000067089 JOINT VENTURE OF POSCO ENGINEERING & CONSTRUCTION., LTD IN VIETNAM – A SUCCESS OR FAILURE? 000067089 JOINT VENTURE OF POSCO ENGINEERING & CONSTRUCTION., LTD IN VIETNAM – A SUCCESS OR FAILURE?
IN T R O D U C T IO N
From fo reig n f i r m ’s perspective
From a firm's perspective, selecting an international entry mode sets the objectives and guides how international strategies are implemented in foreign markets Entry mode choices are hard to reverse without substantial time and financial costs Market entry mode choices have a large impact on international operations and are often treated as a frontier issue in international marketing For multinational enterprises, the choice of market entry mode is among the most significant strategic decisions, shaping future decisions and performance in foreign markets and requiring a level of resource commitment that is difficult to transfer between modes, especially from high to low commitment Several studies point out that market entry mode selection is a decisive strategic decision for firms pursuing overseas business.
From dom estic firm ’s perspective
Foreign firms entering new markets disrupt the existing market equilibrium, provoking a range of reactions from domestic firms Heightened competition drives the efficiency improvements needed to defend market shares, while domestic firms can also learn from foreign companies about new products, process technology, marketing, organizational skills, and foreign markets If they manage to partner with foreign firms as suppliers or distributors, domestic companies can gain larger economies of scale, more reliable payments, and direct support to upgrade their capital stock and technology When technology transfer occurs in practice, these improvements translate into higher productivity Consequently, the entry mode choices of foreign companies present both opportunities and competitive challenges for domestic firms.
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From host country G overnm ent's perspective
FDI contributes positively to the economic development of the host country, so governments study entry mode choices to offer inducements that attract inward investment and capture spillover benefits If foreign firms prefer wholly owned subsidiaries, the government may implement policies favorable to this mode to attract FDI, while ensuring protections and advantageous conditions for domestic companies, especially in key sectors These incentives should aim to maximize benefits and minimize risks for multinational enterprises (MNEs), but policy design grows more complex as inward FDI increases In a broader sense, the benefits of incentives and the advantages brought by foreign investment should be weighed against the interests of domestic firms to assess the overall impact on the host economy.
Foreign direct investment (FDI) can take several forms, including mergers and acquisitions (M&A), greenfield investments (wholly owned subsidiaries), partial ownership with the remainder widely held, joint ventures, and build-operate-transfer (BOT) and build-transfer-operate (BTO) arrangements However, these methods are only parts of the broader set of entry mode choices that multinational enterprises (MNEs) consider when entering foreign markets This paper does not aim to cover all entry modes or all forms of FDI; instead, it focuses specifically on the joint venture form in comparison with wholly owned subsidiaries The POSCO E&C Ltd case is used to illustrate how a joint venture operates in Vietnam's construction market.
POSCO E& C in home country
POSCO E&C is a South Korean general construction company established in December 1994 It was formed through the consolidation of all engineering and construction activities across the POSCO group, including POSCO’s engineering and construction divisions.
POSCO E&C is a global engineering and construction company formed from POSCO Engineering Co., Ltd (founded July 3, 1970) and Geoyang Development Co., Ltd (founded April 1, 1982) It leverages expert engineering technologies, know-how, and a workforce drawn from POSCO’s integrated steelworks, a world-class ironworks operation POSCO E&C’s six core business segments are steel plants, engineering plants, chemical plants, water treatment and environmental facilities, civil infrastructure, and urban development and architecture.
With its strong competitiveness in steel plant engineering, POSCO E&C is expanding into the overseas markets such as China, Vietnam, the Middle East, South America, the US and Africa
POSCO E&C is expanding into public infrastructure projects and urban development initiatives to deliver landmark infrastructures in cities and elevate living standards in developing countries By leveraging its internationally oriented workforce with a bold, resilient spirit and adhering to international standards, POSCO E&C will continue to grow its global footprint and secure new markets, reinforcing its role as Korea’s pioneering leader in the construction industry.
POSCO E&C has achieved numerous significant milestones across domestic and international markets Over the years, the company has earned a short-term credit rating of A-1 for commercial paper and a long-term corporate bond rating of AA-, reflecting strong financial health and credibility These ratings underscore POSCO E&C's consistent performance and resilience in diverse markets.
“BBB+” by Standard & Poor and “B a a l” by Moody's were labeled on POSCO E&C respectively in 2007, which stands for the best credit status in construction market in Asia, not to mention in Korea Such evaluation is deemed to be rooted from the transparent business management o f the firm POSCO E&C has been currently growing rapidly by expanding the sectors o f its businesses, based upon its sound financial structure which is the foundation of custom ers' satisfaction in its drive to become a global E&C corporation The following figure shows performance o f POSCO E&C from 2005-2010:
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Figure 6: Annual order and revenue o f POSCO E&C 2005-2010 (in US$ millions)
Annual O rd er un t: US$ m illion'.'
• R e ve n u * (u nit: USS m illio ns) 8.219
Source: Internal source fro m PU SCU E&C., L td
It can be seen that both annual order and revenue o f POSCO E&C experienced increasing trend during the period from 2005 to 2009 although the increase in annual order is more significant than revenue In addition, capacity' for construction work also increased dramatically from1,776 Korean won billions in 2005 to 6,717 Korean won billions in 2010 As a result, the firm ’s domestic rank was slightly improved from 7th place in 2005 to 6th place in 2010 The illustration can be observed in the following figure:
Figure 7 : Construction capacity rank and domestic rank o f POSCO E&C 2005-2010
D om estic Rank and ô m o u n t by ca p jK tty fo r co m tru e lio n w ork 5,531
7place 7place 7placc 7place 6 place 6placc
Construction capability rank and assessed amount
POSCO E& C in Vietnam
POSCO E&C Vietnam, founded in 1995 to open the gateway to Vietnam and Southeast Asia, concentrates on two main capabilities: engineering, procurement, and construction (EPC) for industrial, building, and infrastructure projects in Vietnam and overseas; and the fabrication and erection of steel structures—ranging from container-handling gantry cranes and steel tanks to vessels and bridges—delivered to the projects above.
Quality assurance is POSCO E&C Vietnam’s top priority, ensuring customer satisfaction through a qualified Korean workforce assigned to key roles Under POSCO Group leadership, a joint Korean–Vietnamese management team and skilled Vietnamese workers have successfully delivered numerous regional and international projects For large-scale initiatives, POSCO E&C Vietnam operates as an EPC contractor within an integrated, cooperative system with POSCO Group, a collaboration that has yielded remarkable achievements in steel manufacturing and general construction worldwide.
Since the first footprint on Vietnam in 1995, POSCO E&C has signed contracts with various
POSCO E&C's Vietnam joint venture is examined as a potential success or failure Page 16 notes that the partners and the contract value signed to date total US$7.6815 billion, with the Vietnam-based organization described below Note that the staff figures in the table reflect Korean personnel working together with hundreds of local staff.
Figure 8 : Organization and human resources o f POSCO E&C Vietnam
Type Num ber No of staffs
Northern (48 staffs) Centre (3 staffs) Southern (36 staffs) u ầ
N goc Liep Project 3 Hanoi Expansion M aster Plan Designing Project 4 Noi Bai - Lao C ai
Da N ang Sea Wall Project 2
Hue G en eral Hospital Project 1
D iam on d Plaza 3 POSLILAMA E tC 11
C a l M e p Int' Terminal Project 11 lo n g Thanh-Dau
POSCO FngfoMrinf ft Co**ô ruction Co, Ltd
Source: Internal source o f PO SCO E& C Vietnam
To strengthen its JV strategy, the firm collaborates with major domestic construction companies such as Vinaconex, Vietnam Steel Corporation, and Lilama Vietnam, leveraging their local market knowledge and project delivery capabilities A prime example is the POSCO E&C–Vinaconex joint venture, which combines POSCO E&C’s international EPC expertise with Vinaconex’s extensive local network to execute large-scale projects This joint venture model enables expanded project scope, shared risk, and faster delivery within Vietnam’s construction sector, while helping the firm grow its footprint through strategic partnerships with leading domestic players.
