Final Research1

Technology has been, for a long time, recognized as the key factors in accelerating effectiveness and efficiency to bring back companies competitiveness

Chapter 1 Introduction

Technology has been, for a long time, recognized as the key factors in acceleratingeffectiveness and efficiency to bring back companies competitiveness In high and increasingcompetition of the world market, technology gradually confirms itself as main source forsustainable competitive advantages and plays a crucial strategic role for the future success.For the Less Developed Countries, Technology development is really considered the mostimportant part for the national strategy to strengthen the health of its national economy tocatch up with developed ones

Michael Porter [1985] stated that technology change is one of the principle drivers ofcompetition Therefore, it is important at national level as well as firm level to considertechnology as the most significant weapon to compete and secure the development in longterm There are two sources for technology development: Indigenous or local technologies orand imported or transferred technologies In developed countries, technology development isbasically based on indigenous research or R & D within these countries but in developingones, technology transfer plays the most crucial role Past experience indicated that withoutcareful management of an imported technology, the technology transfer does not lead toenhance the technological capabilities However, the advantages of technology transfer arethose: it is possible to get tested, standardized and proven technologies and with scarceresources, developing countries do not find it appropriate to invest their resources in R&D foravailable technologies in market It is often more efficient to import and assimilatetechnologies which lay the foundation upon which the future technological capabilities could

be built

For most of the Less Developed Countries, importing new technology for a leapfrogging intechnology development to shorten the distance or to catch up with the advanced countrieshas been considered as the only one and effective strategy But how to select the technologyand adapt it to a specific condition is even more important Depending on the circumstance of

a specific country, the way of acquiring and assimilating technology may be modified

Post harvest technology is considered a major area of Vietnamese economy, which need bedeveloped to enhance both agriculture and post harvest industries The VietnameseGovernment has recently paid a lot of attention to this area such as importing new machinesand equipment as well as reducing taxation and financial supports to related companies.Under pressure from the market for higher quality of product, many Vietnamese companieshave been seeking new technology and adapt them to their circumstances to improve theirproduct quality to satisfy its hard-tempered customers Coffee industry of Vietnam is anexample for the effort of upgrading technology in post-harvest processing sector In recentyears, with the supports from the German Government, most coffee Vietnamese companieshave spent a large amount of money on purchasing new machines and facility to upgradetheir processing plants or set up a joint venture with foreign companies But mere import ofmachines and equipment and poor management are not sufficient for enhancing company’scapabilities because of the lack of software technological components With the aim atstudying the acquiring and assimilating new technology in two companies in Vietnam- onejoint venture and one state owned, we intended to learn the actual processes that thecompany adapts a newly imported technology into the company’s circumstance

1.1 Problem Statement

Coffee industry highly contains characteristics of agricultural business but the post harvesttechnology itself actually plays an important role in creating customer-attractiveness toimprove competitiveness At present, the world market requires an increase of coffee qualitybecause of the changes in consumer's taste and habit of drinking coffee and the existence ofvariety of substitute drinks The need of quality improvement forces coffee producers to seekfor new technology in processing coffee to match their customer’s requirements

Transfer of technology is a main way for all Vietnamese Coffee Companies to upgrade theirtechnological capability The way transferee companies acquire and digest newly importedtechnology to improve their technological capabilities is very significant especially in postharvest processing sectors There is an interest of studying specific processes of technologytransfer and the way to assimilate new technology effectively to draw out some lessons thatcan help Vietnamese companies to acquire and assimilate new technology effectively through

a right mechanism Studying two typical mechanisms of technology acquisition andassimilation in Vietnamese coffee industry is an active instance to analyze, compare anddraw out problems and suggestions to improve the possibility of success of technologytransfer in this sector

1.2 Organization of the Research Study

This study will consist of five parts In the first part, the rationale and objectives will beexplained The second part will cover the literature review explaining in detail the concept oftechnology, technology components and related aspects The following part will be theevolution of Vietnamese Coffee Industry and the company background and overview ofcoffee processing technology In the forth part, the actual process of technology transfer ofVIETDUC Coffee Company through a pure purchase of processing plant and evaluated andthe process of technology transfers through joint venture mechanism of DAKMAN Company

is analyzed, compared to withdraw findings Conclusion and recommendations are given inthe last part of this study

Figure 1.1 Organization of the Research Study.

1.3 Objectives of the Research

Mere Purchase of technology can not lead to a proper transfer of technology Good results oftechnology transfer are only achieved through careful selection of technology and a suitableway to upgrade company’s capabilities to adapt the newly imported one into newenvironment The way in which new technology being identified and digested determines thesuccess of technology transfer Therefore, the main objective of this research is to study theways the two companies selected and assimilated technologies in specific circumstances.Based on that process, recommendations and suggestions for improvements will be given.The specific objectives of the research are as follows:

1 Studying the actual processes of technology transfer through two mechanisms –purchase of plant and joint venture and how to manage them in Vietnamese CoffeeCompanies

2 Comparison of technological and economic performances between the local firm( purchase of plant and equipment) and the joint venture

3 Determining whether and how the technological capabilities of the firms have beenupgraded through transfer of technology

(Chapter III)

4 The difficulties that the transferees faced in managing the acquisition and assimilation oftechnology and steps taken to overcome them.

