Foreign Direct Investments In Vietnam

According to the information of the Ministry of Planning and Investment, in 1998, more than 260 foreign direct investment projects were licensed with a total registered capital of US$4.06 billion

ASSESSING INTERNATIONAL JOINT VENTURES

IN VIETNAM

by Lai Xuan Thuy

A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration

Examination Committee: Dr Fredric William Swierczek (Chairman)

Dr Truong Quang

Dr Bettina Buchel

Previous Degree: Bachelor of Science (Econ.)

Economic University of Sofia, Bulgaria Bachelor of English

Pedagogy University of Hue, Vietnam Scholarship Donor: The Government of Switzerland

Asian Institute of Technology School of Management Bangkok, Thailand April 1999

The author would like to express his deepest acknowledgement to the research advisor,

Dr Fredric William Swierczek for his intensive supports, valuable suggestions, guidanceand encouragement during the time of the study

Many sincere thanks are also due to Dr Truong Quang and Dr Bettina Buchel for theirvaluable time, comments, and advice Their constructive suggestions were of great help insuccessfully completing this study

The author would like to express his sincere gratefulness to Mr Nguyen Minh, GeneralDirector and Ms Thu Nga, Director Assistant at HBC, Mr Anh Hung, General Director,

Ms Marilyn Glorioso, Chief Financial Controller, Ms Thu Hang, Executive Secretaryand Mr Le Bo, Human Resource Manager at Century Riverside Hotel, Mr Nguyen Nam,Deputy Director and Ms Lan Huong, Office Assistant at Luck Vaxi Vietnam, Mr.Christophe Kaczowski, Project Manager at Thyssen Ascenseurs, Mr Dinh Khanh, Chief

of the International Relations Department in the Planning and Investment Service of ThuaThien Hue Province, Ms Thanh Hai Project Assistants at MASCED, Ms Minh Chau,Senior Lecturer at HCMC Economic University, and others for their precious informationrelated to the research

The author would like heartily to dedicate this study to his beloved parents, his wife,Minh Ly and his children, Little Mai and Bao Thai who have always sacrificed toencourage and support him in life

Lastly but not least the author would like to express his faithful thanks to the Director ofSAV Program and the Government of Switzerland for giving him opportunity andfinancial supports so that he could successfully complete his MBA study

Based on the information from the questionnaires and direct interviews with managers ofthe international joint ventures, this paper focussed on assessing the joint venturesperformance in Vietnam The research results indicated that the joint ventures performedrather well in behavioral and learning, satisfactorily in strategic, but rather poorly ineconomic perspectives The analysis also found significant differences in partners’perception on success performance The five key dimensions in success perceptions of thejoint venture managers have found to be Functional efficiency, Competitiveness,Effectiveness and efficiency, Equity, and External customer relations There aresignificant correlations between success factors and the operational results as well asbetween success factors and input, process and output indicators Important problems andissues in the joint venture relationships have also discovered in the interviews with themanagers

2.5 Problems and Issues of International Joint Ventures 8

5.1.1 Problems in measuring success of joint ventures 125.1.2 Theoretical aspects of measuring success in joint ventures 13

Chapter 3 Foreign Direct Investments In Vietnam 15

5.1.4 Other issues of discussions 36

5.2.1 Problems Resulted From Differing Basic Objectives 38

Chapter 6 Conclusion and Recommendations 46

6.2.1 Recommendations to the joint venture managements 50

LIST OF TABLES

TABLE TITLE

Table 2.1 Major reasons for joint ventures

Table 2.2 Basic types of joint ventures

Table 2.3 Areas of Problems in the Joint Venture

Table 3.1 Licensing new projects and capital raising in 1997-1998

Table 3.2 General information about FDI projects in 1998

Table 4.1 Framework for assessing joint ventures

Table 5.1 Respondents’ perceptions on the joint venture objectives

Table 5.2 Comparison between Vietnamese and foreign managers

Table 5.3 Overall Performance of the Joint Ventures

Table 5.4 Respondents’ Evaluation of the Joint Venture’s Performance

Table 5.5 Comparison of the respondents’ evaluation on the JV’s performance

Table 5.6 Partners’ Perceptions on the Input, Process, and Output

Table 5.7 Correlation Matrix of Input, Process, and Output

Table 5.8 Results of factor analysis

Table 5.9 Factor Scores: Comparison between Vietnamese and Foreign

Partners

Table 5.10 Correlation Matrix of Success Factors and Operational Results

Table 5.11 Regression analysis of Success Factors on Operational Results

Table 5.12 Correlation Matrix of Factors and Input, Process, and Output

Table 5.13 Regression analysis of Factors on Input, Process, and Output

Table 5.14 Respondents’ views on decision-making, communication

Table 5.15 Major areas of the joint venture problems and issues

Table 5.16 Comparison between utility fees for SOEs and non-SOEs*

Table 6.1 Ranking success factors by level of partner’s satisfaction

P AGE

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LIST OF FIGURES

FIGURE TITLE

Figure 3.1 Trend of Foreign Direct Investment for the period 1988-1998

Figure 3.2 Foreign Direct Investment Structure by Sectors

Figure 4.1 Analytical framework of the research

PAGE

151620

Chapter 1

INTRODUCTION 1.1 Background and Rationale

Since 1988, Vietnam has been accelerating in the process of transformation from thecentrally-planned as having been for more than forty years to a freer market-orientedeconomic mechanism and merging with the regional and global economies The “Doi moi”policy of the Government has actually been effective in pushing the economic development

of this planned-to-be-80-million-by-2000 nation It has created more opportunities andfavorable conditions for exploiting the internal and external development factors,encouraging investments of different forms, especially foreign direct investment undervarious modes, including joint venture as one of the most important cooperative strategies forcompanies to enter and win this rigorously competitive emerging market

