviews Number of respondents (n =11) Sex Male 9 Female 2 Grades CEO 5 CFO 3 Manager assistant 1 HR manager 2 Experiences From 5 to 10 year 4 Over 10 year 7 Nationality Japan 2 Korea 4 Taiwan 4 Thailand 1 Speciality where working Manufacture of wearing apparel 2 Manufacture of textiles 1 Manufacture of paper and paper products 2 Manufacture of chemical products 2 Manufacture of plastics products 1 - 29 - Manufacture of furniture 1 Manufacture of footwear and related products 1 Manufacture of stuffed animals 1 2. Data collection, analysis, and writing: Evidentiary and adequacy are main concern for rigor in qualitative study. It means that the researcher need a sufficient time in the field and extensiveness of the body of evidence through conducting and using data (Creswell, 2007). The interviewer used both unstructured and standard, semi-structured interview guides including open-ended questions to both frame the interviews and permit direct investigation of additional information in the expert interviews and case studies. All of the interview transcripts are rigorously read and coded in the style of previous studies approach to data analysis. This qualitative design enables me to meet the objectives of the research that permit investigation of the different problems occurring differentiation advantages, cost advantages of firms in Binh Duong industrial zones. Qualitative approach is chosen because it enables us to explore the natural research that experts’ and companies’ perspectives about differentiation advantages, cost advantages are multidimensional, making them difficult to investigate quantitatively (McAlearney, 2006). Furthermore, using qualitative approach enables us to explore both experiences and predictions of experts and organizational representatives, and provide much more information about the multi facets of differentiation advantages, cost advantages of firms’ challenges in Binh Duong industrial zones. During initial or “open coding” process, I follow Strauss & Corbin (1998) to mine the data for all possible analytic ideas and theoretical avenues that have the potential to develop our conceptual model. Besides, we also use other - 30 - methodology analyses such as word-by-word coding and line-by-line coding (Charmaz, 2006). Table 5: Topics covered by the interview guide Managerial ties (with local government and the other firms) Institution advantage Market orientation (customer, competitor…) Human resource (quantity, quality) Supply chain (supplier, customer…) Differentiation advantages/ cost advantage Firm performance Table 6: Challenge themes in firm performance Theme 1 Challenge Representative commends Support capacity of local “The procedure of licensing a business government – challenges permit is still long and complicated, leading associated with the local to many difficulties for FDI enterprises government’s when investing in Vietnam” managing hierarchy and the ability “There is no tax deduction for damaged to processing products as well” support problems. enterprises’ “There is no regulation, no legal basis, and no guidelines for checking enterprises’ transfer pricing activities” “Police departments from industry to ward to district level just evaded and laid - 31 - responsibility to each other because they said that this company was not under their duty” “The required workers’ minimize wage has risen so rapidly from 970,000 VND in 2006 to 2,700,000 VND in 2014, which means the increase rate is about 15% per year” “Problems regarding workers’ unreasonable strikes are not well solved by the local government” “The certificate term should be longer and training should be reorganized each year instead of forcing workers to get new certificates” “The notification of power cut was too late and even unexpected power cut frequently happened, causing huge losses for enterprises in their production and delivery activities” “We have to collect fake products by themselves to protect our brand” “Invoices of goods which are in production process has not been clearly defined, causing difficulties for enterprises when shipping goods” - 32 - “Rats attack goods sometimes and the road system is not well maintained compared to that at other industrial parks”. “Enterprise is confused by the registration of new chemical patterns since there is no clear guide from the local agencies” Theme 2 Ties with top managers of the other firms – be “Ties with customer and supplier were established mainly based on the current ties proactive in contributing of parent company in foreign country” the ties in management “We have organization of Korean people in and limiting the risk and Viet Nam to support on the social life such dependent as on parent company. accommodation, entertainment but lacking of the information exchange in economics news, legistration changes” Theme 3 – “Labor costs are the main cost , accounting challenges market for 80% of our production cost, which have expansion, production direct influence and major impact on the Market orientation resources maximization to production cost advantage of our business” increase profits. “Workers are well evaluated in general but there are differences in the skill level of each worker. Despite uneven level of expertise, they still can meet the production requirements and ensure product quality - 33 - after the process of short-term training” “ The skill of workers in Vietnam are not as high as those in Malaysia and Indonesia while their labor costs are repeatedly increased” “We had funding policy for the local vocational schools to maintain the stability of their skilled workforce” “Vietnam as a huge consumer market, extremely potential with the population of over 100 million people” “After we achieve the stable in performance, we will to research to expand market in Viet Nam” “Our products are products with high quality and high price, which are usually hard to be consumed in Vietnam market” Theme 4 Supply chain- contributing “We used 90% fabric material imported the supply chain for local aboard, it was difficult to find the source of market, domestic material” connecting between firms to optimize “We have to make plan for producing every the three-month or six-month for stock-security benefit competitive advantage. and purpose” “In the emergency lacking of materials - 34 - arising from defective products, we must to find domestic materials supplies, which is very difficult and costly” “Material resources in domestic have higher cost compared to imported materials and the quality of domestic material are unstable” “The products of domestic auxiliary firms do not satisfy the demand of our companies’ input materials” Theme 5 Human resource- management good systems, “There are the instability of labors’ productivity”. reward policy, training, “We have financial support for local and vocational schools to nurture the source of a clear development career orientation workforce”. for employees will bring “Common labor force in this sector is great of plentiful; they are smart, hardworking and resources can achieve high production efficiency if advantages manufacturing to the business. being trained and guided” “We difficulty in finding high-skilled employees in producing high-quality, due to the lack of recruitment proactiveness and relationship with universities.” “The new engineers are graduates with high qualifications but not equipped with the - 35 - practical knowledge of society and soft skills in communication.” Theme 6 – “We have the support from their parent Efficient use of resources companies in inputs such as labor training, and capital, Institution advantage relationships achieve to institution management and technological know-how” to “We have available management system differentiation and cost leveraged from parent company, customers advantages to enhance the and suppliers of us also suggest from parent performance of the firm company” advantage leads "We have short-term loans in the local banks but the tax is high" "We was supported of parent companies and other companies in the same group for loans with the low tax rate even equal 0” Theme 7 cost “We do not much attention to create new advantage- Challenges