Figure 9: An Khanh City Joint Venture o f POSCO E&C in Vietnam
3 An Khanh New City I poseo e&c
The first self-sustaln m odel urban project in Hanoi of Vietnam
O Investor: POSCO ES.C and VINACONEX (50 : 50)
O Total In v es tm en t: U$4.1 billion (charter c a p it a l: U$42.5million)
O Project location : In the North of An Khanh com m une, Hoai Due District, Hanoi
► C o m m ercial: 498,OOOm'(Land M ark building : 75 floors, hotels, hospital, etc.)
► Others : green space, park, techn ical Infrastructure, governm ent offices
► M arke tin g center start up : '09 2 12
POSCO Engineering II Construction Ca Ltd - S -
The nature o f ownership can be either equality (50:50) or majority (60:40 or 70: 30) Of course, in any circumstances POSCO E&C must take more ownership lo control the business.
5 An overview structure o f the thesis
This paper opens with a literature review of entry mode choice, surveying and comparing several models to identify what each contributes and where gaps remain It then presents the research methodology, clarifying the research objectives and questions, outlining the research design, and justifying the data collection tools and analysis methods The findings are reported with clear evidence from data analysis and discussed in relation to existing literature to show how they support or contrast with prior studies A discussion section contrasts the study’s results with previous research, highlighting how the findings advance understanding of entry mode decision-making The paper concludes with a discussion of limitations and the implications of the findings for future research and practice.
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LITERATURE R E V IE W
RESEARCH M E T H O D O L O G Y
This study has two core objectives: first, to analyze the rationale for why a firm would select joint venture as its entry mode over other options, such as wholly owned subsidiaries; and second, to evaluate whether the theoretically optimal entry mode choice translates into superior firm performance that can be sustained into the future.
This study analyzes the rationales for selecting a joint venture form for POSCO E&C in relation to the company’s performance to determine if a joint venture is the suitable entry mode in Vietnam Building on the model developed in the previous section, it evaluates whether POSCO E&C made the right entry mode decision for Vietnam The assessment is supported by analyzing both financial performance indicators and non-financial performance factors of the firm, providing a comprehensive view of the JV’s effectiveness The findings address the central question of POSCO E&C’s entry strategy in Vietnam and offer evidence on how the joint venture structure impacts performance and strategic goals.
Data for analysis were collected from multiple sources, mainly comprising secondary data with some primary data The primary secondary data include empirical studies on FDI and foreign market entry, drawn from books, the Internet, newspapers, journals, and other publications These studies generate and refine numerous theories produced by researchers and economists from universities and institutions worldwide, irrespective of nationality They also provide substantial statistical data compiled from thousands of surveys, tests, and case studies, with the statistics sourced from official websites of reputable institutions to ensure reliability and validity Although information from individuals on the Internet is easy to access, it is not widely recognized and may lack accuracy, reliability, and validity The paper seeks up-to-date information, acknowledging that older data may not reflect evolving conditions.
Having considered the different available methods for conducting the empirical part o f the research, the case study approach seems to offer most advantages in terms o f achieving the
Because access to multinational enterprises (MNEs) in Vietnam is limited, the study adopts a case‑study approach with a small, obtainable sample to prioritize in‑depth data over broad generalization, focusing on a POSCO E&C joint venture in Vietnam Given the sector’s limited current understanding, qualitative inquiry is more likely to yield meaningful insights and to generate justification‑oriented hypotheses for future research Generalizing a market‑entry‑mode model from a small sample remains problematic, which is why the paper narrows its scope to a specific type of firm and its environment to uncover deeper insights into entry‑mode decision making This focused method offers practical implications for managers navigating joint ventures in Vietnam and contributes to a more nuanced understanding of POSCO E&C’s entry strategy in the Vietnamese market.
This study uses primary data from POSCO E&C Vietnam, including an interview with the firm’s business development manager and a case-study approach The interview covered transaction cost analysis and the OLI framework through open-ended questions designed to foster discussion about the company’s investment experience in Vietnam The respondent was asked to describe motives, barriers to entry, and prospects, as well as to discuss preferred modes of entry and locations, with the underlying reasons for these choices elaborated.
Interview questions are enclosed here for reference:
Table 3: Interview questions with POSCO E&C V ietnam ’s manager
Place: PO SCO E&C VIETN AM ’S office, Room 301 The M anor Building, Me Tri, Tu Liem,
Interviewee: Mr Nguyen Tien Dung, the business development manager
1 Can you provide an overview o f POSCO E& C’s operation in Vietnam since 1995 with particular reference to its joint venture (JV) arrangements?
2 How important are the JV arrangements for POSCO E&C to initially get into Vietnamese market?
Please provide the three-year figures for POSCO E&C’s market share and revenue in China, and, if available, include a comparative analysis with major competitors in the Vietnam market to contextualize the results.
4 What sort o f ‘specific’ advantages did the Vietnamese partners have? ( ‘Specific’ advantages mean those advantages that were not easily provided by other firms in Vietnam)
5 What are the most important criteria to become POSCO E& C’s partners? (E.g: strong financial capabilities, famous brand name, good execution capabilities, good management capabilities, etc.)
6 Is there any government requirement for technology transfer? How do you cope with this requirement?
7 What is your experience in dealing with policymakers and regulators in Vietnam? Is the bureaucratic process less efficient than that o f many other developing countries?
After evaluating POSCO E&C's investment in Vietnam, collaborating with local partners through joint ventures can be a clear strategic advantage, offering deeper market access, local know-how, faster regulatory navigation, shared capital and risk, improved supply chain integration, and enhanced competitiveness in a fast-growing economy On the flip side, it introduces risks such as governance challenges, misaligned incentives, cultural and organizational differences, potential IP exposure, disputes over profit sharing, and sensitivity to local policy and currency movements, requiring meticulous partner selection, robust governance frameworks, clear performance metrics, well-defined exit clauses, and strong dispute resolution mechanisms When managed with disciplined structure and compatible partners, joint ventures can amplify value for POSCO E&C in Vietnam; if not, they can magnify execution risk and erode returns.
9 Please evaluate whether JV entry mode choice was a right decision? Does POSCO E&C intend to remain JV in the future as the main form o f operation?
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F IN D IN G S
Legal environm ent
Vietnam is strengthening its legal framework to foster a multi-sector market economy and a more open, stable investment environment In recent years, the country has enacted numerous laws and regulations to establish the legal foundations for its open-door policy and to meet the integration requirements of international agreements.
One of the most important incentives for foreign investment is the investment guarantee, with the Government of Vietnam ensuring fair treatment for investors Capital and other legal assets of investors will not be expropriated or confiscated by law or administrative measures, and businesses with foreign-invested capital will not be nationalised Foreign investors are allowed to remit abroad investment capital and profits, loan principal and interest, and other legal proceeds and assets In addition, expatriates working for businesses with foreign-invested capital or for a business cooperation contract (BCC) are permitted to remit their income abroad The Government of Vietnam also respects intellectual and industrial property rights and protects the interests of foreign investors relating to technology transfers into Vietnam.