According to the information of the Ministry of Planning and Investment, in 1998, more than

260 foreign direct investment projects were licensed with a total registered capital ofUS$4.06 billion In addition, 133 projects were approved to increase their investment capitalwith the amount of US$769 million Therefore, at the end of the year, a total of US$4.83billion of direct foreign investment capital were registered The investment of these projectscome from 32 countries around the world, leading by Russia with one project of US$1.3billion and Singapore with 36 projects and US$893.005 million More than 70 percent of theprojects are joint ventures

Although the renovation policy of the Government has created better environment forinvestment, a trend of reducing foreign direct investment has been observed during the lastrecent years In comparison with 1997, the number of FDI projects licensed and newlyregistered capital in 1998 was reduced by 21.5 % and 10% respectively The number offailed joint ventures has been growing, while others have been trying to change theownership to wholly owned foreign companies Investors may start to rethink and adjust theirstrategies to enter the Vietnamese market through joint venture

On the other part of the landscape, the situation is more optimistic Many international jointventures have actually found their position in this difficult market, namely Vinacpecial,Proconco, Mekong Concrete Mix, VN/CN Catering Service, and others (Phong, 1995) Some

of the joint ventures are continuing to successfully expand the market share and realizebenefits such as Telstra, Long An Mineral Co., Chinfon-Haiphong Co., and so on (MPIReport No 11 BKK/KCN January 1, 1999), despite the current financial crisis in the region

In 1998, the Government awarded certificates of merit (CM) to four foreign investedenterprises: Ajinomoto Monosodium Glutamate (Japan), Vedan MSG (Taiwan), CP Vietnam(Thailand) and Proconco Animal Feed (France) for their outstanding achievements inbusiness activities and implementing social programs for the community

Then, what is actually the situation of the joint ventures in Vietnam? Have the joint venturesbeen running well? And do they have a future? Many of recent research concentrated on the

legal, cross-cultural, compatibility, and conflict aspects of the joint ventures to identifyfactors for more effective foundation and operation of the joint venture

This study is focusing on assessing the joint venture’s performance with the major objective

to help the joint venture partners as well as the potential investors to have an insight into thecurrent situations of the joint ventures in Vietnam and adjust their corporate strategies

1.2 Statement of the research problem

Knowing how well a joint venture is running is practically important for the managers andparticipants in the venture to adjust and develop their business strategies Based on theinformation from the questionnaires and in-depth interviews with the joint venture managers,this paper is focused on evaluating the performance of the joint ventures in Vietnam

The major problem of the research is therefore to clarify the current performance of the jointventures, that is, to answer the question of how well the joint ventures have been performed

in Vietnam and what problems they meet in their operations

1.3 Research objectives

The general objective of the research is to help understand the current performance situation

of the joint ventures in Vietnam, their achievements and future position in this newlyemerging market Based on the systems analysis approach, an extensive literature review,and in-depth situational analysis, the research would provide useful information for thecurrent joint venture managers to understand the actual situation of the joint ventures andhave necessary strategic adjustments

The research also helps potential investors to have more objective views on the situations ofthe international joint ventures in Vietnam, which would be useful for them in preparing andadjusting their entry strategies into the country For the policy makers, the research would be

an important source of information to give them an insight into the current performance ofthe joint ventures to have necessary policies for supporting the foreign direct investmentcompanies in general and joint ventures in particular to achieve their goals

Specific objectives of the research can be stated as follows:

1 To develop an analytical framework for evaluating joint ventures;

2 Based on the survey, to evaluate the joint venture performance;

3 To identify the major success factors and how they affect the operational performance ofthe joint venture; and

4 To make important recommendations for the joint venture managers, potential investors,and policy makers in making necessary adjustments on the strategies and policies

The author would also make a suggestion of further research in the fields of interest for adeeper and more complete assessment of the joint ventures in the country

1.4 Scope of the study

The study was focused only on the joint ventures in the Central part of Vietnam, mainlyThua-Thien-Hue and Danang, the two major economic centers in the region So it limits thegenerality of the research findings

The research did not deal with the issues of partner selection, negotiation, and terminationphases of the joint ventures Instead, the study was focusing only on the joint ventureoperational performance, based on the interviews and questionnaire data from the managers,currently working in the joint ventures Therefore, it limits the wholeness of the findinginformation