5 Proposing a mechanism for Vietnamese State Owned company to engage in technology transfer and recommendations to improve the effectiveness of technology transfer

 A face to face interview with Vice director of VIETDUC coffee company and DAKMAN

 A face to face interview with the heads of the coffee processing plants in the twocompanies

 Questionnaires were used as guidelines for interviews

Secondary data was carefully selected from newspapers, magazines and other internationaland domestic publications

Research analysis

Qualitative and comparative methods was used to examine technology transfers in VIETDUCand DAKMAN companies to identify critical issues that these companies faced and theircorrective actions

1.5 Scope and limitation of the study

As mentioned above, the coffee processing plants in Vietnam are basically using importedtechnology and mostly through purchasing machines and equipment and forming jointventure New technology is, now, transferred and applied into coffee processing This studymainly focused on aspects related to processes of technology acquisition and assimilation incoffee industry of Vietnam from a strategic point of view

Figure 1.2: Aspects Focused in the Research

Structure

Performance External Environment

The scope of the study is as follows:

 The study will focus on the technological strategies and transfer processes of VIETDUCCoffee Company- a state owned and DAKMAN Company- a joint venture by which theyupgraded their technology capability

 It will concentrate on technological aspects of technology transfer in a resourceperspective

One of the major limitations of the study was time limitation So we just focus on twocompanies to conduct the research Among Vietnamese coffee companies, VIETDUC andDAKMAN are chosen to carry out the research They are two typical companies for most ofVietnamese coffee industry

There are a lot of factors which affect the success of a technology transfer such as theGovernment's policies and diplomatic relations, maturity of technology and degree ofsophistication of the transferred technology but these are not focused in this study

Chapter 2 Literature Review

2.1 Concepts of technology transfer

It is not easy to clearly define “ technology transfer” Different philosophers often employdifferent concepts for their literature and, sometimes, they seem to have contrast conclusions

In some points of view, technology transfer is just the transfer of machines and equipment to

a new environment but others take into accounts both hardware and software of technology.These points of view basically stem from different perspectives such as " technology as atransformer", " technology as a tool", technology as Knowledge" or " technology asembodiment form" Mingsarn [1981] used four concepts of technology transfer, which can beoften found in the literature:

 Technology is transferred only when the local work force has ability to use andresponsible for the imported technology and do it efficiently

 Technology is regarded transferred when it is used effectively in a new environmentregardless of the origin of inputs of production For this concept, technology is onlyconsidered transferred to other constitution when it is assimilated and adapted in newcondition even if every thing is done by outside people As long as the technology isemployed efficiently, technology is considered transferred

 Technology transfer occurs when technology spreads to other local productive units in therecipient economy

 When imported technology is fully understood by local workers, and when these workersbegin to adapt the technology to a local environment for particular needs or modify it forother purposes

Therefore, technology transfer can be understood according to one of all the four concepts.For example, when local workers acquire all skills needed to operate the machines properly

or they can solve all problems probably happening, technology is actually transferred.Depending on the requirements of transferees, technology transfer is recognized when sometechnological capabilities demanded are gained and improved

Robinson [1988] firstly used the term of “technology transfer package” It is shown in thefollowing diagram:

Processes productSocial Organization

Figure 2.1: The technology transfer package

(Source: Michael Z Brooke, selling Management Service Contracts in International Business.

The technology transfer package concept is widely used and covers many areas oftechnology transfer Marketing may not be included in technology transfer even though itseem not to be a part of technology, unless in very special cases In manufacture of industrialgoods like machinery and equipment, marketing may be viewed as a part in technologypackage In this case, marketing is also included because the marketing staff needs to havecertain technical and engineering skills to introduce how to install and offer after sale servicefor such goods

 Technology transfer consists of one or more indivisible technology modules, which may

be core technology or peripheral one " Core technology" is indispensable to a process orthe use of a product or performance of a service The modules may also containperipheral technology, which may not be necessary for a process These modules may betransferred via technical documents and blue prints and/ or personal explanation,demonstration, or training or “ know how” assistance

 Permission to use various rights, knowledge, or assets (that is, under license, franchise,

The embodiment forms of technology -UNCTAD, Geneva, [1990] are described as follows:

 The embodied form Includes capital goods and intermediate goods as presented in plant,machinery and equipment It also includes human labor… skilled and specializedmanpower to use equipment and technique accurately and to resolve problems that mayoccur in production process or in the implementation of a plan, design or activity

 Disembodied technology consists of information recorded in tangible form, whether inwords such as the written description of a production process, or in a diagrams or someother forms of graphic presentation, such as production drawing, specifications or plan,figures symbols and so on Technology can be said to encompass the thousands ofdetailed steps that are necessary for the development and manufacture of a productincluding the design and development of manufacturing processes and equipment

As Baranson [1976] defined it, knowledge transmission enables the recipient enterprise tomanufacture a particular product or provide a specific service

Other researcher e.g Teece [1977] defined technology transfer like the transfers of knowhow As distinct from the sale of machinery and equipment which embodies technology, theyargue that the transfer of technology, in most cases, calls for a sustained relationshipbetween two enterprises over a period of time So the receiving enterprise can reproduce theproduct with the desired level of quality standards and cost efficiency This relationship model

of international technology transfer is consistent with the work of Contractor [1980] Robinson[1988].

Chesnais [1986] argued that the transfer of technology implies the transfer to the recipient notonly of the technical knowledge needed to produce the products but also of the capacity tomaster, develop, and later produce autonomously the technology underlying these products.The transfer of “ know how” and “know why” component of technology is rarely defined indetail in philosophies Ramanathan [1994], has considered technology as the “ hardware” and

“software” components in detail through the definition of Polytrophic components of

manufacturing technology, which can be used for mapping the technology transfer

successfully

2.2 The Polytrophic components of manufacturing technology

Traditionally, technology can be viewed as basic forms of tool or “technology as a tool”

perspective In this perspective, there is an emphasis on the importance of machines and

human-machine interactions Technology is also defined as knowledge or “technology as

knowledge “ perspective This perspective highlights the importance of “ know why” and

“know how” and implicitly gives out the role of human skill in gathering, using and upgrading

knowledge Finally, “technology as transformer” perspective is used to stress on the

importance of organizing activities in order to achieve desired transformations In general,they are viewed as comprising two major parts: “ hardware” and “software”

Hardware: The physical items related to the task of technical production.