Furthermore, interests o f foreign investors are satisfactorily guaranteed in the event o f adverse effects caused by a change in law through the application o f a number o f measures.
Under the Law on Investment, changes in the law that affect investors are either disregarded or compensated, for example by allowing the investor to amend its operations, granting compensatory tax exemptions, or providing other forms of compensation When more favorable provisions are enacted, existing investors automatically receive the benefits of those provisions Disputes involving foreign investors may be brought before Vietnamese arbitration centers or courts, and parties may also agree to foreign arbitration in their contracts.
Incentives are extended to specific sectors and regions, so investors operating in these incentive-entitled areas enjoy more favorable conditions than those investing in other fields or locales Eligible sectors include manufacturing of new materials and production of new energy, high-tech products, biotechnology, information technology and mechanical manufacturing; breeding, rearing, growing and processing of agricultural, forestry and aquaculture products; salt production; and the creation of new plant and animal varieties Additional incentives cover the utilization of high technology and advanced techniques, protection of the ecological environment, and research, development and creation of high-technology; as well as the construction and development of infrastructure facilities and other large-scale important industrial projects The engineering and construction sector is already entitled to incentives and will continue to be.
G overnm ent’s incentives (see appendix B1 and B2).
Investment incentives are available in regions with difficult or especially difficult socio-economic conditions—such as mountainous, remote, and underdeveloped areas—as well as in industrial zones, exporting zones, high-tech zones, and other economic zones The government periodically issues detailed lists of sectors and regions eligible for incentives, establishing the prerequisites investors must meet to qualify for those incentives and benefits While the new Law on Investment broadly defines which sectoral and geographic areas are entitled to incentives, the specific types of support—such as tax holidays or reductions and exemptions from land fees—are governed by separate tax, land, and other regulations.
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An overview shows that the Vietnamese government is actively crafting legal incentives to create the most favorable conditions for foreign investment From the engineering and construction sector perspective, where POSCO E&C operates, several concerns arise The government consistently promotes technology transfer, encouraging the introduction of advanced technologies into Vietnam Foreign investors contributing capital through technology transfer qualify for tax exemptions on taxes related to the transfer of technology.
On 1 July 2007, the first Law on Technology Transfer came into effect The Law provides regulations for technology transfer contracts and incentives for encouraging and promoting technology transfer Such incentives include the creation o f a government fund to make preferential loans, to provide support for loan interest rates, to provide loan guarantees, and to provide capital assistance for technology transfers Under the law, registration o f a technology transfer agreement is no longer compulsory, except for the agreement for transfer o f restricted technology (i.e., a technology aimed at protection o f the national interest, protection o f the health o f humans, or protection o f national cultural values etc.).
Registration of a technology transfer agreement that is not restricted is subject to the decision of the parties involved, and there is no cap on royalties under such agreements POSCO E&C has been transferring the FINEX steelmaking technology—one of the world’s most advanced methods—to Vietnam Steel Corporation, and the BIOSAC technology for water treatment to Vietnam Natural Resources and Environment Corporation, among others FINEX represents an innovative next‑generation alternative to blast furnaces, widely regarded as highly competitive in global steelmaking It eliminates the sintering and coking steps, enabling direct use of low-cost ore fines and coal, which lowers both capital investments and operating costs Additionally, FINEX substantially reduces pollution, producing far less sulfur and nitrogen oxides than conventional furnaces.
Under Circular No 05-2004/TT-BXD, issued by the Ministry of Construction on September 15, 2004, regarding the management of foreign contractors operating in Vietnam, licenses can be issued in Vietnam only if the foreign firm forms a joint operation with a Vietnamese contractor or designates at least one Vietnamese contractor as a subcontractor Based on this regulation, POSCO E&C cannot operate in Vietnam as a wholly owned subsidiary, so a joint venture (JV) with a Vietnamese partner is a viable entry mode.
Vietnam's protection policies for domestic contractors create significant challenges for foreign investors, as the government continues to prioritize and shield local players Mobilizing machinery, materials, and manpower from abroad to Vietnam for project execution is therefore not easy The relationship between employers and Vietnamese contractors often operates as a close, “family” network—referred to as “network ability” by POSCO E&C Vietnam’s business development manager in 2010—since both sides fall under the same ministry, and in case of disputes the Vietnamese government tends to provide favorable support to domestic contractors This protective preference is the top criterion for POSCO E&C when choosing partners, ahead of brand name and financial capacity Consequently, pursuing a Wholly Owned Subsidiary (WOS) structure may lead to substantial legal challenges in this context.
Vietnam is a developing country with construction regulations that are weak and largely undeveloped, creating difficulties for foreign contractors whenever disputes arise and leaving them unable to foresee what they can or cannot do While leadership is embracing market-oriented reforms, the pace could slow if a conservative leader comes to power following the 2011 national congress Political effectiveness remains undermined by endemic corruption, which is widely perceived in the country Vietnam ranks 121st out of 179 countries on Transparency International’s Corruption Perceptions Index for 2008 In December 2008, Japan announced the suspension of low-interest loans until Vietnam takes “meaningful” steps.
Analyzing the Posco E&C Vietnam joint venture in the context of public works integrity, the 2010 Corruption Perceptions Index (CPI) from Transparency International places Vietnam at 116th of 178, with a score of 2.7/10 on a 0–10 scale where 0 indicates serious corruption and 10 indicates a clean system Although Vietnam’s ranking rose from 120th of 180 in 2009, this change doesn’t necessarily reflect real reform since the CPI’s country pool changes year by year Corruption in public works deters market development, drives away investment, raises costs, reduces competitiveness, increases uncertainty, undermines the rule of law, and can add 10 percent or more to the cost of doing business in many parts of the world.
Although Vietnam's Law on Foreign Direct Investment has been amended several times, it remains less competitive than many regional investment regimes Mergers and acquisitions are still limited, with foreign investors capped at a maximum 30% stake in equitized state-owned enterprises, even in industries where full ownership would otherwise be permissible This restriction appears to overlook the recent wave of regional FDI M&A activity Joint ventures with domestic private firms require a special licensing procedure that is more time-consuming and cumbersome Distribution rights are restricted, and local content requirements progress slowly due to the underdeveloped base of domestic suppliers Several industries and markets remain not open to foreign investors.
From the perspective of foreign investors, Vietnam’s legal system is unstable and continually changing, creating difficulties for investment Yet, as Mr Dung (2010) explains, Vietnam understands this reality and treats it as an issue to overcome without complaint, while actively working to create the most favorable investment environment and earning a strong ranking among developing countries in this area Domestic contractors tend to be more sensitive to legal changes, which enables quicker responses and better adjustments in operations Consequently, for POSCO E&C, partnering with Vietnamese firms is a strategic approach to navigate the evolving legal environment and mitigate regulatory risk.