1.5 Organization of the report

The report is divided into six chapters As principle, the first Chapter is an introduction to theresearch study The second Chapter is an extended literature review on the issues of jointventure and joint venture success measuring Understanding the joint venture and problemsrelated to its assessing would help easier understand the finding information

In Chapter 3, an overview of the foreign direct investment in Vietnam is made to provide aninsight into the situations, in which international joint ventures are operating Occupyingabout 70% of FDI projects, the joint ventures have actually played important roles in theeconomic development of the country Chapter 4 deals with the issues of the researchmethodology Conceptual and analytical frameworks are built to guide the research andsupport understanding the research results

Chapter 5 is the research result It is subdivided into three sections In the first section, thequestionnaire results are discussed to give an overall landscape of the joint ventureperformance, based on the subjective information from the questionnaires In the secondsection, factor analysis was employed to find key success indicators and how they affectoperational results of the joint venture And the last section is the interviews result of selectedmanagers from the joint ventures to address the operational problems related to the jointventure performance

In Chapter 6, important conclusions about the research finding are made to give an extractedsummary on the problems studied Appropriate recommendations are also made for bothpolicy makers and businessmen interested in the joint venture and its issues The author alsomakes suggestions for further research

Additional issues of decision making, communication, and conflict solving approaches arealso discussed in Chapter 6 to make clearer picture of the joint venture situations Especially,

a real case of financial performance in a joint venture was also discussed additionally in theappendix section as an illustration of the findings (see Appendix 1)

Chapter 2

LITERATURE REVIEW 2.3 Joint Venture Concepts

According to Thorelli, a well-known specialist in International joint ventures issues, in arapidly changing world environment, firms should build networks “with a vast hierarchy ofsubordinate, crisscrossing relations” (Thorelli, 1986) An important feature of the globalfirm’s network is that partners may develop relationships between themselves andcollaborate with the market leaders Alliances thus formed are seen as part of a process ofstrengthen the firm’s position in an industry and are essential for its survival (Hakansson andJohanson, 1988)

A joint venture is formed when two or more firms form a third entity to carry out aproductive economic activity (Harrigan, 1985) A joint venture has also been defined as anequity arrangement between two or more independent firms This definition includes equityalliances between two firms to organize production and marketing on a regional rather than acountry level Joint ventures have increased in various forms and have become more strategicrather than tactical in nature

According to Czinkota, Rivoli, and Ronkainen (1989) joint ventures can be defined as “theparticipation of two or more companies jointly participating in an enterprise in which eachparty contribute assets, owns the entity to some degree, and shares risks.”

For many developing countries, joint venture is a very important method of technologytransfer to acquire and build necessary technological capability for the national industries.One of the most important reasons for forming joint venture companies is to reduce theexposure to risk associated with the development of new products and technologies(Harrison, 1987)

Many researchers have emphasized the importance of the joint venture as an appropriateentry strategy to go abroad For the purpose of evaluating the international joint venture, thedefinition of Zeira and Shenkar (1990) is suitable because it encompasses the uniquecharacteristics consistent with most other definitions According to the authors, aninternational joint venture is “a separate legal organizational entity representing the partialholdings of two or more parent firms in which the headquarters of at least one is locatedoutside the country of operation of the joint venture” And this entity “is subject to the joint-control of its parent firms, each of which is economically and legally independent of theothers”

According to Lane and Beamish (1990), a successful joint venture is a stable, healthy, andprofitable business relationship based on cooperation and two-way communication that meetsthe needs of both partners over a long term, mutual condition

Buchel and other authors (Buchel et al., 1998) argue that joint ventures “are clearly becomingmore popular as a form of cooperative arrangement, not only between partners from differentcountries but also between companies operating in the same business area” According to the

authors, joint ventures “are a form of cooperation, which stand between the traditionalmechanisms of economic coordination, that is market and hierarchy”

Researchers have tried to categorize the various kinds of cooperative arrangement betweencompanies The first important distinction to be made among the different kinds ofcooperative arrangement is between contractual arrangements and cooperative arrangements,which involve exchange or contribution of capital, that is equity arrangements Among thelater, a distinction may be made between cooperative arrangements, which lead to thecreation of a new entity and arrangements, which involve equity swaps The extreme form ofequity swaps is where the cooperating companies are combined by means of merger andacquisition (Buchel et al., 1998)

Buchel distinguished joint venture and joint venture system The former denotes the newentity created by the joint venture’s partners, and the later means the whole structure ofrelationships amongst the partner companies and the new entity She argued that therelationships amongst the partners are not necessarily all of a cooperative nature It oftenhappens that the partner organizations cooperate in some areas but are competitors in others.According to the author, an “effective joint venture management is characterized bycontinuous learning” At the first level, the important thing is to learn how a joint ventureworks, what are problems which may arise, and what possibilities exist for organizing,guiding and developing in different areas At the second level, the aim is to recognize theway in which the joint ventures can be used to enable the partner companies to learn