of products, we only focus on satisfy in diversity of types, quality, quantity and design, customers at the right time, and providing Differentiation/ price of the products for good after-sale services” products and efficiently the resources “By any ways, we must have to understand competitive thoroughly the demands of the customers to achieve advantage. using quality of and satisfy them” - 36 - “We attempt to innovation, matching the quick change of customers’ demand”. “We have risks due to raw material imports”. “The advantage of low labor cost is gradually eliminated due to the regulation of increasing salary ceiling for workers in recent years” "we have tend to move the expanding investment activities to neighbour countries” Theme 8 Firm performance Challenges differential in – creating advantages and cost advantages. “Our products have to compete with many foreign products.” “We have no connections with institution advantage.” “Industry products of in manufacturing Viet Nam is auxiliary inefficient operation, no support for the manufacturing sector in the country” 3. Results We arranged eleven in-depth interviews with the managers of eleven enterprises in different industrial zones around Binh Duong province. After those meetings, we finally arranged seven key themes concerning the challenges that - 37 - directly impact firm performance. Each theme is discussed in more details as the following at Table 6. 3.1 Theme 1: Support capacity of local government Challenges associated with the local government’s managing hierarchy and the ability to support enterprises’ problems. Supports from People’s Committee of Binh Duong: Almost respondents stated that People’s Committee of Binh Duong has provided support activities in improving the investment environment through overall policies on economic and social development. Besides, according to respondent 3, 5, and 11, the local government usually meets foreign organizations visiting Binh Duong to find investment opportunities and holding seminars to learn about the investors’ difficulties and problems so that those investors can receive appropriate assistances in the near future. In recent years, road traffic system in Binh Duong province has been strongly improving with the appearance of many traffic constructions such as boulevards from Binh Duong to Hoa Lu border gate, from Binh Duong to Dong Xoai, from Binh Duong to Dau Tieng, My Phuoc - Tan Van freeway, etc. As can be seen, this system links industrial zones in Binh Duong with other provinces, making the goods transportation of enterprises become much easier. Besides, as respondent 1 reported, “The local government also focuses on developing more constructions such as housing, commercial centers, training centers, medical centers, and modern international hospitals for public healthcare”. Furthermore, respondents 1, 2, 3, and 9 noted that some countries such as Japan, Korea, Taiwan, etc. have established organizations such as Association of - 38 - Japanese speaking people, Taiwanese Merchant Associations, Korean Chamber of Commerce (KOCHAM), etc., which have a good relationship with the People’s Committee of Binh Duong. Therefore, the member enterprises can conveniently exchange information with one another and report their difficulties to the local government. With legal procedures related to investment and business activities, respondent 1 stated, “Improvements in clarity, transparency, and process time have been done significantly. However, management agencies need to provide more supports for public services in some other issues, especially taxes”. The tax service is one of a major concern of firms when operating in Vietnam. The documents needed in this process are often said to be complex and unambiguous. Therefore, the improvement is needed and the simplicity in tax submitting and declaring process is a desire of every business. Supports from Binh Duong Industrial Zones Authority (BDIZA): All the respondents emphasized the supports from BDIZA, the agency directly managing all the firms in Binh Duong industrial zones. However, those supports are just within BDIZA’s jurisdiction such as guiding enterprises through administrative procedures to modify certificate of investment, work permit, building permit, procedure of construction completion, land lease contract, and some other legal support activities. As respondent 4 noticed, “The procedure of licensing a business permit is still long and complicated, leading to many difficulties for FDI enterprises when investing in Vietnam” In addition, many informants also need BDIZA’s supports in updating law information, especially homogeneous law and administrative procedures systems. According to respondent 5, different regions have different regulations, leading to - 39 - many difficulties for enterprises whenever they do business outside their locations. The required documents in a province could be different from others for the same demand. For instance, firms operating in Binh Duong may face difficulty in asking for investment license in Ho Chi Minh city, due to the fact that identity documents of investors are not required to be fully authorized in Binh Duong while this is a must in Ho Chi Minh city. Thus, it will cause not only a waste of time but also travelling costs for handling work and supplementing records. Supports from Vietnamese Customs: Custom procedures concerning import, export, and liquidation of imported goods have been improved effectively through online products enumeration. Respondent 6 and 8 stated that each procedure consists of many stages such as customs documentation creation, customs declaration, customs procedure registration, customs inspection, tax obligations, etc. and enterprises had to submit paper documents for each stage to Customs Branch. However, thanks to that online customs tool, customs inspection has already been removed and the enterprises do not need to come to Customs Branch for completing the above procedures, making their import and export activities done much faster and easier. Customs Branch is now classifying firms into different groups. There are 3 categories (green, yellow, red) called checking paths divided based on the law accordance level of a firm. Due to this, the authority could simplify the process of checking goods for the firm is green category; thereby helping firms to reduce stock during customs process. Despite these improvements, chemical import is still facing certain limitation in the customs process. It takes 10 days for a chemical material to successfully obtain a Chemical Registration Document, while the delivery often takes only 3 days. Therefore, carrying cost is included in 7 days waiting for the process to be finished. - 40 - There could be flexible methods to reduce the cost for firms that usually import chemical materials. New or unusually importing firms may not find ways to deal with this effectively. Supports from banks: Most firms can get their supported capitals from domestic banks or foreign banks in Vietnam; however, loans from local banks are usually short-term ones due to a very high interest rate. Thus, FDI firms usually prefer the loans from their parent companies or other companies in the same corporation. Most Japanese firms are originally derived from their parent companies; therefore, they do not have local loan demands according to respondents 3, 5, and 11. Similarly, Thailand companies need loans for specific projects solely, not for annual operation. Different from these 2 kinds of companies, Taiwan companies operating in Binh Duong are often private enterprises, so they could be the main subjects for Vietnamese bank loan. Tax issues: In contrast to the improvement of custom procedures, tax is an obstacle for any firm in Binh Duong industrial zones according to respondent 1. For example, in the past, producing or processing enterprises with export rate over 80% would be entitled to get a preferential tax rate of 10%; however, in 2009, the Ministry of Finance issued a new decree that this preferential rate would be abolished in 2012. Furthermore, many respondents stated that the tax authorities do not have clear