Software: The work roles and division of labor, which surrounds it

The definitions given by the Technology Atlas Team [1986], Asian and Pacific Center forTransfer of Technology [1987] and Sharif [1989] made a further step and break down thesetwo major parts into four components:

 Object-embodied form or “ Technoware”

 Human embodied form or “ Humanware”

 Documents/ record embodied form or “Inforware” and

 Institution Embodied form or “orgaware”

Ramanathan [1994] defined these four elementary and interacting components in detail andthe importance of them at the firm level In fact, he confines these comprehensive forms oftechnology in a comprehensive definition of manufacturing technology

Technology embodies the four components, which are hardly transferred well especially thesoftware because the software of technology is often associated with human being such asskill of employees, skill of manager and the communication and information system as well

2.3 Concept of appropriate Technology

Bourrieres [1979] from a micro-system perspective, suggested that appropriate technologyshould be defined in the context of complex system and five levels have to be considered:The objective of the decision making unit, resource available, the action intended, the actorsand the results

From an economic perspective, suggested that appropriate technology should be defined asone that makes possible the production of a given good at a price not exceeding the currentworld price, taking into account the scarcities and opportunity cost of production, exchangerate, and the rate of interest or discount.

From the financial perspective, the World Bank defined appropriate technology as one thatprovided the highest net present value relative with capital investment

Although there are various definitions of appropriate technology, there is general agreementthat such technology must be efficient, not be obsolete, and that it must vary according to theparticular situation of each country under that consideration There is not an appropriatetechnology for all countries but the appropriateness of a technology with one circumstance

2.4 Concepts of Technological Capability

Many researchers give typologies of technological capabilities From a social perspective,Dunning [1981] identified five elements of technological capability: people, operationexperience, an effective organization, a problem sensing and solving mechanism, andnecessary values and attitudes

Westphal, L E Kim and Dahlman [1985] made a functional classification of capabilities(production, investment, and innovation)

Baranson and Trends [1985] distinguished four types of technological capabilities: capability

in purchasing technology, plant operation, duplication and expansion, and innovation

Ramanathan [1994] based on an extensive literature review has pointed out six types oftechnological capability that will be needed by a transferee: Acquisitive capability, operativecapability, adaptive capability, innovative capability, marketing capability, and supportivecapability These conceptual distinctions, although not always easy to make in practice, arehelpful in interpreting inter-industry and cross-country differences

Technology transfer is not as simple as purchasing a capital good or the acquisition of itsblueprints The transferees have to devote substantial resources to assimilate, adapt, andimprove upon the original technology The successful trends of transferred technology useare to be dependent upon transferor firms and countries to develop their own technologicalcapabilities

2.5 Acquisition of technological Capability

Many studies proved that acquisition of a technology does not automatically lead toacquisition of technological capability

Katz [1985], based on his studies of six Latin American Countries, concluded that the kind oftechnological capability that emerges and develops in any given social setting depends onthe type of economic agents in such a setting, the resource endowments They are affectedover time He further pointed out that the size of the firm, its field of activities, type ofproduction organization, the degree of product standardization, and type of ownership are allimportant determine the factors in the development of indigenous technological capability.Dunning [1981] said that, after more than two generations of control of the local Trinidad-

Tobago oil industry by foreign MNCs, a local technological capability still does not exist overthe whole range of activities necessary for running the industry Mytelka [1985], in his study ofthe textile industry in Africa, concluded that substantial technological effort is essential to theacquisition of technological capability Lasserre[1983] emphasized the importance of training.They correctly pointed out that the geographical transfer of technology might be of little useunless the appropriate human resources are simultaneously available

The transferee countries pay a lot of effort towards the continuous adaptation of importedtechnology to local conditions and to the firm’s operational characteristics and productiveconstraints Empirical studies have showed that adaptation takes place through changes thatstretch the capacity of existing plants, break bottlenecks in particular processes and productdesigns However, such positive actions do not take place easily or cheaply in anyenvironment

2.6 Problems of international technological transfer encountered by LDCs

Balasubramanyam [1987] has pointed out lack of efficient sources of components as a majorproblem in adapting and using imported technology Poor quality of components supplied,lack of adherence to delivery schedules and lack of continuity in supply were cited

Thomas [1973] pointed out that the transfer of technology to the African countries is usually inthe “embodied” form in imported technology Lack of appropriate manpower to exploit thesetechnologies to meet local conditions and needs and the obstacles by the mechanism oftransfer have fostered complete dependence on foreign technology and limited indigenoustechnological initiative For example, agricultural technology (for food production andprocessing) “embodied” in imported tractors, irrigation systems, fertilization processes, newcropping, canning, and refrigeration have not been advantageously used due to improperadaptation to tropical agriculture, lack of effective organizational know how, and requisitemarketing techniques

Imported technology needs to be restructured to suite indigenous labor needs, the climateand the culture The imported design and equipment may have to be restructured to fit thelocal needs and conditions

2.7 Main elements of technology transfer process

The main elements of technology transfer process are Transferor, transferee, Technology,linking mechanism, Transferor environment, transferee environment and the greaterenvironment (see figure 3)

Transferor: Supplier of technology

Transferee: The receiver of technology

Technology: Includes tangible parts as well as intangible part such as “know how”, “know

why” suitable to the technology

Linking mechanism: the means by which technology is transferred from the transferor to

transferee The linking mechanism may be as indirect or direct one Direct mechanism refers

to a case when transferee is in direct contact with the transferor of the technology Indirectmechanism is the one when an intermediary partner engaging for acquiring the technology.Market oriented mechanism: these are initiated with profit motive as a major consideration in

technology transfer It includes: purchase of plants, equipment and product, direct foreigninvestment (FDI), joint venture, turnkey contract, subcontract, licensing, and technologyinformation service

Figure 2.2: Schematic Presentation of the Technology Transfer Process

Gougeon & Gupta(ed.), [1997]

Transferor environment: the immediate set of conditions under which the transferor is

operating: at the individual, organizational and national level

Transferee Environment: this is mainly determined by the absorptive capacity of the

transferee (physical and organizational infrastructures, skill availability, commitment tochange, etc.)