Economic environm ent
1.2.1 GDP grow th, m arket size and economic structure
Since 1986 Viet Nam has recorded important achievements in socio-economic fields and Viet Nam has become one o f the fastest-growing economies in the world, averaging around
8 4% annual gross domestic product (GDP) growth from 1990-1997, 7.5% from 2000 to
2006, and 8.5% in 2007.The are some significant statistics which deserve to pay much attention to The first is GDP growth rate by economic sectors (%)
Table 4: GDP growth rate by econom ic sectors (%)
Source: General Statistics Office o f Vietnam
Industry and construction stand out as the leading contributors to GDP among the economy’s sectors, with their share rising from 10.1% in 2000 to 10.6% in 2007, reflecting a clear upward trend; the construction sector spans both residential and non-residential markets and shows positive prospects for both In the residential segment, spending on residential construction grew from US$381 million in 2004 to US$398 million in 2005, a 4.6% increase, while urban development projects such as the Trung Hoa-Nhan Chinh Urban Area Project, valued at US$16.4 million (VND 273.6 billion at the 2005 average rate) and expected to complete in 2006, contributed to higher residential construction activity during this period Expenditures in the residential sector are projected to grow at a CAGR of 4.2%, from US$398 million in 2005 to US$603 million in 2015, and although short-term interest rates may rise, they are expected to fall in the long term as socio-economic conditions improve, driving ongoing residential expenditures Moreover, a growing population and rising urbanization—from 26.5% in 2005 to 31.6% in 2015—will boost housing demand and further elevate residential construction spending over the next decade.
Nonresidential infrastructure construction expenditures rose 6.4% from US$17.1 million in 2004 to US$18.2 million in 2005, supported by the Asian Development Bank’s US$997.5 million loan program for transport and energy development that has driven active growth in infrastructure spending over the past years The nonresidential infrastructure segment is expected to grow at a CAGR of 5.7%, from US$18.2 million in 2005 to US$31.6 million in 2015, with key drivers including electricity, gas, water, transportation, and communications projects Viettel Mobile, Vietnam’s leading mobile service provider, plans to expand its network in 2007, and the major mobile companies—VinaPhone, MobiFone, and Viettel—are anticipated to open to foreign investment in the same year, thereby improving the communications business environment and potentially increasing long-term investment in communications infrastructure.
Vietnam's industrial structure has shifted significantly By 2005, mining and quarrying—especially oil and gas extraction—accounted for 11.2% of total industrial production, while a growing network of specialized industrial zones employing modern production technologies has been developed Manufacturing dominated at 83.2% of industrial production, with the food processing sector representing 20.6% Power supply and distribution (5.2%) and water supply (0.4%) together accounted for 5.6% This profile creates opportunities for POSCO E&C, given the company’s strong engineering capabilities In summary, Vietnam’s GDP growth rate and large construction market generate substantial opportunities that outweigh the risks, making this factor a key driver for attracting foreign investment.
Economic conditions present a strong opportunity for POSCO E&C to maximize benefits in the Vietnamese market, but sovereign risk remains a major concern Vietnam's sovereign risk rating is unlikely to improve in the forecast period The government is committed to debt-servicing obligations, with only a small risk of being unable to service its debt in 2010–11, and if that were to occur, concessional financing would likely be available The effectiveness of state institutions in formulating and executing policy is weak, increasing the risk that policy responses to current challenges will be inadequate Major shortcomings in fiscal accounting will continue to hinder substantive analysis of the government's accounts US dollar–denominated international bond issuances are likely to continue throughout the forecast period, although this financing remains relatively expensive The high sovereign risk creates difficulties for POSCO E&C, underscoring the need to set criteria for choosing a local partner with strong financial capabilities.
Vietnam's population was estimated at about 85.2 million in July 2007 and is expected to grow to 90 million by 2010, with an annual growth rate of 1.6%; the mean population density is 254 people per square kilometre, and more than 60% of the population is under 25, indicating a very young demographic Vietnamese workers respond well to challenges, are highly committed to developing their country, themselves, and the firms they work for, which suggests Vietnam can provide a relatively low-cost labor force However, the advantage of low labor costs is diminishing as salaries rise while productivity grows more slowly, causing the unit labor cost to rise From the viewpoint of foreign investors, high costs of doing business remain a key drawback; JETRO comparisons show regional costs and that international telephone calls, Internet fees, and seaports remain expensive Vietnam maintains a dual price system for foreign investors and has a separate Law on Promotion of Domestic Investment for local investors; the government has promised to abolish the dual price system and unify the investment laws Corporate tax and personal income tax, around 50% of gross income, are well above the regional average Infrastructure has been upgraded generally, but the quality of some aspects is still uneven.
The POSCO E&C Vietnam joint venture raises the question of whether its trajectory represents a success or a failure The analysis points to weak public goods and services, low systemic stability, and volatile power supply with frequent blackouts These conditions impose significant extra costs on users and deter high-tech investment, limiting investors’ willingness to commit capital to Vietnam, as shown in Table 5.
Table 5: Comparison o f business cost among countries (12/2000 - Unit: US $)
M iddle-level m anager ‘s salary/m onth
Expenses for office leasc/m onth/nT
Expenses for house rent for foreign representative
A key aspect of Vietnam's labor resources is the government's strong emphasis on developing human capital With a literacy rate of about 90% and high female participation in schooling, the country has expanded its education system significantly In the 2006/2007 academic year, Vietnam had 279,593 schools, about 12% more than in 2000/2001, and more than 16 million students were enrolled across primary, lower secondary, and upper secondary levels The national upper secondary graduation rate stands at 93.7% At the tertiary level, nearly 1.5 million students were enrolled in 253 public universities and colleges, while about 210,000 were enrolled in 46 non-public institutions By comparison, in 2000 there were 800,000 public university students and 100,000 non-public students.
Recent statistics indicate that Vietnamese employees are progressively upgrading their education levels, signaling a shift toward a more skilled Vietnamese workforce This rise in higher education suggests that the labor force is increasingly capable of handling knowledge-intensive work rather than purely manual tasks Consequently, Vietnam's economy stands to benefit from greater productivity in knowledge-based industries as employers tap into a talent pool with advanced skills and expertise.
Infrastructure o f Vietnam can be classified into some main types The first is highway system The road system consists o f over 200,000 km network including over 10,000 bridges
Vietnam’s infrastructure is being modernized across highways, railways, ports and airports Road conditions show that less than half of national highways have two or more lanes and urban congestion is rising in major cities, while the government has mobilized substantial capital—with support from international lenders—to upgrade the highway system The railway sector comprises about 2,600 km of single-track lines with around 260 stations, led by the Hanoi–Ho Chi Minh City route spanning 1,730 km and serviced by an express train that travels the distance in about 29.5 hours; lines linking Vietnam to China were reopened a few years ago In ports, Vietnam has eleven major seaports, with Ho Chi Minh City serving most of the South and Hai Phong handling much of the North, both upgrading to modern container facilities, and expanding port capacity remains a national priority in response to rising trade volumes Regarding air travel, the country currently has three international airports—Ho Chi Minh City, Hanoi and Da Nang—and the government has significantly upgraded these airports to accommodate increasing traffic.
N am 's invigorated economy A new international terminal o f the Tan Son Nhat airport in Ho Chi Minh City, capable o f handling up to 10 million passengers a year was opened in
As of December 2007, Noi Bai airport in Hanoi had been upgraded, enlarged and completed for operation in 2002, with the construction of a second terminal expected to start in October 2008 and be completed in two years Four new international airports are planned to be constructed in Phu Quoc, Dong Nai, Lao Cai and Quang Ninh provinces Preparations for the Long Thanh International Airport, located about 40 kilometers from Ho Chi Minh City in Dong Nai province, are underway.
The POSCO E&C joint venture in Vietnam is assessed for success or failure The airport is scheduled to open in 2010, and by 2015 it will be expanded to achieve an annual passenger capacity of 80 to 100 million, making it one of the region’s largest airports In addition, there are 16 other domestic airports around the country (Price Water House, 2008).
Vietnam's infrastructure is not yet ideal, but sustained government investment in recent years has significantly improved the country's infrastructure, creating opportunities for POSCO E&C These opportunities arise as better infrastructure makes it easier for POSCO E&C to conduct business in Vietnam and as the government funds large-scale construction projects The Noi Bai–Lao Cai expressway project, which POSCO E&C won in April 2009, exemplifies this potential for the firm to participate in Vietnam's major infrastructure developments.