2.2 Advantages and Disadvantages Of the Joint Venture

The reality of global competition today is that few companies possess all of the competitiveadvantages that would enable them to be successful internationally For firms in industrialcountries, prospects for future growth are increasingly seen as being disproportionately indeveloping parts of the world, not in more familiar markets in the developed nations But, for

a variety of reasons, doing business in developing countries is viewed as being considerablyriskier, to be approached with much more caution Similarly, developing country markets arebecoming much more open to international competition, providing both opportunities anddangers for domestic companies To meet these challenges, managements are attempting toposition their firms to become more competitive Thus, from the perspectives of bothindustrial and developing country companies, the evolving global market calls for changefrom past competitive practices

Joint ventures have both advantages and disadvantages They, on the one hand, may increaserivalry while also eliminating competition among the participants of the venture Jointventures can enable the participants to unify complementary technical and managerialcapabilities to perform projects whose requirements exceed the expertise and resources ofany single firm By facilitating the transfer of know-how and technology, joint ventures alsocan improve the skills of individual participants and thereby overcome barriers to entry andexpansion in specific markets

Such collaboration may be particularly valuable in permitting firms to realize scaleeconomies for research and development by avoiding duplication of effort and assembling acritical mass of resources and a higher level of investment in inventive activity

Joint ventures also enable firms to spread the risk associated with financially ambitiousprojects If channeled in this manner, joint ventures can increase output and lower costs andprices For many companies in the developing countries, joint venture could help obtain alsoinvestment capital and knowledge

However, collaboration among direct rivals may discourage their independent pursuit ofpromising approaches to enter new markets or develop new products Such cooperation canlead to direct price fixing or cause spillovers of cost, pricing and design information thatreduce the participants' inclination to compete aggressively against each other

2.3 Motivation Of Creating a Joint Venture

The reasons for alliance of different partner companies may differ from each other Harrisondivided the reasons by which a joint venture is formed into internal, competitive, andstrategic goals These main reasons are summarized in Table 2.1

Table 2.1 Major reasons for joint ventures

Internal reasons:

 Spreading costs and risks.

 Safeguarding resources, which can not be obtained via the market.

 Improving access to financial resources.

 Benefiting from the economies of scale and advantage of size.

 Accessing new technologies and customers.

 Accessing innovative managerial practices

 Encouraging entrepreneurial employees.

 Creation and exploitation of synergy.

 Transfer of technologies and skills.

 Diversification goals.

Source: Adapted from Buchel et al., in International Joint Venture Management, John Wiley

& Sons (Asia) Pte., Ltd., 1998, pp 16

Other authors emphasize the role of a joint venture as gaining faster and easier access to thelocal market and the distribution system; improving knowledge of the local economy, politicsand culture; gaining access to local human resources, including managers and labors; sharingrisks; and having preferential treatment (Swierczek et al.,1995)

While, for the local partners, the motivation may be others Many developing countries seekforeign investment in order to obtain capital, technology and managerial know-how Formost developing countries, other benefits include an increase in employment and

productivity levels as well as the efficient utilization of scarce resources such as foreignexchange and imported material inputs.

A joint venture may permit local enterprises to increase its competitive position in the localmarket by upgrading its product line and obtaining technical assistance from foreign firms.Joint ventures help the local firms gain easier access to technological information particularlyfrom industrially developed countries

Moreover, through the establishing of the joint venture the local enterprise can bridge the gapbetween its vast material resources and the technologies from the developed countries Jointventures can be viewed as a means by which firms can learn to seek or retain theircapabilities of organizing a particular activity while benefiting the superior productiontechnique of a partner (Williamson, 1985)

2.4 Basic Types Of Joint Ventures

Theoretically, there are countless ways of using and constructing joint ventures Based on theexisting literature and applications, which are common in practice, six types of joint venturecan be listed as in Table 2.2

Table 2.2 Basic types of joint ventures

 Complementary technology: The partners combine their technologies to diversify their

product/market portfolios.

 Market technology: Combination of the market knowledge of one partner with the

production or product know-how of the other.

 Sales joint ventures: The producer and a local partner cooperate in an arrangement,

which is a mixture of independent representation and own branch.

 Concentration joint ventures: Competing partners cooperate to form larger and more

economical units.

 Research and development: The aim is to create synergy by making joint use of research

facilities and exploiting opportunities to specialize and standardize, combining know-how and sharing risks.

 Supply joint ventures: Competitors with similar input need cooperate to safeguard

supply, reduces procurement costs or prevent the entry of new competitors.

Source: Buchel et al., International Joint Venture Management, John Wiley & Son (Asia)

Pte., Ltd., 1998, pp 17-18

In terms of the equity participation by joint venture partners, joint ventures can be classifiedinto equity and non-equity joint ventures (Tomlinson, 1970) In practice, the equity form ismore common, which involves a financial investment by the partner companies

Based on the relative strength of the partners involved in the joint venture’s mission, Lei andSlocum (1991) classify joint ventures as specialization or shared value-adding ventures.Specialization ventures are those, in which each partner brings and contributes a distinctivecompetency in a particular value-adding activity While in shared value adding joint venturepartners participate and share in the value-adding activity together

Joint ventures can also be classified into dominant partner joint ventures, when only one ofthe partners plays a dominant role in the decision making; shared management joint ventures,where each partner play an active role in decision making; or independent joint ventures,where the joint venture’s general manager enjoys extensive decision making autonomy(Killing, 1983).