Greater environment: The factors that can influence beyond transferee and transferor

environment For instance, transfer of technology between two nations may depend on somefactors such as political relationship, exchange rate, trade negotiations, technological level ofeach nation and the competition in the international market

Market oriented mechanism: These are initiated with profit motive as a major consideration in

technology transfer It includes: purchase of plants, equipment and product, direct foreigninvestment (FDI), joint venture, turnkey contract, subcontract, licensing, and technologyinformation service

2.7.1 Comparison of major Technology Acquisition Methods

Depending on specific condition, a technology transfer mechanism will be selected andapplied The comparison of five main mechanisms of technology transfer is presented in thefollowing table:

Transferor’s environment

Transferor

Transferee’s environmentTransferor

Technology

GREATER ENVIRONMENT

Link Mechanism

Table 2.1: Comparison of Major Technology Acquisition Methods

VHVLVH

MLH

LL-

VHVH-Manpower – Need for local R&D manpower

- Possibility of training specialist before

start- up

LL

LL

MM

HH

VHVHTime - Advantage in shortening development

Time (early start-up time)

Technological Considerations

- Technological self-reliance

- Availability of key technology

- Automation/ Adaptability of technology

Utilization

VLVLVL

LVLL

MLM

HMVH

VHVHVHMarket - Expected return on success * * * * VH

Risk - Technological risk

Source: Hand outs, Professor Young-suk Huyn [1999].

Based on the needs of transferee and characteristics of technology, a suitable mechanismwill be selected in order to satisfy the needs

According to Ford [1988], factors affecting technology acquisition decision are company’srelative standing, urgency of acquisition, commitment/ investment involved in, technology lifecycle position and categories of technology They are illustrated in table 3

Depending on specific condition of company and characteristics of technology acquired, asuitable method is selected It is very important to select a right method because it can affectyour competitiveness in the market

Table 2.2: Factor Affecting Technology Acquisition Decisions

Acquisition

Methods

Company’s relative standing

Urgency of Acquisition

Commitment/

Investment Involved in

Technology Life Cycle

Categories of technology

Internal R&D High Lowest Highest Earliest

Most distinctive or

“Critical”

Distinctive or basicContract-out

Distinctive or basic

Distinctive or basic

Highest High

Source: Ford [1988]

2.8 Joint venture and purchase of Technology in developing countries

According to the report of the International Development Research Center (web:

http://www.idrc.ca/books/focus/873/chapt3.html), most technology transfer mechanisms usedwere Joint Venture, BOT, FDI and purchase of technology In post harvest industry, Purchase

of technology and joint venture are normally used Each mechanism has their ownadvantages and disadvantages but both of them need a careful selection of technology orpartner and good management of technology transfer For State owned companies, purchase

of technology is mostly preferred because it is easy to handle the transfer and the transfereeshave autonomy in running their business Joint venture is also considered as an effective way

to acquire technology in case of shortage of resource or facing difficulties in finding market foroutput

Purchase of technology seems a simplest form of technology transfer but sometimes it isdifficult to handle successfully especially in the adapting process of the new technology Itseems the only transfer of physical machines and equipment but actually other componentssuch as humanware, and inforware much be embodied when the machines and equipmentare transferred

In short, managing a transfer of technology through purchase of machine and equipment or ajoint venture is not easy Software of the technology transferred must be an indivisible part toensure a proper transfer of technology

2.8.1 Purchase of technology

2.8.1.1 Reasons to engage in buying and selling technology

Motives of technology seller

There are many reasons for a company to sell its technology to the other According to Hyun,J.H and J.K.Oh [1996], the reason for the seller engaging in selling its technology arefinancial, market entry, selling obsolete technology or avoiding imitative competition

Some possible reasons for selling technology may be:

 The first reason is that the seller can obtain immediate financial benefits from the buyerfor the technology sold

 The second reason may be the seller wants to exploit good sources of raw material

 Technology sold is not valuable or competitive advantage creating but it is still new andcompetitive in other market

 Gain access to a new market

 Testing or improving its existing technology

Among these reasons, financial gain and market entries are the most frequent reasons for thesale of technology One other important reason is the obsoleteness of technology in theprimary market The seller wants to change its technology and sell the existing one to other

Motives of technology buyer

Some possible reasons for buying technology:

 The buyer lacks capability to produce technology locally due to both skill and resourceconstraints

 Reducing time needed for upgrading company’s technology and improving its capability

 Having autonomy in doing business

There are many main factors affecting the buyer’s decisions Ford [1988] noted thatcompanies choosing purchase of technology as mechanism of technology often has fullautonomy in control on the technology This is a strong point over other mechanisms and it isalso the main reason why transferee wants to choose purchase of technology than other.

2.8.1.2 Problems and difficulties with purchase of technology

Purchase of technology is the simplest method of acquiring technology but it has to face a lot

of problems and difficulties First, there may be no real need for the plant or equipmentpurchased because the existing technology is not out of date in the company environment.The second is the inadequate infrastructure facilities for the new technology such as water,power, transportation and so on Sometimes obsolete technology is bought because of thelack of experience This problem mostly occurs in transfer of technology from DevelopedCountries to the third ones where the transferees often lack experience, knowledge andinformation of technological market Problems may come from the lack of intangibletechnological components because the buyer just focuses on the physical components oftechnology

Because the commitment of transferor is not obliged in long term with buyers so the problemmay arise after the sale such as in repairing or maintenance

In order to avoid these problems or reduce their impacts, the buyer of the technology mustcarefully manage the technology transfer and the adaptation to the company’s environment

2.8.2 Transfer of technology through joint venture methods

2.8.2.1 Definition of joint venture

There are some definitions of a joint venture They are somehow different but a joint ventureusually has three elements: a separate legal entity, joint ownership of the legal by the jointventure partners and joint management of the joint venture partner