Culture environment
Understanding cultural factors in Vietnam is key to explaining how multinational enterprises (MNEs) decide on entry modes Vietnam has a deep cultural heritage developed over about 4,000 years, and its people are generally hospitable and industrious In particular, the northern region is described as politically sensitive, hard‑working, and risk‑averse The north’s long-standing Chinese influence, due to a millennium of Chinese dominance, together with Vietnam’s socialist ties, has fostered shared cultural and business practices with Chinese neighbors Hofstede’s dimensions describe Vietnamese culture as high in power distance and collectivism, with moderate uncertainty avoidance and a high-context communication style, a profile corroborated by Swierczek (1994), Quang (1997), and Ralston et al (1999).
Vietnamese culture is characterized by a high power distance that influences everyday life and business alike In the family, children are expected to obey their parents, and in organizations a strict subordinate–superior hierarchy governs interactions Titles, status, and formality carry significant weight in Vietnamese society Collectivism has long been a defining feature of Vietnam, shaping tight social frameworks and self-functioning communities People expect conformity within families and workplaces, with a strong emphasis on group harmony and collective goals.
Vietnamese culture centers on group loyalty, mutual protection, and security in exchange for loyalty, with harmony and saving face shaping communication; conflicts are handled through win-win approaches The society shows moderate uncertainty avoidance, where ambiguity is seen as a threat and stability is sought via formal rules, stronger job security, and rejection of deviant ideas Indirect speech stems from face-saving practices, while humor often surfaces in everyday conversations Taken together, these cultural factors indicate relatively high risk for foreign investors, especially given high power distance, which is why POSCO E&C tends to favor joint venture structures to minimize risk.
The second dimension of POSCO E&C’s entry‑mode choice model is industry characteristics Research on Vietnam’s construction industry is limited in both quality and quantity, yet several high‑level insights can still be drawn about this sector.
Growth development stage o f Vietnam construction industry
Vietnam’s economy has been expanding rapidly in recent years, posting a 2006 growth rate of 8.2%—second only to Mainland China After joining the WTO on January 11, 2007, Vietnam has emerged as one of Asia’s most promising markets and a magnet for foreign direct investment, fueling demand for infrastructure and construction projects by both local and international firms The construction sector alone generated about US$3 billion in 2004, up 67% from US$1.8 billion in 2001, with investment in 2001 consisting of 54.9% state, 23.7% private, and 17.4% foreign contributions Looking ahead, the construction industry was projected to reach US$5 billion in 2006 and to grow at annual rates of 10–15% through 2010.
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Vietnam's transition from a centrally planned economy to a market-based system has coincided with a severe housing shortage driven by land-use restrictions and a population of over 83 million As demand pushes land and home prices higher, developers face stronger commercial incentives to expand supply, while soaring property values push many Vietnamese to view real estate as a lucrative investment rather than placing money in low-interest bank deposits Recognizing the real estate sector's pivotal role in sustaining economic growth, the government is promoting foreign participation alongside local firms to bolster housing development and market activity (Ho Chi Minh City International Exhibition & Convention Centre, 2006).
Competition in te n s ity
Profitability in the construction industry attracts more entrants, signaling a growing threat from new players However, according to Mr Dung (2010), POSCO E&C's main competition does not stem from technology, or from management and execution capabilities alone, but from the Vietnamese government’s support and protection policies favoring domestic contractors Some firms, such as VINACONEX, SIMCO, and HUD, engage international consultants, embrace a transparency-focused approach, and leverage local government backing At the same time, the execution capabilities of these contractors have improved substantially, meaning these large corporations could turn to compete with POSCO E&C in the near future.
High uncertainty from p o o r design and fluctuating material p r ic e s
Long et al (2008) identified several key sources of uncertainty in the Vietnamese construction market that drive schedule delays and cost overruns The leading factor is sluggish pace and weak constraint enforcement, manifested in slow payment for completed works and poor contract management.
‘obsolete or unsuitable construction m ethods’ and ‘unforeseen site conditions’ This factor relates to all parties To minimize their consequences, all parties should identify clear responsibility for each party in contract Slow payment o f completed works is a very common complaint o f contractors about project’s client Contract management is always a problem o f developing countries There are many legal documents issued by government trying to instruct or control contract management works in construction but there should be experts and professionals in contract management Many attempts have been put into import or transfer technology from other countries and got some first success But these attempts have ju st been scattered One difficulty arises that is how to fit new modern technology to Vietnam and to train human operating this technology Another rather frequently faced and big adverse affect cause in large projects in Vietnam is unforeseen site conditions which currently lead to delay and more cost Large projects often mean more complicated design or necessary technology, and in addition, geological conditions change unexpectedly along the length o f Vietnam, mainly due to very soft soil With such these risks, it is necessary to consider the conditions o f contract to equitably allocate risks between parties Hence, joint venture entry mode choice o f POSCO E&C is a good method o f reducing risks.
The second source o f uncertainty is from poor design In developing country, going with fast swelling o f construction industry, it should take more significant care o f design-related problems These are not only found in Vietnam but elsewhere in the world Mistakes in design or poor design come from low-competence o f designer have frequently existed Design consultancy organizations have been mushrooming from 2000 but the quantity is not improved significantly In addition, unrealistic designs lead to changes or owners unclearly specify the scope o f project results in projects delayed or postponed Chan et al (1996) have proposed that design offices should establish a system to control and evaluate variations and an effective contingency plan to deal with unexpected situations Applying ISO standard to design works might be a good solution however strict and close management from appropriate authorities or owners is always the best The more the skilled designer has been identified at the tender stage, the less the cost and time arise later (Chan et al., 1996).
Material shortages, inaccurate estimates, and price fluctuations form the third factor affecting construction projects This factor can significantly impact timelines, budgets, and overall project viability Large projects often require special materials that must be imported from other countries or ordered specially, which can introduce procurement delays and increase the risk of waste if planning and logistics are not tightly managed.
POSCO E&C’s joint venture in Vietnam operates in a rapidly expanding construction market, where soaring demand for cement, steel, bricks, and other materials has led to shortages and rising costs Price fluctuations and escalation are difficult to forecast, largely reflecting high inflationary pressures in developing economies and supplier speculation, as noted by Long et al (2008).
In Vietnam's emerging construction industry, POSCO E&C faces diverse risk sources that can extend project timelines and increase implementation costs To minimize risk, pursuing joint venture (JV) arrangements offers a strategic path by enabling shared resources, expertise, and risk transfer, ultimately enhancing project feasibility and cost efficiency.
The last dimension explaining JV entry mode choice o f POSCO E&C lies in the firm specific resources which include vision, objectives, strategies, competitive advantages and international experience
Vision, objectives and strategy
Firms pursuing a multidomestic strategy tend to favor low-cost entry modes such as licensing or joint ventures when expanding into foreign markets, while those pursuing a true global strategy typically opt for high-control modes, with the highest level of control achieved through a wholly owned manufacturing system POSCO E&C is on track to build a global steel network that extends beyond Korea and to become a global innovation leader, pushing beyond existing technology and ways of thinking.
POSCO E&C prioritizes preserving and advancing technology as a core objective in every investment, and while Vietnam’s current technology landscape makes technology upgrades there unlikely to be viable, a strategic joint venture structure that combines equal ownership with POSCO E&C holding a majority stake is viewed as the prudent approach to achieving its goals, leveraging local strengths while maintaining strong control and favorable returns.