A distinction should be made between joint ventures that are limited in scope and number ofmarket participants (i.e., two or three firm joint ventures) and industry-wide, market-wide ornetwork joint ventures The issues that are likely to arise are very different, and should behandled differently, for each In addition, it is helpful to distinguish generally between jointventure formation and joint venture operation Most of the case law and discussion in thisarea revolve around the operation of the joint venture, rather than whether it would bepermissible for the parties to create a joint venture in the first instance In all instances, thejoint venture's rules should be reasonably related to the justification for the venture Theventure should also have appropriate safeguards to avoid spillover effects

2.5 Problems and Issues of International Joint Ventures

Based on statistical data for a long period of time from 1970 to 1995 of the joint venturespractices in the developing countries, Robert R Miller and other co-authors made a deepanalysis to find out the critical problems, which the international joint ventures have faced.These problems can be divided into two kinds: the problems of the joint venture negotiationsand the problems related to the joint venture relationships (see Table 2.3)

According to the authors, the evaluation of the assets each partner brings to the joint ventureduring the time of their marriage is among the most difficult problems in the negotiationprocess It is often not a simple matter to evaluate just what these assets are worth One side,for example, may be bringing to the JV a going business, but one where no equity sharesexists in a secondary market Another difficult valuation problem that exists in manydeveloping country joint ventures concerns new technology to be supplied, usually by theindustrial country partner, and which needs to be evaluated to determine an appropriatelicensing fee structure Or, there is technology already incorporated in a product to bemanufactured and sold by the JV These technologies must be evaluated before becomingthe joint venture’s common assets

Another kind of problems relates to the transparency of the negotiation terms and conditions.The authors argue that getting accurate data upon which to base valuations and otherdecisions can be very difficult in some countries and with some companies For example, oneside or the other may be a family enterprise in which accounting standards might be quitedifferent from internationally acceptable rules According to the authors, transparency is aparticular problem in joint ventures being established in former command economies wherethere have been no real markets for outputs, for supplies or for financial instruments.Available accounting information means very little in such circumstances, yet somehow thejoint venture partners have to come to some mutually agreeable method of assessing thevalue of assets each side is contributing

Table 2.3 Areas of Problems in the Joint Venture

4 Dividend and Investment Policies

5 Difference in Partner Size

Division of management responsibility is a very important issue in the joint venture as it isclosely related to the interests of the partner companies to enter the venture The question ofwho is to manage the new enterprise is decidedly not a simple matter to resolve, and it is onenot necessarily dependent upon which partner maintains majority control Agreements can

be quite specific both on this issue and on the issue of the joint venture managementindependence These issues are sufficiently important to companies that many will wish toinsert veto restrictions into the joint venture agreement to assure that actions cannot be takenwithout explicit approval from one or both partners

Problems related to changes in ownership are also common in the developing country jointventures The authors have found particularly important issues when one partner or the otherincreasingly setting a question of forming the procedures to be followed in changing theownership structure as the JV matures According to the authors, this becomes an importantissue because it impinges on a number of other operational matters and is quite simply,recognition of the reality that few joint ventures remain unchangeable over their duration.Although it is probably sensible to handle the matter early on, rather than suddenlyconfronting the need sometime later without clear guidance, the issue obviously is not one

that yields to easy solution Developing country partners especially can be leery of suchprovisions, because they see them as their potential death warrant when the industrial countrypartner, for one reason or another, wants to take full control.

After all, dividend policy and other financial matters are found to be controversial issues ofthe joint venture Dividend policy goes to the heart of the reasons why companies enter jointventures, with some companies hoping rapidly to expand and gain market share while othersstrive to gain a quick cash flow to support other operations or, in the case of closely heldcompanies, possibly for personal reasons A number of other financial issues come up innegotiations, of course, some of which can be the cause of consternation on one or bothsides

The authors have also found key problems affecting the relationships between the jointventure’s partners According to them the main reason for problems of this kind was themultinationality of the joint venture The reality of many joint ventures in developingcountries is that they involve more often than not large multinational companies (MNCs)which have under their purview a mix of other joint ventures and wholly owned subsidiarieselsewhere in the world This contrasts with the developing country firm, which may be quitelarge by local standards, but not in comparison with its partner The upshot of suchdifferences is that the business perspectives of the two (or more) companies can varysubstantially, and this variability can be at the root of relationship problems later in the jointventures life

The first problems of the joint venture relationship relate to the export right Exportingsometimes represents a fundamental difference between industrial and developing countrypartners and, again, it is an issue difficult to reconcile satisfactorily Not infrequently, theindustrial country company is a multinational corporation with operations and sales in avariety of countries Typically, it will not want to allow the joint venture to be free to exportproducts, possibly of inferior quality, into markets that may already be served from othermanufacturing points in its system The MNC looks upon the joint venture as one piece of acomplex global web, and it is not likely to allow that single piece to dictate its own policieswhere other pieces or, indeed, the web itself might be compromised The rule in suchsituations is for the MNC to put strict limitations on the rights of the joint venture to export.The developing country partner, on the other hand, typically has much different ideas Herethe expectation is that as new technology is brought in and the joint venture absorbsproduct/process technologies, exports might provide a natural market for expansion Indeed,increased exports might be a primary reason for the developing country side to have enteredinto a joint venture agreement in the first place