guidelines on the application of tariffs and preferential tariffs. Particularly, enterprises often receive various kinds of guidelines; even different tax agencies apply different tax rates and as respondent 2 reported, “There is no tax deduction for damaged processing products as well”. Transfer pricing issues: - 41 - Some informants mentioned transfer pricing as another problem of investing in Vietnam. Specifically, there is no regulation, no legal basis, and no guidelines for checking enterprises’ transfer pricing activities. Moreover, respondents 1, 7, and 9 noticed that using production costs of domestic enterprises to check the transfer pricing of FDI enterprises are not adequate and more importantly, Vietnamese State imposes price on FDI firms while they could not have a detailed look at the overall process and material value of every industry. This leads to the fact that the transferred price does not usually fit with the current situation and desire of a firm. On the other hand, governmental authorities do not have a strong belief in the transparency of firms and independent audit organization to let them decide the transferred price themselves. A Japanese company gave the info that they could successfully overcome the difficulty caused by transferring price thanks to an international audit company introduced by its parent company. Generally looking at two sides of the problem, we realized that there is a conflict of interest existing between firms and governments. This conflict is a result of the lack in regulation and a deep investigation of government authorities, causing an inability to balance the interests and reach mutual benefits. Security issues: Most respondents appreciated the security in Binh Duong industrial zones. Nonetheless, according to respondents 7 and 10, it is not well supported by local agencies. For example, when a group of strangers came to a garment processing company and beat some workers there, which was beyond the firm’s control, firm managers reported to the industrial zone police department to ask for help; however, they just received a response that dealing with this problem was the responsibility of the district police department. More badly, after a contact with the district department - 42 - had been made, a similar response that the firm was not under their protection and it should report to the industrial zone authority was sent to the managers. As a result, it were those managers who had to solve that conflict by themselves. Labor force and strike issues: Respondents in garment processing field noticed the policy of workers’ wages, which the change in this law has strongly impacted on their firm performance. One informant noted that the required workers’ minimize wage has risen so rapidly from 970,000 VND in 2006 to 2,700,000 VND in 2014, which means the increase rate is about 15% per year. As can be seen, this rate is the main obstacle for foreign firms to decide to expand their investment; therefore, they are turning to invest in other countries in the same region. On the other hand, problems regarding workers’ unreasonable strikes are not well solved by the local government. As respondents 2 and 8 reported, “Department of Labor, War Invalids and Social Affairs does not have proper solutions and regulations for solving this problem. In addition, training sessions about job security are required by laws, but FDI firms, especially those with a large number of workers, usually face difficulties in training costs and registration to Department of Labor, War Invalids and Social Affairs. Hence, they usually need supports from the State in organizing those training courses. Fire protection issues: Fire protection in Binh Duong is not good enough and the compensation procedures for fire protection are still complex. Getting firefighting training certificates every year is compulsory, which raise training costs for enterprises. Moreover, heterogeneous certificate systems and requirements are different among Binh Duong province, Ho Chi Minh City, and other areas, leading to a situation that workers have to get different certificates a year. Hence, as respondent 1 noticed, “The - 43 - certificate term should be longer and training should be reorganized each year instead of forcing workers to get new certificates”. Power supply issues: Many respondents, especially those at My Phuoc industrial zones also complained about the power supply in some Binh Duong industrial zones. Some reported that it is not stable compared to that at Vietnam-Singapore Industrial Park; some said that the notification of power cut was too late and even unexpected power cut frequently happened, causing huge losses for enterprises in their production and delivery activities. As one respondent stated, “One day, the sudden power cut happened at our industrial zone, so we had to let our workers go home but still gave them a full working day payment". Thus, to ensure the stable power supply for enterprises, “Each industrial zone should invest some power plants”. Market management issues: In addition to the power supply, the management of the domestic consumer market as well as the origin of the goods is still a challenge as well. Garment export enterprises are often imitated their brand name and products, which can be seen at some domestic markets like Saigon Square. In order to solve this problem, according to respondents 1 and 7, they have to collect fake products by themselves to protect their brand due to poor supports from the market management agency. Furthermore, as respondent 6 noticed, “Invoices of goods which are in production process has not been clearly defined, causing difficulties for enterprises when shipping goods”. For instance, one investor of a processing firm reported, “When my firm’s truck was transporting products, a police suddenly stopped it and required the driver to show shipping papers. However, my firm did not know what papers should be showed and what regulation this requirement bases on” - 44 - Environmental protection issues: Respondent 8 reported that all the industrial zones in Binh Duong have their own wastewater treatment systems and each enterprise needs to sign a contract with the infrastructure investor of their zones to use it. However, some firms complained about the environment situation at their zones because it is not well concerned. For instance, as respondent 2 noticed, “Rats attack goods sometimes and the road system is not well maintained compared to that at other industrial parks”. Besides, informants 8 and 10 stated that they have to perform registration procedures for confirming chemical substances that they use to import raw materials for production is not necessary because the procedure time is too long and the firms must suffer some costs when waiting for the completion of this procedure. Enterprises that do not always import chemicals are also confused by the registration of new chemical patterns since there is no clear guide from the local agencies. 