International experience
Another valuable firm ’s resource comes from its international experience Besides Vietnam, POSCO E&C has been operating in different corners in the world with the network shown in the map
Figure 13: Global netw ork o f POSCO E&C
Source: Internal source o f PO SCO E& C
With its international experience, POSCO E&C tends to pursue higher ownership stakes and wholly owned subsidiaries, reflecting its readiness to take on greater risk However, factors arising from the investment environment make this plan infeasible.
Competitive advantages
Competitive advantages are a major driver for firms seeking to compete in international markets For POSCO E&C, these advantages include advanced technology in engineering and construction, sustained by a dedicated technical R&D institute and strategic alliances with global partners Established on December 1, 1994, POSCO E&C has evolved into an integrated E&C entity with a global footprint.
POSCO E&C's Vietnam joint venture is assessed for competitiveness, weighing whether it will be a success or a failure To continuously develop core technologies in the steel plant sector alongside essential technologies in strategic areas such as environment, energy, and SOC, POSCO E&C launched its own technical research laboratory and, on December 29 of that year, earned a certificate of recognition for its establishment.
Leveraging independently secured advanced technologies, including plant technology, and forming strategic alliances with globally leading Engineering & Construction (E&C) firms, the technical research laboratory drives the advancement and globalization of Korea’s domestic technology It prioritizes high-profit, performance-based projects and steers away from low-margin construction work, delivering end-to-end capabilities from planning through construction management to create competitive value in the market.
POSCO E&C has made onsite experience a requirement for its research workforce, promoted active HR exchanges between laboratories and business units, and pursued aggressive recruitment to attract top-tier talent In name and in practice, these moves have laid the foundation for POSCO E&C to grow into the nation’s leading engineering and consulting laboratory Since its inception, the company has secured about 60 outstanding researchers across steel plants, basic technology, and construction sectors such as civil engineering and construction It also plans to send teams to visit the top five research laboratories of Japanese construction companies, including Kajima, to secure R&D supplies that match the scale of those labs Furthermore, to build a large-scale technology research institute, POSCO E&C has acquired about 47,000 pyeong (155,100 square meters) of land near Seoul in Giheung-Eup, Gyeonggi Province.
POSCO E&C has aimed to develop new technologies that secure engineering capabilities in the plant sector, notably steel, while also boosting the competitiveness of its civil engineering and construction businesses To support this, on February 21, 1995, the company reorganized its technical research laboratory into engineering and construction divisions; the laboratory, previously under the President’s direct control, was moved to the engineering division, and the titles were updated from engineering research team and construction research team to plant research team and civil engineering and construction research team The civil engineering and construction research team was placed under the civil engineering and construction research laboratory, becoming the first technical research unit to join the construction division After two years of planning and construction, POSCO E&C began building the technology research laboratory at its Giheung site; the first phase of the research building unit was completed, and in the second phase the firm added ancillary facilities, including the nation’s largest civil engineering testing unit and a quality testing unit, delivering the building complex in November 1999 Today the technical research laboratory stands prominently amid its scenic surroundings, leveraging this competitive edge POSCO E&C would prefer a wholly owned subsidiary (WOS) structure to protect its advanced technology in the Vietnam market, but the Vietnamese government prohibits WOS in the construction field and requires certain technology transfers from foreign contractors To date, POSCO E&C has transferred FINEX technology—the world’s leading steelmaking technology—to Vietnam Steel Corporation and the BIOSAC technology for water treatment to Vietnam Natural Resources and Environment Corporation, among others.
POSCO E&C leverages its ownership advantage in large-scale production, particularly in steel manufacturing and general construction, as the basis for its joint ventures in Vietnam The current focus is the Hanoi expansion project, scheduled for completion in 2013, which will feature high-rise buildings, villas, semi-detached houses, offices for lease, a trading centre and supermarkets The development is expected to include 6,440 apartments, about 392,319 square metres of accommodation, and housing roughly 30,000 people In addition to the North An Khanh City project, POSCO E&C is partnering with Vinaconex on a $336 million expansion of the Lang-Hoa project.
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Lac expressway These advantages can be well exploited by JV - under the strict control o f the management staff.
Assessing the success or failure of POSCO E&C's joint venture in Vietnam is challenging, but this study offers a final conclusion after outlining the emerging-market context of Vietnam and presenting statistics on the outcomes of this form of market entry Based on established criteria for evaluating JV performance, including financial and non-financial indicators, the POSCO E&C Vietnam joint venture can be considered successful.
During 15 years o f cooperating with the big men o f construction industry o f Vietnam, POSCO E&C has got significant achievements such as expansion o f organization, brand name, revenue-enhancement, etc., proving the success o f JV The most considerable gain is reputation enlarge At this moment, POSCO E&C is standing at a very high position in the Vietnamese construction market with three subsidiaries as Diamond Plaza, POSCO E&C - LILAMA and AN KHANH JOINT VENTURE COMPANY which involve in huge total investment, US $ 92 million, 20 million 4.1 million, respectively POSCO E&C is now regarded as an investor for economic and social development and improving the
POSCO E&C is elevating Vietnam’s urban standards with a flagship project: a 264-hectare new city in An Khanh, near Hanoi This ambitious development will be built on land provided by the Vietnamese government in exchange for constructing a 27.8-kilometer highway connecting Hanoi to the Hoa Lac region, with the highway and the new city to be developed jointly as a major collaboration to accelerate regional growth and modernization.
V ietnam ’s largest builder Vinaconex POSCO will join the highway construction, which Vinaconex kicked o ff in May last year In the second h alf o f this year, POSCO will undertake infrastructure construction.
An Khanh city, the country’s first modern-style self-sustainable complex, will receive a total investment of $140 million over 15 years, from the second of this year to 2020 The 264-hectare development will include 1,351 individual houses on 33 hectares, a joint residential structure housing 6,335 households on 33 hectares, and commercial and office facilities.
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(33ha), public facilities (63ha), and roads as well as public parks (102ha).
An Khanh City, located just 5 km from the Hanoi APEC meeting venue, is set to host events in November 2006 and will feature a 75-story tower—the tallest in Vietnam With these features, the city is expected to become a new residential and office hub for Hanoi once the project is completed The Lang-Hoa Lac highway project, with a total investment of $350 million, will upgrade the existing two-lane roads into six-lane auto-only roads and create four-lane roads for two-wheel vehicles The highway will be Vietnam’s first modern speedway, allowing speeds up to 120 km/h, and will be the first road to separate cars from two-wheel vehicles.
By applying its advanced technologies to create new product lines, the firm demonstrates its capability, as shown by the POSVINA venture (a joint venture between POSCO E&C and Steel Corporation Vietnam, starting capital USD 3.9 million, authorized capital USD 3.9 million, Steel Corporation Vietnam 50%, POSCO E&C 50%) The partnership currently gains production advantages and integrates the momentum of global science and technology to achieve higher production efficiency POSVINA holds ISO 9001:2000 certification and continues to strengthen its quality management philosophy—"Prestige - Quality - Effective - All for Customers." In July 2002, the company began producing color-coated galvanized iron products The production potential remains strong.
POSVINA has expanded its distribution network to nationwide reach, now servicing over 40 agencies and a broad base of regular clients nationwide This nationwide growth enables economies of scale, reducing costs and boosting operational efficiency across the business.