Tomlinson [1970] defined Joint venture as one where there is the commitment, for a morethan very short duration, of fund, facilities, and services by two or more legally separateinterests, to an enterprise for the mutual benefit

UNIDO [1971] defined joint venture as follows: “ joint ventures are enterprises in which there

is significant, and typically an initial sharing of equity between the principal parties to theventures or some substantive and continuing contractual arrangement of a technologicaland / or trading nature”

Both definitions of joint venture emphasize the three elements above of joint venture For ajoint venture between foreign and local parties, there are some characteristics as follows:

 The establishment of a new enterprise in the legal form of a separate entity

 Participation of local partner(s) and foreign partner(s)

2.8.2.2 Reasons to engage in joint venture

Joint venture is particularly appropriate when complementary needs exist between firms andwhen the partners’ strategies are compatible This ensures the participating companies have

a reasonable and effective degree of cooperation and commitment throughout the life of theagreement

The motive to form a joint venture can be viewed from foreign and local partners’perspectives Some motives of foreign partner and local one are presented as follows:

Motives of foreign partner

The motives of foreign partner can be classified into six groups:

 Developing and penetrating oversea or new markets

 Securing, maintaining and developing raw material supplies

 Financial reasons ( using low labor cost, transferring old technology, spreading the fixedcost and so on)

E Hallet [1971] indicated that joint industrial or commercial operation usually derive theirreasons from economies or sharing risks, financial resources, management, and personnel,corporate know-how, and other intellectual property

Webster [1989], in his study, showed that the underlined reasons for joint ventures go beyondsurvival in the international market place or even an interest in pursuing growth opportunities.The joint venture may be the only means of gaining market access to countries whose non-tariff barriers and import restrictions make direct exporting difficult, if not impossible

Because the risk associated with new market entry is often high The risk is even higher inmarkets about which the company has not had any experience before such as new open-door economies like Vietnam or China

Motives of local Partner

According to Shenkar [1990] many developing countries seek foreign investment in order toobtain capital, technology, managerial know-how and other benefits to further their economicdevelopment Joint venture is one of the ways, which are mostly used to obtain thesebenefits Some reasons for local partners to be eager to engage in joint venture are:

 Technology transfer and technological training This is the main motive for all localpartners

 The upgrading of technology investments already in place

 Increasing company’s earnings

 Increasing exports

 An increase in the local productive capacity

 Industrial identification

 Increasing the local value added

 The training and advancement of host citizens

Doo-Soon Ahn [1981] identified three categories of motives to explain why developingcountries enter joint ventures These are as follows:

 Training and mobilization motives (Including capital, training for work force andmanagement skill)

 Economics and political motives

 National political strategic motives:

From the point of view of local companies, joint venture can help them to increase theirpositions in the local market, by upgrading its technology capability by learning from their

partners However, economic motives and market entry are always the most important factorsleading to decision of coming into a joint venture with foreign companies.

2.8.3 Problems and Difficulties of Joint Ventures in developing countries

Through formation and operation of joint ventures, so many difficulties and problems mayarise Problem may be a general one, which normally occur in most of Joint Ventures Othersmay be associated closely with one specific stage or through out the whole process fromforming to management of joint venture

Geringer [1991] made a survey to note that the ratio of unsatisfied joint ventures ininternational business ranging from 37% to 70% Lasserre [1983], in his study of ASEANnations pointed that there are some sources of problems faced by foreign partners and localpartners The sources are showed in the following table:

Table 2.3: Perceived Sources of Problems in Foreign Operations in ASEAN

Perceived by European Partner (%) Perceived by local Partner(%)

Local partner & employees

-Lack of management skills

-Absenteeism

-Poor motivation

-Lack of dynamism of local partner

- lack of trust from local partner

Behavior of 65%

European Manager-Lack of trust-Lack of experience-Too many expatriates-Too high technical expectations-Too high sales quota

-Lack of communicationSource: Lassere [1983]

Selection of partner

In stage of selecting partner, there are some common problems to which local partners mayface Lassere [1983] noted that the search process was typical of “ limited information”theory Few or non-searchings are done to compare alternatives, nor is there an in-depthinvestigation of the motives and capabilities of the candidate

Selections of proper partner are problematic processes because developing countries havenot sufficient information and experience Thus, some problems in this stage are:

 Less time and attention for this process

 Limited information of partners

 Less effort for comparing alternatives and assessing their capabilities

Negotiations

Bobinson and Richard [1964] pointed out main problems occurring in this process concerningfinancial aspect of the agreement but in some countries Negotiation is more complicated by

culture, legal and bureaucracy which sometimes bring prospective parents to a point ofdespair.

In short, good joint ventures require a systematic selection, negotiation and management aswell as capability for problem solving From the first stage of forming joint ventures to trialoperation and management of operation, a lot of problems may occur which must be dealt inorder to keep the joint ventures existing

2.9 Review of previous research

Most of the previous comparative studies on performance have dealt with economicperformance The results of these studies show that joint ventures with MNCs have beenmore efficient and profitable than indigenous firms, due to the fact that MNCs have beensuperior skill and knowledge in R&D, Marketing and management than indigenous firms(Asheghian, 1982; Dunning, 1970; Mason 1970)

In a research titled “ small and medium-sized Japanese joint venture in Korea” of Jinjoo Leeand Young-suk Hyun (1986), the two authors compared the behaviors, performance betweenindigenous firms and Japanese joint ventures in Korea The authors/ pointed out that therewere distinctive differences in behavior and performance between small and medium sizedindigenous firms and Japanese joint ventures in Korea Indigenous firms exhibit highertechnology assimilation, higher interests of top management in innovation and highertechnological performance (innovation) but lower economic performance (sale per employee).The conflict between technological and economic performances of indigenous and jointventure firms can be explained by the better skill and knowledge of Japanese joint venturesover indigenous ones’

Table 2.4 Some Results of the research in Korea

Venture

Technology assimilation efforts higher

Top management interest in innovation higher

Technological performance (innovation) higher*

Economic performance (sale/ employee) lower

 Not significant at 0.01 level

Source: International Small business journal, Jinjoo Lee and Young-suk Hyun (1986).