3.2 Theme 2: Ties with top managers of the other firms Be proactive in building ties with top management and limiting risks and dependence on parent companies. Ties with supplier Most respondents judged that ties between executive managers with their suppliers as well as customers played a significant role in the operation and management. Those ties, which are based on the peer relationship that both parties coordinated to each other to optimize their profits and limit the risk and price fluctuation, are being expanded in order to get deeper customers’ understanding and to develop business effectiveness. Ties with customers - 45 - Most informants stated that their ties with customer are mainly based on their current relationship with customers and suppliers through the supports from their parent companies in foreign countries. The three criteria for a strong tie are cooperation, linkage, and commitment, meaning that enterprises always guarantee to be the best supplier in delivering high-quality products with not only ordered quantity but also appropriate prices. Besides, as respondents 2, 6, 8, and 10 reported, “We always receive notifications of our customers’ business plans, so we can totally create our own suitable production plans to ensure good supplies for them” Ties with competitors The respondents claimed that they did not have any linkage with their competitors since the nature of the relationship between two firms is the coordination and support to each other. According to respondents 1, 4, 5, and 9, different garment processing companies have different kinds of processing products, target customers, and target markets; moreover, all their orders come from their parent companies or other firms in the same corporation. Therefore, there is almost no competition among those kinds of companies in Vietnam. On the other hand, the reports of the chemical glue and chemical firms (or respondents 8 and 10) showed that they are almost the monopoly in their field, so they have no competitor in Vietnamese market. Other ties “Many organizations for foreigners have been established in Vietnam, but they are just used for supporting some social issues such as accommodation, entertainment while business activities need much attention”, said respondents 3, 5, and 10. - 46 - 3.3 Theme 3: Market orientation Market expansion, production resources maximization to increase profits. Depending on their goals, investors have different market orientation: export orientation and domestic orientation. Export orientation: Group of firms following export market orientation are now targeting the cost advantage of cheap labor cost of Binh Duong province to exploit; their businesses are mainly in the processing industry, and essentially outsourcing for parent companies located in other countries or companies in the same group. The firms said they often paid little attention to the local or domestic raw materials, because their production materials are mostly provided by the customers or delivered by their parent company to reprocess, and the final products are exported back or directly to the customers as per request of the parent company (outsourcing company). So, for those investors, or respondents 1, 7, and 9, labor costs are the main cost, accounting for 80% of their production cost, which have direct influence and major impact on the production cost advantage of business. Regarding the quality of human resources, the respondents in the chemical and wood processing industry gave the information that Vietnamese engineers and technical staff are well skilled, hardworking, intelligent, and compliant with the legislation. On the other hand, workers are well evaluated in general but there are differences in the skill level of each worker. Despite uneven level of expertise, according to respondents 2, 3, 6, and 8, they still can meet the production requirements and ensure product quality after the process of short-term training. Businesses operating in the sector of garment processing argue that Vietnam generally or Binh Duong specifically is no longer an attractive investment location for - 47 - them. Based on the report of informant 9, it can be seen that apparel outsourcing market is a fiercely competitive market in price, but the skill of workers in Vietnam are not as high as those in Malaysia and Indonesia while their labor costs are repeatedly increased; the current minimum wage here is higher than other countries’ in the region. Some respondents revealed they had funding policy for the local vocational schools to maintain the stability of their skilled workforce. Orientation for domestic consumption The second group - domestic market oriented - is divided into two subgroups, one is the manufacturers of ancillary products; and the other is producers of consumer goods. Those producing commodities are usually investors aiming at the growth of domestic economy to expand their markets in Vietnam. The respondents evaluate Vietnam as a huge consumer market, extremely potential with the population of over 100 million people. The highlighted strengths could be listed of this market are political stability, safe social environment, strategic location in Southeast Asia, and the young, dynamic and educated population. In addition, Vietnam also has a quick local market growth. The event that Vietnam joined the World Trade Organization in 2007 opened up more opportunities for businesses to increase trade cooperation and investment. Respondents 1, 7, and 9, moreover, indicate after they achieve the stable in performance, we will to research to expand market in Viet Nam. The firms manufacturing ancillary products, such as glue and packaging materials, are investors aiming at serving traditional customers, also known as their target clients. They are willing to follow their target customers to anywhere to meet the demand of these ones’ production, reducing risks and cost of transportation. The - 48 - informants 2 and 8 agreed that their advantage is mainly in terms of quality and reputation to customers, but not in price competition. Ancillary companies in high-tech industries often offer products with high quality and high price, which are usually hard to be consumed in Vietnam market according to respondent 3 Specifically, the government regulation for premium plastic industry in developed countries like Europe, USA, Japan, Korea and so forth are stricter; for instance, plastic products used for water pipes must not contain toxic substances such as lead; therefore, manufacturing enterprises in this industry have to meet many high quality standards. Meanwhile, the situation in Vietnam is different; buyers tend to consume plastic materials of water pipes containing lead, which has lower production costs. Hence, their high quality products could not compete in the domestic market in terms of price; thereby being exported to other countries. These firms target cost advantages of scale production and manufacturing labor costs in Vietnam market. 3.4 Theme 4: Supply chain Build the supply chain for the local market, create the linkage among firms in the same industry in order to increase their benefits and competitive advantages. In the interview, garment processing firms revealed that 90% materials they used are imported ones since domestic material resources have higher cost and their quality are usually unstable. As can be seen, this situation is the limitation that prevents firms from achieving their cost advantages. Meanwhile, there are many enterprises in textile industry, but almost their products are exported while garment processing factories import about 5.2 billion meters of fabric to meet the domestic demand of 6 billion meters each year. The main conclusion can be drawn from the reality is that the products of domestic firms cannot satisfy the demand of FDI - 49 - companies’ input materials. Furthermore, according to respondents 1, 7, and 9, garment enterprises in face many difficulties and spend a lot of costs for finding domestic replaceable materials in case of product errors. That is the reason why the managers of FDI companies have to make periodic production plan for stock-security purpose. For footwear, packaging, and stationery producers, respondent 4 noticed, “70% materials are imported because of few domestic suppliers and low-quality domestic stuffs” On the other hand, some respondents stated that another reason for FDI enterprises’ importation is that raw materials’ costs are more expensive than that made-in-China ones, indicating that it is hard for domestic auxiliary production to meet FDI firms’ requirements. Furthermore, according to respondents 1 and 11, most processing companies get financial and material supports from their parent companies; nonetheless, they still need more domestic suppliers to effectively manage their supply chain and optimize profits. In general, the supply market in Viet Nam is still poor and fragmented, which can be observed from the fact that almost no materials other than solvents, additives for the chemical industry, needle, buttons, zippers for garment industry, and glue footwear industry are domestic ones. Therefore, informants 1, 4, and 7 emphasized that domestic enterprises must construct appropriate strategies in the near future; however, no matter how potential and strong their financial