POSCO E&C uses non-financial criteria, notably control level, to assess the success of JV entry mode choices In practice, the company tends to maintain equal or higher ownership shares during JV formation—such as 50:50, 60:40, or 70:30—and assigns many key positions to home-country managers who ultimately make the major decisions This ownership and control pattern stems from the bargaining power POSCO E&C leverages when negotiating with local partners to form a joint venture With a global brand, extensive construction expertise, and cutting-edge technologies that surpass many Vietnamese competitors, POSCO E&C can exercise a dominant position in the JV This approach offers a potential blueprint for other firms aiming to enter the Vietnamese market while highlighting the importance of control alongside financial considerations in JV strategy.
POSCO E&C's success is primarily assessed through financial indicators that measure the company's performance over the operating period These indicators include revenues, net income, retained earnings, and share price, among others, providing a clear view of growth, profitability, and value creation By monitoring these metrics over time, stakeholders can evaluate the firm's financial health and overall performance.
A mong those, sales should be very visible indicator which is shown in the following table:
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An Khanh New City Development
POSCO E&C Smart S DE RL DE CV 3,461,210 2,585,355 17,368,729 767.642
Total assets Total liabilities Sales Net income (loss'!
An Klianli New City Development
POSCO E&C Smart S DE RL DE CV 750.959 - 6,279.494 277,533
PO SCO E& C a n d fo reig n contractors
From POSCO E&C's joint ventures in Vietnam, three key lessons emerge First, choosing the right partners is essential; POSCO E&C carefully selects partners who bring a well-known brand, a robust local network with authorities, and strong financial capacity before forming a JV Second, a flexible operating form is critical: it should align with the company's objectives, optimize in-house capabilities, and fit host country government policies Third, there is a need to enhance the firm's competencies to compete effectively in a dynamic and risky environment While POSCO E&C's JV performance does not definitively show that joint ventures are the best operating model, it suggests maintaining a certain percentage of JV involvement in the future as part of a diversified strategy to cope with external conditions.
Multinational enterprises (MNEs) aim to maximize control over key resources—knowledge, expertise, and advanced technology—yet host-country governments often restrict full ownership, making a wholly owned subsidiary (WOS) infeasible In such cases, MNEs should assess the significant contributions they offer the host country, including tax contributions, unemployment reduction, and the transfer of advanced technology, while considering the benefits that domestic firms gain from partnering with foreign investors—brand name recognition, international expertise and experience, and enhanced financial capabilities This evaluation helps strengthen the bargaining power of foreign contractors in negotiations with domestic firms or the host government.
POSCO E&C's joint venture in Vietnam raises the question of whether it is a success or a failure The government appears to pursue greater control to safeguard strategic interests, but to maintain bargaining power in negotiations, multinational enterprises must implement strategies that build their strengths and boost competitiveness against rivals.
An investment environment inherently carries risks from multiple sources, and in Vietnam the dominant threats are legal factors such as rapidly changing and imperfect policies, plus protections that favor domestic contractors For foreign contractors, these dynamics suggest adopting risk-minimizing operating forms, with joint ventures as a common example Firms should proactively understand Vietnamese policies to access FDI incentives and respond quickly to shifts in the external environment By aligning strategy with local regulations and incentive programs, foreign investors can manage regulatory risk while capitalizing on opportunities in the Vietnamese market.
Uncertainty and risks in the industry make price fluctuations a major challenge for foreign contractors To address this, firms should adopt proactive strategies to control material costs, with backward integration as one potential solution Vertical integration, however, is not easy to implement, and success hinges on managers' ability to understand and weigh the costs and benefits of each option relative to the current approach.
Domestic c o n tra c to rs
Vietnamese contractors are facing heightened competition from more experienced foreign firms in Vietnam today, prompting them to develop their own strategies to safeguard their market position The first approach is to leverage protection policies that shield domestic players, while pursuing additional measures to boost competitiveness and resilience in the local construction sector.
Domestic firms in Vietnam face a significant weakness in expertise, experience, execution capabilities, and management skills, which undermines their ability to compete with foreign contractors To close these gaps, they must actively build core competencies by engaging with foreign investors who bring knowledge, proven practices, and international experience This approach enables knowledge transfer, the adoption of modern technologies, and the leveraging of additional advantages offered by global players, ultimately boosting productivity, competitiveness, and sustainable growth in the Vietnamese market.
It can not be denied that the Government o f Vietnam has been trying hard to improve investment polices for FDI attraction However, there are no doubt about the need for
Vietnam is committed to deepening reforms and improving the business environment to increase its attractiveness to foreign investors Intensifying international competition, especially with China and other ASEAN economies, demands faster, more systemic reforms and infrastructure upgrades to reverse the current decline in foreign direct investment (FDI) In August 2001, the Government of Vietnam adopted a resolution outlining indicative measures to promote foreign direct investment for the 2001–2005 period.
Vietnam’s top priority is a comprehensive overhaul of the legal system to align with its international commitments under the Bilateral Vietnam‑US Trade Agreement and AFTA Reforms include a unified enterprise law applicable to all business forms (private, state‑owned, and joint ventures), a single foreign and domestic investment law, and diversified investment channels, including the phased opening of the stock market and the real estate market, with services and distribution brought in line with international economic integration obligations National treatment and Most Favored Nation status should be implemented, and post‑licensing procedures—especially land clearance, foreign exchange, tax, and customs—must be simplified in tangible ways The approach also requires providing business information and rapidly improving transparency, accountability, and predictability within the public administration At the same time, foreign contractors report that protection policies favoring domestic contractors can create disputes and difficulties.
Upgrading infrastructure—especially power and clean water supply and Internet connectivity—remains a top priority Alongside hardware improvements, accelerating reforms of the software that runs these facilities is essential If software reforms lag, market imperfections may intensify, leading to higher transaction costs for enterprises.
Training an d re-training Vietnamese labor fo rces is on the agenda The quality o f Vietnam's labor forces must be enhanced in different ways like vocational training, foreign languages,
POSCO E&C's joint venture in Vietnam is evaluated as a potential success or failure, emphasizing modern training facilities and professional instructors The plan includes joint ventures with expatriate partners where needed to expand the pool of skilled workers, addressing a national shortage that contrasts with large-scale untrained and unemployed labor in rural regions This training-driven approach is designed to meet the growing demand for high-end infrastructure projects that are increasingly popular in Vietnam, positioning POSCO E&C and its local partners for sustainable growth.
Although extensive studies and models address entry mode choices, their findings often conflict, and applying these models to POSCO E&C reveals further inconsistencies For a company pursuing a global strategy like POSCO E&C, a Wholly Owned Subsidiary (WOS) may be preferable to a Joint Venture (JV); however, POSCO E&C does not adopt a WOS due to legal factors and business risks.
Access to primary data is challenging because securing interviews with top executives at foreign companies is both difficult and time-consuming The quality of information obtained from these interviews is often limited, since key details are restricted to protect competitive interests and confidentiality This combination of access hurdles and data secrecy can hamper researchers seeking in-depth insights into foreign corporate strategies and operations.
Moreover, the scope of the research is narrow, limited to a single company within a specific industry This constraint arises from limited time, human resources, and financial capacity, as well as the relationships required to design questionnaires, collect data, and process the results Notably, these factors may be the most significant obstacle, leading to very limited access to foreign enterprises operating in Vietnam.
POSCO E&C's financial report is a consolidated document that presents the financial indicators of its numerous subsidiaries across the globe, and there is no separate report limited to the Vietnamese market.
Analyzing changes in financial indicators is a complex task that requires in-depth analysis and thorough accounting and financial knowledge, so you can typically obtain only an overview of a long-running operation—from the inception of foreign investment to the present The relevant time frame may span five years, ten years, or even longer In addition, financial performance should be evaluated in conjunction with other factors and criteria to yield a comprehensive assessment.