Chapter 3 Analytical framework

The literature review, in chapter II, presented various concepts and studies of technology andtechnology transfer, impacts of technology transfer on the company’s technological capabilityand mechanisms of technology transfer In this chapter, the framework to analyze the transfer

of technology at firm’s level will be presented

3.1 Analytical framework

For technology transfer through purchase of plant and equipment will be assessed mainlybased on cost of technology, time and four components of the transferred technology It isalso important to evaluate the transferred technology according to its performances or itsimpacts on the output The company’s technological capability improvement is also animportant element of a successful technology transfer

For technology transfer through joint venture mechanism, beside the above criteria, theeffectiveness of the joint venture’s operation, the effectiveness of management and economicresults are also regarded as major factors to determine the success of the joint venture.There is a close correlation between the management of the joint venture and the success ofthe technology transfer

In this study, the process and impacts of technology transfer through the mechanisms of plantand equipment purchase and joint venture are mainly focused From a specific condition ofeach company and objectives and goals of its technological strategy in relation with itscooperate and business strategies, the technology transfer will be assessed and compared.The study will examine some aspects as follows:

3.1.1 Corporate governance structure

Major of stakeholders in each company as well as their roles in building the company’sstrategy including corporate, business and technological strategies will be analyzed.Stakeholders are recipients of good performance of a company and also the persons whosuffered the loss The stakeholders influence on CEO of the company and the CEO willbased on the benefit of the stakeholders and a specific condition of the company to select forthe choice of its strategy to meet the future demand This strategy will determine the way theyorganize production as well as other activities such as marketing, finance o achieved goodperformance

Figure 3.1: Analytical Framework of the Research Study

3.1.2 Environment and internal resources/ capability

A sound strategy can be made only if the company assesses its capability and resources andbased on its current and future capability prepares a scenario to meet the change ofenvironment Environment scan is considerably important for a company to select itscompetitive strategy External environment provides the company opportunities to exploit inthe future but it may bring back threats, which threaten the development or even survival ofthe company In high competition environment, a wise company will position itself in theweakest level of forces At the weakest level of forces, the company will find it easier tomaintain its position or prepare a competitive strategy for development Analysis ofenvironment and internal resources and capability is the examining of the firm’s strengths,weakness, opportunities and threats to exploit its strengths, overcome is weakness to catchthe coming opportunities as well as coping with threats

3.1.3 Chief executive officer

A CEO is a person who build cooperates, business and technological strategies for thecompany He is the most important personnel in a company because he eventually

Company A)

(Purchase of Technology)

Evaluation and comparison Sophistication of technology transferred Technological Components transferred Technological economic performances( quality, sale, profit, cost)

determines the choice of company’s competitive strategy He determines way for a company

to meet its future demands and he is also the final one to prepare a competitive strategy todeal with its rivals For technological strategy, CEO will determine what mechanism used toupgrade and acquire company’s technological capability based on his environment scan andcurrent capability of the company

3.1.4 Strategy

Technological strategy of acquiring new technology and its integration with business strategywill be analyzed to determine the fitness It is very important to view the firm as an economicvalue chain and the technology can create a firm’s competitiveness Technology development

is a supportive activity for the value chain so technology can affect any value added primaryactivities in the value chain Business strategy integrates with technological strategy to exploitthe market value

Chapter 4 Vietnamese coffee industry and company background

4.1 Development of Vietnamese Coffee Industry

Coffee was introduced into Vietnam by French missionaries in 1857 Coffee plantations wereestablished in the North Midlands in the late 1800s and in the North Central Coast in the early

20th century In the 1920s, suitable coffee growing areas were discovered in the CentralHighland region By 1945, Vietnam had about 10 thousand hectares of coffee, most of whichwas in the central region Because of the low yields (around 0.5 tons/ha), production was just

4500 tons, most of which was exported to France (DSI, 1998)

During the period when Vietnam was divided (1954-1975), the north took over Frenchplantations and formed 24 state cooperatives Production reached close to 5000 tons in 1968,but declined subsequently In the South, coffee production reached a similar level in 1973.Following reunification and peace, coffee production more than doubled to reach 12 thousandtons in 1980 (DSI, 1998)

Between 1980 and 1985, coffee area and production were stagnant and yields were low(around 1 tons/ha) For reasons discussed below, coffee production has expandeddramatically since 1986 Coffee exports, now, account for 6-12 percent of the total value ofexports, making it the second most important export crop after rice

In the decade of 1980s, coffee production was much improved in terms of planting area butpost harvest processing technology was regarded as an inferior factor because the centralplanned mechanism for the whole economy was just focusing on volume of coffee produced.With support of the Former Democratic Republic Germany, some Vietnamese coffeecompanies used machines made in this country for coffee processing This kind of machinesused old machines for husking, classifying and polishing coffee bean So the rate of brokencoffee was very high and quality was low At that time, all companies did not care about thequality of coffee just because most of the coffee was consumed in the former socialistcountries where the demand was usually extremely higher than the supply

Since the collapse of the Socialist Country System, Vietnamese coffee industry lost all of itstraditional markets Thus, these companies have to seek new markets for their product Toenter the world market, Vietnamese companies must deal with high competition but step bystep they have created their own images To succeed in the new markets, the quality ofcoffee has been actually considered by these companies a very important factor to beachieved Vietnam became the forth-largest country producing and exporting coffee bean(green coffee) in 1996 and the first largest country of robusta coffee exportation in 1999 puts

a remarkable step for the development of Vietnamese coffee industry

In 1998, going a long with the agreement signed between the Government of Vietnam andthe Government of the former Eastern Germany, the German Government has supportedfour coffee companies in Daklak province amount of 4 million DM to upgrade their processingplants Perceiving the impacts of processing technology on quality of coffee, many coffeecompanies now are seeking new technology to improve their processing capability