resources are, they may find it difficult to create a completely unique supply chain system for their own, which is the reason why cooperation and linkage with other firms, support policies and management role from the State should be strongly focused. - 50 - 3.5 Theme 5: Human resource Good management systems, reward policy, training, and a clear career development orientation for employees will bring great advantages of manufacturing resources to the business. The Japanese companies stated that they were satisfied when using Vietnamese labor force generally, especially knowledgeable and skillful workers. As respondents 3 and 5 reported, "Binh Duong’s labors are young, intelligent, knowledgeable, hardworking, loyal, and diligent with a similar mindset to Japanese’s". Furthermore, enterprises here have good policies on salaries, bonuses, and training to raise the level of workers’ expertness, so their employees have a strong loyalty. The staff is stable with few changes. In addition, according to respondents 1, 4, and 9, regarding the source of common labors, the skill and work adaptation level of these workers increased significantly compared to previous years. Recruitment process does not face many difficulties when the labors could meet firms’ needs in both quality and quantity. However, there appears the instability of labors’ productivity, which is typically lower during the first months of the year and increased in the last month of the lunar year due to the impact of rewards. Informants 7 and 10 stated that some firms have financial support for local vocational schools to nurture the source of workforce; thereby having a more active recruitment. Besides, they implement policies to encourage and support workers in home transportation during Lunar New Year holiday to ensure the stable productivity. The respondents in wood processing shared that common labor force in this sector is plentiful; they are smart, hardworking and can achieve high production efficiency if being trained and guided. - 51 - Enterprises producing high-quality products like respondents 3 and 11’s face difficulty in finding high-skilled employees, due to the lack of recruitment proactiveness and relationship with universities. On the other hand, the new engineers are graduates with high qualifications but not equipped with the practical knowledge of society and advantage soft skills in communication. 3.6 Theme 6: Institution advantage Efficient use of resources and relationships to achieve institution advantage leads to differentiation and cost advantages to enhance firm performance. The most important purpose of building a business strategy, according to respondents 2, 3, and 4, is to ensure that businesses gain sustainable development compared to their competitors and how to utilize their strengths to operate most effectively. The production processing enterprises provided the information that they have the support from their parent companies in inputs such as labor training, capital, management and technological know-how, which help them achieve competitive advantage in certain business activities such as: higher efficiency, better quality, faster innovation and quick response to the customers. Besides, informants 3, 6, 7, and 11 argued that the advantages of the processing businesses are abundant outsourced manufacturing labor force, available management system leveraged from parent companies, human resource management support, product quality control, and designed products’ models, which help businesses minimize costs for R & D activities, especially when suppliers and customers are even specified by the parent company. Most respondents declared that FDI enterprises can access short-term domestic loans, which are mainly used to supplement the working capital for production and business activities. For long-term loans, businesses take advantages from the support - 52 - of parent companies and other companies in the same corporation or from shareholders because the tax rate for this loan is very low, even equal to 0. 3.7 Theme 7: Differentiation/ cost advantage Challenges of diversity of types, quality, design, price of the products and using efficient the resources to achieve competitive Differentiation advantage Provide superior products and match the demand of customers: To achieve the purpose of getting competitive advantages, firms need to deeply understand their differentiations as well as their strengths to set the business strategies, to gather resources, and obtain strategic advantages to compete with other firms. Comparative advantages of a firm relate to the diversity of types, quality, design, and prices of its products. The technology and the system of distribution of the firms also contribute to their competitive advantages. With the financial and operating supports from parent companies, the FDI firms in Binh Duong Province have identified these competitive advantages at the foundation time. The manufacture companies said that their products ordered by parent companies have particular characteristics, so that they do not have to face any pressure from competition. Instead of focusing on inventing new products, they create differential advantage by attempting to satisfy all the meticulous demands in quantity and quality from the customers at the right time, and providing good after-sale services. Furthermore, according to respondent 10, Business customers require the accuracy in design and quality of the product, and the supply time, so firms have to understand thoroughly the demands of the customers and satisfy them by providing the after-sale supports and creating the superior products. - 53 - On the purpose of matching the demand of business customers, firms are required to provide accurate products on an exactly specific time. In order to create a close relationship to business customers, firms have to identify the customers’ demand and satisfy them with scrupulous attention. Furthermore, based on the report of informant 8 and 10, firms also need to establish diligent after-sale services. All of these factors contribute to the capability of satisfy customers and gain the differential advantages for firms. In the case of auxiliary firms, the differential advantages come mainly from the high quality of the products and matching the demand of quality, capabilities, order, delivery time, and after-sale supports. Respondent 8 stated that business customers require the accuracy in design and quality of the product, and the supply time, so firms have to identify the demands of the customers and satisfy them by providing the aftersale supports and creating the superior products. Adhesive manufacture companies producing glues for leather footwear industry establish technical team to support every customer. This team is responsible for following the quality of the products and checking the compatibility with the customers’ producing process. The technical experts usually give the advices and they can adjust the adhesive products depending on the characteristics of materials used to produce footwear. Moreover, they have to support the customers to ensure the production go smoothly and its effectiveness. The firms also invest in researching and developing the new types of adhesive to meet the variety of the demands. Most of the interviewed companies have no close competitors, so they do not have to face the pressure of diversifying their products. Their parent companies take the responsibilities in designing the products and requesting the manufacturing companies to produce. However, the high quality products still play an important role - 54 - in creating competitive advantage. By applying advance quality management approaches such as ISO and internal quality management process, firms could improve the effectiveness of their production. Quality is the way to gain the competitive advantage, not to mention the essential factor for firms to survive in such harsh market environment; as noticed by respondent 7, “By controlling quality from the input by self-producing the materials, firms could verify the entire quality of the products, which has become the weapon to compete