The primary limitation of this study is its narrow scope Employing a case-study approach, it investigates the rationales for the joint venture (JV) choice of a single company within a specific industry and assesses whether that decision was appropriate As a result, the findings cannot be generalized to other firms or industries In addition, research on foreign market entry remains limited in quality, quantity, and scope These limitations point to a need for future work that expands the scope to a larger set of multinational enterprises (MNEs) across diverse business sectors Given that each industry has distinct characteristics, drawing universal conclusions about entry modes is challenging However, it would be valuable to compare entry-mode choices across industries using a common set of criteria.
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APPENDIX A: FDI in Vietnam by investors for the first 11 months o f 2010
(Source: Foreign Investment A gency o f Vietnam, 2010)
A PPEN D IX B: LIST OF SECTORS ENTITLED TO INVESTM ENT INCENTIVE
(Issued together with G overnment Decree No 108 /2006/ND-CP dated 22 September 2006 m aking detailed regulations and providing guidelines f o r implementation o f the Law on Investment)
B l LIST OF SECTORS TO W HICH SPECIAL INVESTM ENT INCENTIVES SHALL BE GIVEN:
I Production o f new materials, new energy; production of high-tech products, biotechnology products, info-technology products; production of manufactured m echanical products
1 Production o f composite materials, light construction materials, rare and precious materials.
2 Production o f high quality steel, alloy, special metals, sponge iron; steel billets.
3 Production o f new energy: Construction o f plants using solar energy, wind energy, bio gas, geothermal energy, tides.
4 Production o f medical equipment for analytical and extractive technologies in medical sector; orthopaedic instruments, wheelchairs, specialised instruments for the disabled;
5 Projects applying advanced technology, biotechnology to produce medicines meeting international GMP standards; production o f drug materials for antibiotics.
6 Production o f computers; information, telecom munications and Internet equipment; pivotal info-technology products.
7 Production o f semiconductors and high-tech electronic components; production o f software products, website applications; provision o f software services; research on information technology; training human resources in the field o f info-technology.
8 Production and manufacture o f precision mechanical equipment; equipment and machinery for examination and control o f safety during the process o f industrial production; industrial robots.
II Cultivation and processing o f agricultural, forestry and aquatic products; making salt; production o f man-made strains, new seeds and breeds o f animals.
9 Afforestation and taking care o f forests;
10 Cultivation o f agricultural, forestry and aquatic products in uncultivated land, unexploited waters;
11 Catching o f marine products at offshore sea.
12 Production o f new strains; propagation and hybridization o f seeds and breeds o f animals with high economic efficiency.
13 Production, exploitation and refining o f salt.
III Use o f high-technology; modern technology; protection o f ecological environment; research on, developm ent and fostering o f high-technology.
14 Application o f high-technology; application o f new technologies which have not been applied in Viet Nam; application o f biotechnology.
JV OF POSCO E&C IN VIETNAM-A SUCCESS OR FAILURE? ii
B2 LIST OF SECTORS TO W HICH INVESTM ENT INCENTIVES SHALL BE GIVEN:
I Production o f new materials, new energy; production o f high-tech products, biotechnology products, info-technology products, manufactured mechanical products
1 Production o f sonic, electric and thermal highly-insulating materials; wood-substitute synthetic materials; fire-proof materials, construction plastics, fibreglass, special cement.
2 Production o f non-ferrous metals; cast-iron refining.
3 Production o f moulds for metal and non-metal products.
4 Construction o f new power plants, electricity transmission and distribution networks.
5 Production o f medical equipment; building storage for preservation o f pharmaceutical products and for storing human medicaments for prevention o f and fighting against natural disasters, calamities, dangerous epidemics;
6 Production o f equipment for testing toxic substances in foodstuffs;
9 Production o f crops protection drugs, insecticides, preventive and curative drugs for animals and aquatic creatures, veterinary drugs.
10 M aterials for production o f drugs, preventive and curative drugs for social diseases; vaccines, medical bio-products, medicines from pharmaceutical materials, oriental medicines;
11 Construction o f establishments for biological testing, and for evaluating effects o f drugs; construction o f establishments meeting criteria for production, preservation and testing o f drugs; cultivation, reaping and processing o f pharmaceutical materials.
12 Development o f resources o f pharmaceutical materials and production o f drugs from pharmaceutical materials; projects for researching on and proving the scientific basis o f oriental medicine prescriptions, and formulating testing criteria in respect o f oriental medicine prescriptions; conducting a survey o f and compiling statistics on various types o f pharmaceutical materials used for production o f drugs; collection, inheritance and application
JV OF POSCO E&C IN VIETNAM-A SUCCESS OR FAILURE? iv of oriental medicine prescriptions; search for, exploitation and utilisation o f new pharmaceutical materials.
14 Production o f machinery, equipm ent and com ponents packs in the fields o f exploitation of petroleum, mining, and energy; m anufacture o f large-size lifting and lowering equipment; manufacture o f machine tools for metal processing; metallurgy equipment;
15 Production o f high and medium voltage electric devices; large-size generators.
16 Production o f diesel engines; production and building of, and repair to ships; production of equipm ent and spare parts for cargo ships, fishing boats; manufacture o f dynamic and hydraulic machinery and parts, and com pressing machines;
17 Production o f equipment, vehicles and machinery for construction; production o f technical equipment for the transportation industry; production o f locomotives and carriages;
18 Production o f machine tools, machinery, equipment, spare parts serving agricultural and forestry production; food processors; equipm ent used in irrigation;
19 Production o f equipment and machinery for the textile and garment industry; production of machinery for the leather industry.
II Cultivation and processing o f agricultural, forestry and aquatic products, making salt; production o f man-made strains, seeds and breeds o f animals
21 Preservation o f post-harvest agricultural products; preservation o f agricultural and aquatic products and foodstuffs;
22 Production o f bottled or canned juice from fruits;
23 Production and refining o f feed for cattle, poultry, aquatic creatures;
24 Technical services in support o f cultivation o f industrial plants and forestry plants, animal husbandry, aquaculture, protection o f plants and domestic animals.
25 Production, propagation and hybridization o f seeds and breeds o f animal.
III Use o f high technology, modern technologies; protection o f ecological environment; research on, developm ent and fostering o f high technology
26 Production o f equipment for dealing with oil-overflow.
JV OF POSCO E&C IN VIETNAM-A SUCCESS OR FAILURE? v
27 Production o f equipm ent for waste treatment.
28 Construction o f technical establishments and facilities: laboratories, experimental stations for application o f new technologies to production; establishment o f research institutes.
IV Em ploym ent o f lots o f employees:
29 Projects regularly employing 500 to 5,000 employees.
V Construction and developm ent o f infrastructure facilities
30 Construction o f infrastructure facilities in service o f production and operation o f cooperatives and com munity life in rural areas;
31 Projects for operation o f infrastructure facilities and production in complexes o f industries and trades in rural areas.
32 Construction o f water plants or w ater supply systems in service o f living needs or industries; construction o f drainage systems;
33 Construction and improvement o f bridges, roads, airports, ports, railroad stations, bus stations, parking lots; opening o f more railroad routes;
34 Construction o f technical infrastructures for densely-populated areas in localities provided in
Appendix B issued together with this Decree.
VI Developm ent o f facilities in educational, training, medical, gym nastic, sports and national cultural sectors
35 Construction o f infrastructure facilities o f educational and training establishments
Construction o f private and people-founded schools and educational and training establishments at all levels: pre-schools; popular schools; secondary vocational schools; colleges and universities.
36 Establishment o f people-founded hospitals and private hospitals.