Taxation is another source of the relationship problems The authors found that part of theoptimization process undertaken by the MNC would cover its worldwide tax burden which,all-else equal, it would wish to minimize Such a tax minimization strategy can affectdramatically relations with the joint venture, particularly when the joint venture eitherimports parts and components from the MNC or, as is usual, exports products through theMNC parent The MNC in these circumstances will be very aware of transfer prices between

JV and parent, and it may attempt to manipulate that price to lower its taxes For example, iftaxes are considerably higher in the joint venture’s country of operations than in the MNC’s

source country, then there will be a temptation for the MNC to raise transfer prices to lowerprofits in the joint venture

Problems of dividend policy and investment are also found to be in the center of the jointventure argument The authors discovered that where these policies are not spelled out in theagreement, differences could be very difficult to resolve The problem is that the MNC mayhave global investment programs that involve the transfer of funds from one region toanother It might in these circumstances much prefer dividends to reinvestment within thejoint venture a position not necessarily compatible with its joint venture partner’s view.The opposite problem occurs as well, where the MNC might be quite content to delaydividends in favor of faster expansion and the local partner demurs

Another set of problem areas relates to the differing size of the two parties in the jointventure In relative terms, the local partner is likely to be considerably smaller than the MNCand, according the research finding, this difference can cause difficulties during a jointventure initial, often high growth, years The local partner may have difficulty coming upwith the necessary capital infusions to support the expansion

One of the important issues of the joint venture relationship is the problem of ownership Thedesirability of having the operational management of the joint venture independent of eitherpartner has been a problem arising in negotiating JV agreements The research found thatwhen the joint venture is not established in a way that would allow for that independence,one could expect those relationship problems would emerge fairly quickly Often thishappens when the industrial country partner desires, for one reason or another, to limit thejoint venture’s operations in ways, which would make it roughly equivalent to a whollyowned subsidiary The authors argued that unless such an arrangement had been agreed toearly on, it would cause inevitable problems between the partners later in the joint venture’slife

Related to ownership problems, but in some ways quite distinctive, are a series of difficultiesthat can occur in controlling the enterprise The research found that product line disputes areamong the more common of these problems According to the researchers, these raisedgenerally because the conditions that existed when the JV was formed change and, because

of the change, alter the perspectives of one or the other partner

Another common source of disagreement has found to be when dealing with sourcing rawmaterials, parts or components In this case, the JV agreement can specify in detail thatcertain materials are to be sourced from the industrial country partner Aside from thetransfer pricing issues that such sourcing raises, the original conditions that made thesourcing provision in the agreement seem logical can change Over time and as economicdevelopment takes place, local sources may become available which are, possibly, lower incost and at least as high in quality These sources obviously would be attractive to the jointventure’s management But, the MNC’s view could be different, because it might benefitmore from retaining the original agreement and continuing to produce the materials for thejoint venture

Partly, the problems are caused by the obvious fact that the two (or more) partners comefrom much different cultural backgrounds, and individuals may see the same set ofcircumstances in quite different ways But, there are other dimensions to this cultural gap thatare important as well Corporations themselves have "cultures" which condition how people

view their environment and how they interpret issues This factor is one of the primaryreasons why joint ventures established between industrial partners from the same country andeven the same industry often run into trouble.

Finally, joint ventures are exposed to ever-changing panoply of forces that shape and directoutcomes The changing environment within which the joint venture operates also alterspartner relationships in ways which can sometimes cause stresses that are difficult, and attimes impossible, to resolve Summarized below are a few cases that arose repetitively ininterviews

The researchers found that the most common cause of change-related problems is the factthat experience in a joint venture results in learning, and learning can modify how one viewsthe contributions of one’s partner This seems particularly true for managements with littleforeign experience, who might feel uncomfortable about their level of understanding withrespect to government relations, labor recruitment and management, or marketing anddistribution techniques Thus, according to the authors, these aspects are a primary source ofcomparative advantage to the local partner when the joint venture is formed

However, as learning takes place over the years, this advantage begins to erode, and theMNC side may begin to feel more confident about its abilities to handle these issues Putslightly differently, the MNC may come to believe that the contributions being offered by thelocal partner are no longer commensurate with his rewards At such a time, pressure willbegin to mount for a change in the joint venture’s ownership structure to provide more equity

to the MNC

Changing circumstances not anticipated when the JV was formed could also cause problems

in the joint venture relationship While both sides to the agreement might agree that therelevant provisions no longer work properly, making the necessary modifications to theagreement in a going operation can be quite taxing One side or the other may have madecommitments in other parts of their operations that are difficult to alter

2.6 Measuring Success in the Joint Venture

5.1.1 Problems in measuring success of joint ventures

According to Baird, Lyles, and Reger (1993), there exist three factors, which make it difficult

to judge the success of joint ventures The first obstacle is the cooperative context of the jointventure A cooperative venture involves different levels and different partners, which oftenhave different interests, different technological capability, and different management stylesand practices The assessment is therefore must take into account the interests of variouspartners, the changes in the relationship and behavior between the partner companies, as well

as the learning effects to the joint venture and each partner of it

The second obstacle is derived from the fact that the objectives for the joint venture are oftennot defined clearly enough, and where it is the case, it will obviously difficult to decidewhether they have been met or not

The third obstacle is that many joint ventures face especially high levels of uncertainty withregards to technologies, products or markets This further reduces the meaning and validity

of short term, quantitative indices of success and puts obstacles in the ways of a traditionalsuccess measurement based on the stable company performance.