to those using external input”. The respondents 2 and 5 revealed that they attempted to create innovation and adapt to the quick change of customers’ demand, which is the reason why they can compete their rivals. They usually scrutinize the strengths of the combatants and share information among departments inside the company to improve their products. The responding firm producing stationery revealed that this is a highly competitive industry, which requires carefully consideration for developing products; however, at the moment, they have no competitors in Japan in producing paper clips with frames thanks to their continuous efforts to renew their products. In reality, many firms with the ability to renew products can take the advantages of first-mover and price-maker and achieve high profits; more importantly, at the time that their competitors can reproduce these kinds of products, the initial developers have already built the prestige and loyalty of the customers. Cost advantage: One of the most basic factors to achieve high effectiveness is using the resources especially human resources in effective and efficient ways to obtain the cost advantages. Garment manufacture companies get benefits from low salary cost and a large number of labors in Vietnamese market. With the capital supports, management process, experienced managers, systems of quality management, and relationships to - 55 - supplier as well as customers from parent companies, FDI firms have a strong competitive advantage compared to other firms. However, as one respondent noticed, “We do not have the advantage of raw material inputs compared to our overseas rivals, so we are facing risks due to raw material imports”. Thus, to operate more effectively, most of the firms set the goals to improve the effectiveness of production to gain the cost advantage. However, it is not easy to achieve these goals. To improve efficiency, one respondent told that they have set goals to utilize these advantages by raising labor productivity by setting the minimum amount of material used and the maximum amount of products made in a working day as well as minimizing the cost of production. Moreover, according to respondent 3 and 10, they also pay salaries based on the efficiency or the amount of work. Low labor cost and highly skillful workers are the advantages in efficiency. Some of the garment manufacture companies told that the advantage of low labor cost is gradually eliminated due to the regulation of increasing the required minimum salary for workers. Particularly, this salary rose from 790,000 VND per month in 2006 to 2,700,000 VND per month in 2014 and would be considered getting an increase to 3,100,000 VND in 2015, which is estimated approximately 15% every year. High minimum salary combined with the high ratio of imported materials and low added values have made enterprises in garment industry become less profitable. As an informant 9 from a garment company said, "We are tending to move the expanding investment activities to neighbor countries where there are lower labor cost to get the benefits from cost advantage”. 3.8 Theme 8: Firm performance Challenges in creating differential advantages and cost advantages. - 56 - Most of the interviewed companies satisfy with their firm performance and the level of profit that the firms obtain. Firm performance is estimated directly by necessary input cost to produce a defined unit of good. Getting the best initial resources effectively helps firms get high effectiveness in production, the reduction of production costs, and the benefits from low cost. Many respondents indicate, “Our products have to compete with many foreign products”, so the differentiation of their products such as superior in quality, design, after-sale supports, customer services, etc. plays a strong role in improve the ability of their firms to set prices of the products in the market so that their customers are willing to buy, even at a higher price than before. Moreover, the role of relationships among managers is an indirect effect on firm performance through institution advantage to expand the differential and cost advantages. All of these factors impact positively on firm performance as well as their profits. However, not every company has this advantages as a respondents noticed, “We have no connections with institution advantage”, Besides, respondents 1, 10, and 11 argued that auxiliary manufacture in Viet Nam is inefficiently operated with no support for the manufacturing sector. In addition, as mentioned above, due to the fall in profitability, garment companies tend to move the investment activities to neighbor countries where the labor cost is lower to get the benefits from cost advantage. On the other hand, according to respondent 7 and 8, auxiliary companies also have a tendency to invest to north provinces to self-provide input for their production. - 57 - CHAPTER FOUR – DISCUSSION 1. Discussion This exploratory investigation finds evidence that the FID firms in Binh Duong experienced major challenges in fostering firm performance. First, we raise concerns about impacts of support capacity of local government on company performance. In general, like many other emerging economics, the ties with government has significantly influenced on successful of FDI firms. The different aspects of government support capacity as discussed in the literature and our results, are presented on the Figure 1. Second, the challenges of ties with the other firms such as suppliers, customers and competitors, these ties could help firms to acquire quality material, good services, and timely delivery. Close relationship enable firms to access to sources of resource in uncertainty, overcoming the lack of resources. Next, the challenges of market orientation are place the highest priority on the profitable creation and maintenance of superior customer value, followSlater and Narver (1995). It includes three behavioral components customer orientation, competitor orientation, and inter functional coordination and emphasizes the need for the entire organization to acquire, disseminate, and respond to market intelligence from both buyers and competitors (Zhou et al., 2008) Next, the challenges of human resource are to create an advantage to influences business performance. We follow Paauwe, 2004 and Lepak et al., 2006 to identify three components of human resource management, which involve employee skills, employee attitudes and employee behavior - 58 - Finally, the challenges of supply chain management are use of available resources and capacities in domestic supplier. We partially follow Porter (1985) to measure the capacities by combining available resources and two components of strategic supply chain management and strategy development to customer relationships. While most researchers focus on separating impacts of each type/factor of the above challenges on firm performance, theory lacks of a clear understanding of the interaction terms among managerial ties, market orientation, human resource management and supply chain management. To close this gap, we attempt not only to investigate direct effects of managerial ties, market orientation, human resource management and supply chain management on company performance, but also to observe the interaction terms of these effects. Specifically, we first explored the overall influences of these factors on the performance of FDI firms in Industrial zones in Binh Duong province, Vietnam. 