4.2 Marketing channels and exporting markets

In the past, almost all coffee in Vietnam was robusta and most of it was grown on state farms.The harvested cherries were dried and delivered to the state farm processing plant Statefarms processing plants generally have capacities of around 3000 tons, making themappropriate for farms of around 1000 to 1500 hectares The green beans would then bedelivered to the port for export under a government-to-government contract

Since the national reform, the marketing channels have become much more complex.Farmers associated with a state farm generally sell their output to the state-farm processingplant, though they have the option of selling some outside This option has created problemsfor some state farms, because farmers can more easily avoid repaying debts to the farmmanagement

Every year, over 4 million tons of green coffee is traded The largest coffee importers are theUnited States, Germany, and Japan, followed by other European countries The largestmarkets for Vietnamese coffee are the United States (24percent) and Germany (17 percent).Until 1992, the embargo of the US Government on Vietnamese exports meant that mostVietnamese coffee was exported to Singapore where it was reprocessed and exported.The main competitors of Vietnamese coffee are Brazil and Colombia and Indonesia Brazilproduces medium to low-quality coffee in a production system that includes much large-scalecoffee plantations In contrast, Colombia produces high-quality arabica coffee because coffee

is grown by small farmers within selective harvesting and other quality-control measures

4.3 Overview of coffee processing

Coffee beans are the seeds of fruits, which resemble cherries, with a red skin (the exocarp)when ripe Beneath the pulp (mesocarp), each is surrounded by a parchment-like covering(the endocarp), lie two beans, flat sides together When the fruit is ripe a thin, slimy layer ofmucilage surrounds the parchment Underneath the parchment the beans are covered inanother thinner membrane, the silver skin (the seed coat) Each cherry generally contains twocoffee beans If there is only one it assumes a rounder shape and is known as a pea-berry.Coffee beans must be removed from the fruit and dried before they can be roasted; this can

be done in two ways, known as the dry and the wet methods When the process is completethe unroasted coffee beans are known as green coffee

DRY METHOD

The dry method (also called the natural method) is the oldest, simplest and requires littlemachinery

The method involves drying the whole cherry There are variations on how the process may

be carried out, depending on the size of the plantation, the facilities available and the finalquality desired The three basic steps, cleaning, drying and hulling, are described below.Firstly, the harvested cherries are usually sorted and cleaned, to separate the unripe,overripe and damaged cherries and to remove dirt, soil, twigs and leaves Winnowing can dothis, which is commonly done by hand, using a large sieve Any unwanted cherries or othermaterial not winnowed away can be picked out from the top of the sieve The ripe cherriescan also be separated by flotation in washing channels close to the drying areas

The coffee cherries are spread out in the sun, either on large concrete or brick patios or onmatting raised to waist height on trestles As the cherries dry, they are raked or turned byhand to ensure even drying It may take up to 4 weeks before the cherries are dried to theoptimum 12% moisture content, depending on the weather conditions On larger plantations,machine drying is sometimes used to speed up the process after the coffee has been pre-dried in the sun for a few days.

The drying operation is the most important stage of the process, since it affects the finalquality of the green coffee A coffee that has been over dried will become brittle and producetoo many broken beans during hulling (broken beans are considered defective beans) Coffeethat has not been dried sufficiently will be too moist and prone to rapid deterioration caused

by the attack of fungi and bacteria

The dried cherries are stored in bulk in special silos until they are sent to the mill wherehulling, sorting, grading and bagging take place All the outer layers of the dried cherry areremoved in one step by the hulling machine

The dry method is used for about 40% of the Arabica coffee produced in Brazil, most of thecoffees produced in Ethiopia, Haiti and Paraguay, as well as for some Arabicas produced inIndia and Ecuador Almost all Robustas are processed by this method It is not practical invery rainy regions, where the humidity of the atmosphere is too high or where it rainsfrequently during harvesting

WET METHOD

The wet method requires the use of specific equipment and substantial quantities of water.When properly done, it ensures that the intrinsic qualities of the coffee beans are betterpreserved, producing a green coffee, which is homogeneous and has few defective beans.Hence, the coffee produced by this method is usually regarded as being of better quality andcommands higher prices

Even after careful harvesting, a certain number of partially dried and unripe cherries, as well

as some stones and dirt, will be present among the ripe cherries As in the dry method,preliminary sorting and cleaning of the cherries is usually necessary and should be done assoon as possible after harvesting This operation can be done by washing the cherries intanks filled with flowing water Screens may also be used to improve the separation betweenthe ripe and unripe, large and small cherries

After sorting and cleaning, the pulp is removed from the cherry This operation is the keydifference between the dry and the wet methods, since in the wet method the pulp of the fruit

is separated from the beans before the drying stage The pulping is done by a machine,which squeezes the cherries between fixed and moving surfaces The flesh and the skin ofthe fruit are left on one side and the beans, enclosed in their mucilaginous parchmentcovering, on the other The clearance between the surfaces is adjusted to avoid damage tothe beans The pulping operation should also be done as soon as possible after harvesting toavoid any deterioration of the fruit, which might affect the quality of the beans

The pulped beans go on to vibrating screens, which separate them from any un-pulped orimperfectly pulped cherries, as well as from any large pieces of pulp that might have passedthrough with them From the screens, the separated pulped beans then pass through water-washing channels where a further flotation separation takes place before they are sent to thenext stage

Because the pulping is done by mechanical means it normally leaves some residual flesh aswell as the sticky mucilage adhering to the parchment surrounding the beans This has to becompletely removed to avoid contamination of the coffee beans by products resulting fromthe degradation of the mucilage The newly pulped beans are placed in large fermentationtanks in which the mucilage is broken down by natural enzymes until it is dispersible, when itcan be washed away Unless the fermentation is carefully monitored, the coffee can acquireundesirable, sour flavors For most coffees mucilage removal takes between 24 and 36hours, depending on the temperature, thickness of the mucilage layer and concentration ofthe enzymes The end of the fermentation is assessed by feel, as the parchment surroundingthe beans loses its slimy texture and acquires a rougher "pebbly" feel.