5.1.2 Theoretical aspects of measuring success in joint ventures

There are different approaches to assessing the success or failure of an organization Eachapproach has its advantages and disadvantages Geringer and Hebert (1991) examine jointventure performance by objective and subjective measurements Subjective performancemeasures each parent’s satisfaction with the joint venture’s overall performance, whileobjective performance is measured in three ways: survival, stability, and duration of the jointventure

Daft (1992) describes three major approaches to measure success based on results, processes

or the ability of an organization to acquire certain scarce resources

The result-oriented success measurement is based on output dimension that is related to thegoals of the transformation process The success of a joint venture is measured in terms ofwhether, or how far, certain objectives are met The most important of these are usuallyprofitability, growth, and market share, but other aims are also significant, for examplequality objectives, number of new products, research findings, stability, and satisfaction.Process-oriented success measurement is based not on specified output goals, but on anevaluation of the company’s internal transformation processes The output and processdimensions are usually closely related Effective and efficient transformation processes oftenenable a company to be successful in terms of results

Resource-oriented measurement is based on the company’s ability to obtain scarce resourcesfrom the environment This approach is used primarily when output is difficult to define andevaluate Research institutions and universities, for example, often consider the level oftechnological equipment or the number of well-known and respected scientists andprofessors as their success criteria

Picking out individual levels or viewpoints when trying to form a complete picture of thesuccess of a cooperation, however, is not adequate On the other hand, it is neither feasiblenor meaningful to work systematically through all possible levels and viewpoints Bucheland others (1998) employ a multidimensional approach for measuring success of jointventures, which is practicable in the routine context of the ventures According to theauthors, the assessment should be both easy to use and able to cover different levels, stages,interests and contexts of the joint venture

The international joint ventures should be adjusted not only on the short-term objectives, butalso the long-term perspectives The traditional methods of evaluating the success ofcooperative ventures are all based on economic, strategic or behavioral perspectives (Probst

et al., 1994) Buchel and others emphasizing the role of joint ventures as institutionallearning tools suggest that learning perspective is also needed to be assessed (Buchel et al.,1998)

The economic approaches are in principle output-oriented with the purpose of decidingwhether the cooperative venture is increasing the value of the partner companies Theeconomic approach to success judgments is based on the theory of financial and capitalmarkets and involves examining variables such as free cash flows, returns on investment, net

yearly profit, and increase in the shareholder’s value Typical criterion for evaluating a jointventure includes decrease in unit costs through better use of production capacity or increase

in turnover as a result of a sales cooperation in a growing market

From the strategic point of view, the important criteria for the joint venture’s success arecompany size, product-market combinations, market share, competitive position, advantagesbased on research results and a strong position on the distribution and procurement markets

A further criterion is the extent to which the cooperation yields synergies between thepartners or between the joint venture and one of the partners The strategic approach placesmore emphasis on core competencies and on strategic focus, which each company hasadopted, or wants to develop Like the economic perspective, the strategic perspective is alsoprimarily based on the output criteria But it is different from the economic perspective fromthe strategic point of view that considers the output in the longer time rather than in the short-term period Typical criteria of the strategic perspective are the safeguarding of particularresources, assess to new kind of technology, or increasing the company’s competitivestrength by using the special know-how of a partner

Joint ventures are also expected to improve the relationship between partners The behavioralperspective emphasizes the behavior of the participants in their cooperative relationship Inthis point of view, the essential indicators include the development of a separate culture andidentity, the ability to deal with conflicts and continued survival versus premature dissolution

of the joint venture Building the joint venture’s culture to increase trust, commitment andsensemaking of the partners is very important for them so that they can make use of the fullsynergy for the purpose of the joint venture The behavioral perspective is, therefore, isemphasizing the processes within the joint venture system, rather than the output criteria.Generally, it can be said that the traditional approaches allow us to make relativelycomprehensive assessments of the success or failure of cooperative ventures However, theyomit an aspect in which both company managers and business theoreticians are now paying

an increasing attention (Probst and Buchel, 1994) This is the concept of learning Building alearning organization that allows the company to consistently reviews its own weaknessesand strengths and its prevailing patterns of activity, whether it acquires “implicit knowledge”,and whether it increases its ability to learn, is very important for it to achieve the corporatemission The learning view of success and failure combines a result-oriented approach with aprocess approach It takes into account on the one hand the acquisition of knowledge and theattainment of learning goals, and on the other, the learning processes which support theseends (Buchel et al., 1998)