2. Conceptual model Based on the eight themes above, we construct a conceptual framework, as showed in figure 3, to describe the impacts of managerial ties, market orientation, human resource and supply chain on firm performance. Specifically, on the top of the framework presents government support and ties with the other firms as the factors of enterprises’ institution advantage, which in turn, has a strong influence on differentiation/cost advantage. In addition, this advantage is also impacted by market orientation, human resource, and supply chain as illustrated on the bottom of the model. Finally, the dependent factor discussed in the literature and our results, firm performance, is strongly influenced by differentiation/cost advantage. - 59 - - 60 - Government support Ties with The  Local government  Industrial bureaus  Suppliers  Regulatory  Customers organizations  Competitors other firms Institution advantage  Scarce resources  Reliable market information  Gaining supports from local institutions Differentiation/cost Firm performance  Sale growth  Return on asset distinctive capabilities  Customer retention Lower cost  Company reputation advantage   Unique Market orientation assets and Human resource Supply chain  Customer orientation  Employee skills  Strategic management  Competitor orientation  Employee attitudes  Strategy development  Inter  Employee behavior coordination functional to customer relationships Figure 3: Conceptual model depicting impacts of managerial ties, market orientation, human resource and supply chain on firm performance - 61 - CHAPTER FIVE – CONCLUSION AND RECOMMENDATION As analyzed in the previous parts, firm performance is influence by plenty of factors, in which, inclusive are the support of local government, managerial ties, market orientation, supply chain management, human resources, institutional advantages, and differentiation/cost advantages. In Vietnamese condition generally, and Binh Duong province specifically, each factor contains in itself different kinds of complexity that needs carefully studying. Above all, firm performance is the major factor to measure the effectiveness of all others; and the main related parties could be government and firms ; therefore, the recommendation below is stated to solve the current problems in the corporation between governmental authorities and companies. First, the role of Industrial Zone managers is crucial, deciding how a firm operates. Focus more on the infrastructure and local services Although many modern roads such as Binh Duong highway have been built and improved so far, not all roads in all industrial zones are paid the same attention, due to the strategy of contractors upon situation. According to a respondent’s complain, roads in Viet Huong industrial zones are much worse than that in Vietnam Singapore Industrial Park (VSIP); thus, the local governmental authorities could support to deal with contractors about plans to rise up the quality of traffic system in the whole province, especially in essential areas and more importantly, keep the transportation in all the industrial zones always convenient. Secondly, some state services are not good also, which can be observed through the power supply, firefighting, and environmental protection problems. Hence, BDIZA should cooperate with the local power supply and the wastewater treatment company to help all the - 62 - firms in Binh Duong receive stable resources. Particularly, BDIZA should remind the power supply company to send power cut schedules or notifications at least three days before the power cut happens and requires the wastewater treatment company to check the environment around firms and have appropriate punishments for any firms’ violations. Additionally, there could be power plant nearby the industrial area to maintain the stability of electricity provision. Finally, there is a great demand of improving the local firefighters’ ability instead of the requirement of yearly firefighting certificates for the workers; therefore, the local government should focusing on organizing firefighting training sessions for both kinds of subjects so that firms’ properties can be better protected and the firms can save a large amount of training costs. Second, the role of local government is crucial, deciding how a firm operates. Improve the tax and administrative procedures Tax and administrative procedures in Vietnam are said to be a big challenge for any FDI enterprise due to its complicatedness, poor clarity, and heterogeneity among different regions. Therefore, Binh Duong government should ask the State to write a clear and unique tax guideline as soon as possible, but when waiting for a response from the State, the local government and BDIZA should actively give supports to the FDI enterprises by providing their own good guidelines and updating tax guidelines and information in other provinces. Furthermore, some respondents are not satisfied with the state services at tax and administrative offices as well, which also causes a lot of time for any firm to complete its paperwork. According to the respondents, the staffs there usually have bad manners when enterprises ask them for help. Therefore, the staffs’ qualification and behavior at tax agencies should be improved in the near future. - 63 - Overcome essential challenges quickly and effectively Firstly, transfer pricing issues can be solved with clear and detailed regulations and guidelines. Because some respondents are disappointed about the situation that production costs of domestic firms are used to check FDI firms’ transfer pricing activities, this regulation should be checked and adjusted. Secondly, the local government and BDIZA should learn from foreign countries the ways to cope with security problems, especially emergency situation like the workers’ unreasonable strikes in May, 2014. As can be seen, the compensation for damaged FDI enterprises in Binh Duong and some other provinces has cost a lot of the state budget and enterprises had to spend an unexpected amount to repair and even rebuild their factories. On the other hand, dangerous events can lead to a much worse phenomenon that Vietnam will become a less attractive environment for FDI investment in the near future. Hence, educating and increasing workers’ awareness about politics, working attitudes and behaviors may be the best solution for the local government to protect FDI firms. Moreover, the local police department should clearly assign clear responsibility for its lower level departments to avoid the evasion among them whenever enterprises need their help. Faster reactions and actions should also need a strong focus from the local police. Local government acts as an intermediary between supply and demand for the development of local supply chains. They can establish business support centers operating in the province's key sectors such as textile, garment, plastics, chemicals, electronics, mechanics, and so forth. Through these centers, the local government shall organize conferences and industrial exhibition, and adjust preferential policies to attract investment in ancillary industries to support business operations for the FDI enterprises operating in the province of Binh Duong. - 64 - To attract long-term investment, local government should focus on the activities showing specific and practical support to firms as the above analysis. Through these activities, the current investors themselves are a strong link to future potential investors. Regarding the side of government, firms’ success brings benefits to the development of the province, contributing to country’s overall GDP. Regarding the side of companies, to expand the production gaining more profit and reach a stable development, the corporation with governmental authorities is extremely important. Mutual understanding between firms and government authorities The lack of information is usually complained by companies’ management board; however, the activeness shall be considered in this situation. If a company is aware of the support of governmental authorities, they may have expertise in the field to contact the government and actively consider all documents needed in every situation. This could be reducing the situation that they do not know exactly what to do when an unforeseen problem happens. Long-term investment to reduce costs from imported materials In the supply chain management of a FDI company, the raw materials are usually concerned. The weakness in auxiliary industry causes an increase in import, because firms could not find such materials in Vietnam but other countries and parent companies. When materials are imported, tax and other fees are inclusive, which means that the input is at the high price, causing the overall high price of the products. In general, these products tend to be