When the fermentation is complete, the coffee is thoroughly washed with clean water in tanks

or in special washing machines The wet parchment coffee at this stage consists ofapproximately 57% moisture To reduce the moisture to an optimum 12% the parchmentcoffee is dried either in the sun, in a mechanical dryer, or by a combination of the two Thesun-drying is done on extensive flat concrete or brick areas, known as patios, or on tablesmade of fine-mesh wire netting The beans are laid out in a layer of 2 to 10 cm, and turnedfrequently to ensure even drying Sun-drying should take from 8 to 10 days, depending uponambient temperature and humidity Coffee dries more quickly if raised on tables because ofthe upward draught of warm air The use of hot-air drying machines becomes necessary tospeed up the process in large plantations where, at the peak of the harvesting period, theremight be much more coffee than can be effectively dried on the terraces However, theprocess must be carefully controlled to achieve satisfactory and economical drying withoutany damage to quality

Figure 4.1: Diagram of Primary Coffee Processing

Coffee Cherries Harvested

Dry process method

Dry process Method

Foreign Material

Separating Cherry Exocarp

(Red skin) Red-skin

Separating mesocarp &

endocarpCoffee Seed drying

Pulp of the fruit

Dried coffee seedDried coffee cherries

Foreign Material separationHulling coffee Silver skinCoffee cherry coat

Size classification of coffeePolishing coffeeWeigh classification of coffeeColor selection Dark and Molded coffee

Packaging

After drying, the wet-processed coffee, or parchment coffee as it is commonly known, isstored and remains in this form until shortly before export.

The final stages of preparation of the coffee, known as 'curing', usually take place at a specialplant just before the coffee is sold for export The coffee is hulled, to remove the parchment,then passes through a number of cleaning, screening, sorting and grading operations, whichare common to both wet- and dry-processed coffee Electronic sorting machines may be used

to remove defective beans, including those known as 'stinkers', which cannot bedistinguished by eye

The wet method is generally used for all the Arabica coffees, with the exception of thoseproduced in Brazil and the Arabica-producing countries mentioned above as users of the drymethod

4.4 VIETDUC Coffee Company Profile

VIETDUC Coffee Company (registered name: VIETDUC COFFEE PROCESSING ANDAGRO-MATERIAL SUPPLY FOR EX-IM UNITED ENTERPRISE-VIETDUC COFEXIM) is astate owned company which was founded in 1981 and engaged in variety of activities related

to manufacturing and trading coffee The head office of VIETDUC is located at Km12 ofHighway 27, Krong Ana district, Dak Lak province of Vietnam

The company is a member of Vietnam Coffee and Cocoa Association (VINACAFE ) and amember of Board of Management of Vietnam Chamber of Commerce and Industry

In the period of the Centrally Planned Economy, its main function was only production ofcoffee Since 1988, the company has to become an independent entity

The company involves in the following business areas:

 Production of coffee

 Coffee processing (primary processing)

 Trading green coffee

VIETDUC Coffee Company is one of the most successful companies in Vietnam doingbusiness in agricultural sector Its annual revenue is $ 18 million (1999) and net profit is 3million Its coffee is exported to over ten countries mainly Japan, Europe, USA and Germany.Table 4.1: Business Scale of VIETDUC Coffee Company

1 Total cultivating area of coffee 3000 ha

3 Total capital (USD) 1.8 million

4 Revenue (USD) 19 million

5 Quantity of coffee exported (ton) 10,632

VIETDUC Coffee Company is the pioneer among those doing business in agriculture inpursuing processing technology as a main source of competitiveness In 1998, a newprocessing technology was purchased and put into operation

4.4.1 Organizational Structure

VIETDUC Coffee Company is the largest in comparison with other coffee companies inVietnam It has four departments, six production units, one branch in Gialai province ofVietnam and one representative in Ho Chi Minh City (see figure 5)

The functions of each department are as follows:

 Planning and agriculture extension

This department is responsible for constructing cultivating, coffee tree protection plans for thewhole company production, applying new techniques in planting and taking care of coffeetrees It is also responsible for preparing schedule for irrigation in dry season as well asharvesting

 The accounting & financial department

The department is responsible for recording business transaction budgeting, capitalmobilizing and other aspects related to the use of capital

 Trading and marketing department

This department is responsible for collecting the information regarding to world coffee price,customers and information from the competitors to deal with them It also prepares marketingcampaigns, new market penetration strategies and after sale services

This department has 20 fresh-coffee-buying points to provide the processing plant raw coffeematerials and agents and representative office in Ho Chi Minh City to handle export/ importtransactions

 Human resource department

Human resource planning, recruitment and selection of employees, orientation and trainingfor employees and compensation and rewarding are responsibilities of this department

 Coffee processing plant

Processing coffee is a very important activity to ensure the quality of green coffee It beginsfrom husking coffee cherries picked, drying, foreign material and molded coffee separation,classification, polishing and packing Under the high pressure from the world market forcoffee quality, the company pays a lot of attention to these activities including acquiringadvanced machines and facilities and intangible technology components as well

Figure 4.2: The Organizational Structure of VIETDUC Coffee Company (Year 2000)

4.4.2 Markets

The company sells its product to some major countries such as Japan, USA, Holland andothers The consuming for the company product is large and potential but one problem isthat quality of coffee in these markets is strictly required Some major markets of VIETDUCCompany are presented in the following table

Board of Management

Planning & agricultural

extension Department Accounting &

Financial

Department

Trading and Marketing Department

Human Resource Department

Coffee Processing Plant

Production unit 1Production unit 2Production unit 3Production unit 4Production unit 5