exported or sold mainly in high-class market, excluding the situation that processing companies manufacture only for exporting back following the order. To solve this, firms could think of a long-term investment in - 65 - auxiliary industry in Vietnam, as well as increasing the knowledge of technologies. There are currently plenty of suppliers in the field but could not find customers, and at the same time, customers do not know that the technologies were available in Vietnam. If the connection between suppliers – clients is stronger, through involving in the same associates, or if they could strengthen R&D activities, the inputs pressure may reduce. Create a strong linkage among university-enterprises-government Another major problem we could think of when interviewing companies is that they do not have a stable resource of workers with high level of skills and knowledge. Many respondents stated that they lacked knowledge of Vietnamese universities that can provide appropriate skilled workforce for them. The current contradiction is caused by the lack of firm-university relationship. Students now are more aware of the soft skills in working, and the schools’ curriculum is improved in quality, yet a large quantity of students face unemployment after graduating. On the other hands, companies could not find enough employees that have their desire qualification, that have to be rely on the instability of workers’ productivity. Hence, the local government should be an assistant in connecting firms with Vietnamese universities by creating a database about universities’ programs and contacts, which can totally be done with supports from the local office of education and training. Besides, local authorities should support in attitude orientation of labors through the propagation of workers’ union in Industrial Zone, enhancing the role of trade unions in enterprises. The interview held in Binh Duong shows that skills and work adaptation ability of Vietnamese labor force could not lead to the highest productivity but meets the basic requirements of FDI firms. - 66 - There could be meetings and visits between universities and firms to reduce the distance existing in this relationship. The HR department of a company could consider of a long-term corporation with head of schools to have a more objective look at the overall job market, and easier to find people they need. The workforce of Vietnam is not at lower level compared to other countries in the region, but the improvement in this needs the involvement of not only teachers, but also firms and students themselves. - 67 - REFERENCES Appelbaum, E., Bailey, T., Berg, P. and Kalleberg, A. L. 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Strategy Manage J;29(9):985-1000. - 77 - APPENDIX List of companies implemented deep- interview No. Company Business 1 EINS VINA CO., LTD Manufacture of wearing apparel 2 I & Y VINA CO.,LTD Manufacture of wearing apparel 3 HANSOLL VINA CO., LTD Manufacture of textiles 4 KING JIM (VIET NAM) CO., LTD 5 VINA KRAFT 6 7 8 9 JORN products TECHNOLOGY NAN PAO RESINS (VIET NAM) ENTERPRISE LTD VIETNAM products Manufacture of paper and paper CORPORATION SAKAI Manufacture of paper and paper COMPANY LIMITED SIL VERLINE FURNITURE VN CO., LTD 10 YC - TEC VIET NAM CORPORATION 11 CFVINA CO.,LTD Manufacture of chemical products Manufacture of chemical products Manufacture of plastics products Manufacture of furniture Manufacture of footwear and related products Manufacture of stuffed animals - 78 - [...]... occurring of FDI firms in Binh Duong? 5 Rationale Based on prior studies and our findings, we propose a conceptual model of differentiation advantage or cost advantage in FDI enterprises in Binh Duong industrial zones, Vietnam as influenced by four main factors: (1) Managerial ties; (2) market orientation; and (3) Human resources and (4) Supply chains Changes in any of the three factors can potentially... impact both differentiation advantage and cost advantage; then the overall organizational performance is affected as a result Unlike many previous studies on the relationship between each of independent factors and overall organizational performance, we propose a more practical model to investigate influences of all interactions among factors as well as each factor on overall organizational performance, ... as institutional advantage A review of this literature suggests that institutional advantage offers essentially two benefits: superiority in obtaining scarce resources and superiority in gaining support from dominant institutions First, as the Chinese market, Vietnamese market also is characterized by underdeveloped capital markets, a scarcity of skilled labor, and a lack of reliable market information... competitive advantage of a firm, esp FDI firms in Binh Duong province 3.2 The specific objectives of the study:  To provide an overview of the current issues of Managerial ties, market orientation, human resource and supply chain at FDI firms in Binh Duong Industrial zone;  To contribute in illustrating underlying explanations about how Managerial ties, Market orientation, Human resource and Supply chain... materials, capital, labor, information) in many emerging economies (North, 2005), a firm can achieve a differentiation advantage if the scarce resources it acquires are unavailable to others Even if the resources are available to others, a firm with an institutional advantage can acquire them at a lower cost, which grants the firm a cost advantage Second, because of the weak legal institutions, the interpretation... TOTAL Source: General Statistics Office, Viet Nam Most FDI in Viet Nam comes from Asian countries As at the end of 2012, of the total accumulated capital of effective FDI projects in Viet Nam, seven of the ten largest foreign direct investors came from Asian countries, namely Japan, China (Taiwan Province), South Korea, Singapore, China (including Hong Kong), Malaysia and Thailand (See Table 2) The invested... orientation, managerial ties and institutional advantage, human resources and supply chain management are other factors leading to firm success; but they accomplish that success in different ways These factors affect performance through differentiation and cost advantages, whereas the latter leads to an institutional advantage, which in turn benefits performance through differentiation and cost advantages... (Li et al., 2008), business success rests critically in a firm' s ability to secure scarce resources Guillen (2000), for example, finds that close ties within business groups enable firms to gain a resource advantage including securing technology and knowhow, arranging financial packages, obtaining land and establishing plants, hiring and training workers, and so forth With this advantage, business groups... such as the research find that both managerial ties and market orientation can lead to firm success in China—but in different ways (Julie and Kevin, -9- 2009) Market orientation enhances firm performance by providing differentiation and cost advantages, whereas managerial ties improve performance through an institutional advantage (i.e., superiority in securing scarce resources and institutional support)... on empirical evidences, the researcher argues that both managerial ties and market orientation can lead to firm success Managerial ties foster firm performance through an institutional advantage, whereas market orientation enhances performance by achieving differentiation and cost advantages in the Vietnamese emerging economy However, the situation in Vietnam generally and Binh Duong specifically could .. .KEY AREAS, CAUSES OF FDI FIRM PERFORMANCE IN BINH DUONG INDUSTRIAL ZONES A qualitative approach In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In. .. were asked about their own evaluation of in business performance and differentiation advantage or cost advantage of firms in Binh Duong in general and their firm in particular To facilitate the interview... knowhow, arranging financial packages, obtaining land and establishing plants, hiring and training workers, and so forth With this advantage, business groups excel in repeatedly entering a variety of