Figure 3.1 Trend of Foreign Direct Investment for the period 1988-1998

Source: Vietnam's Statistics Yearbook 1997

MPI Report No 11BKH/KCN Jan 2, 1999

In the last several years, however, there has been observed a trend of a considerablereduction of the foreign direct investment into the country (see Figure 3.1) In 1998, about

260 foreign direct investment projects were licensed with a total registered capital ofUS$4.06 billion In addition, 133 projects were approved to increase their operating capitalwith the amount of US$769 million Therefore, at the end of the year, a total of US$4.83billion of direct foreign investment capital were registered The growth rates of FDI flows for

1997 and 1998 were negative with minus 33% and minus 13.9% respectively For the entireperiod, the average number of projects licensed is 223.5 per year, with an average growthrate of 21.5% Every year, $3.4 billion FDI was promised to be invested in Vietnam, with anaverage growth rate of 29.2%

So far, more than 700 companies from over 60 countries have been undertaking foreigndirect investment projects in Vietnam, leading by Singapore, Taiwan, Hong Kong, Japan,

and South Korea The investment from these countries account for about more than half ofthe total number of the projects (56.4%) and 60% of the total capital registered

FDI from Japan, the USA, Western Europe, and South Korea tend to increase rapidly and it

is forecasted that these countries become leading investors in Vietnam in coming years,which reflects the positive results of the Government policy in diversifying the relations andcooperation with all countries in the world

From these FDI investments, Industry, Oil & Gas, and Construction sectors accounted for56.3% number of projects and 46.6% investment capital; Hotel, Office Space Business,Transport and Communication, and Postal Service - 9.8% number of projects and 13.6%invested capital; Agriculture, Forestry, and Aquaculture - 15.4% number of projects and5.2% capital investment In general, FDI projects have been concentrated in highly profitablesectors of the economy, such as Hotel & Tourism and Services, especially in Export-Processing Zones Although Agriculture is a sector, which has a high need of FDI, but infact, the capital invested there is very small, mainly food processing, shrimp plantation,reforestation, forage, and sugar cane production projects

Figure 3.2 Foreign Direct Investment Structure by Sectors (in percentage).

Source: VIR, VET, and MPI Annual Report, 1999

The implementation of the FDI projects was also a problem, needed to be discussed For theperiod 1988-1998, more than 80 per cent of the projects have been implemented, but onlyone third of the registered capital actually realized

With the exception of Oil and Gas sector, which has the implemented capital exceeded theregistered amount, and Financial and Bank sector, which have implemented most of thecapital registered, other sectors have only implemented less than half of the capital originallylicensed The worst situation has been with Agriculture and Fishery, where only about half ofthe projects and 11-13 % of the capital has been implemented.

Table 3.1 Licensing new projects and capital raising in 1997-1998

863537.8

120254.6

48221.6

644.6

1337694827.6

3314514.0

2293998.9

59144.5

42259.3

1564.4

14310955609.0

78.589.9

37.688.5

203.4176.2

114.385.5

40.069.3

93.070.086.1

Source: MPI Report No 11BKH/KCN Jan 2, 1999

At the end of 1997, the Government signed an ordinance to give the Hanoi and HCM CityAuthorities the power to license foreign invested projects up-to $30 million tripled the $10million limit set in June 1997 The Government has also recently empowered the localPeople’s Committees and Management Boards of the Export & Processing Zones and

Industrial Zones to license FDI projects, especially the small and medium ones This is asignificant effort of the Vietnamese Government in encouraging FDI into the country.

In 1998, the local People’s Committees gave licenses for 120 FDI projects, increased 203%

in comparison with the number of projects they licensed in 1997 This reflects thedecentralization in the FDI licensing of the government The more detail information aboutthe foreign direct investment in 1997 and 1998 is shown in Table 3.1

3.2 Important features of FDI in Vietnam in 1998

In 1998, foreign direct investments in Vietnam have some important changes in terms ofstructure, location, and investors

The investment structure has considerably been changed to meet the requirements of theindustrialization and modernization process of the country From the newly licensed project

in 1998, one hundred and ninety three were in the manufacturing sectors, accounted for74.5%, with a capital of $2.828 billion, accounted for 71% of the total FDI in the year The investment location has also been improved Number of projects in rural and remoteareas has considerably increased Thirty-five projects with total capital of $102 million wereinvested in agriculture and fishery in the year These projects are mainly food processing,production of seeds for export, flower, tea, forage, and shrimp production This is importantfor creating more jobs, developing and exploiting natural resources in rural Vietnam

Due to the financial crisis in the region, FDI from the ASEAN countries have sharplyreduced In 1998, these countries have 47 projects with total registered capital of $925million, accounted for 22.8%, of which, Singaporean companies promised to invest $893million, while all others countries invest less than $32 million

Other countries in the region, less suffered by the financial crisis have maintained theirinvestments in Vietnam In 1998, Taiwan has 67 investment projects in Vietnam with $253million, the same level of 1997 and Hong Kong has 23 projects with $225.3 million, 91.14%compared with the level of 1997 The direct investment from the European countries toVietnam has strongly increased in 1998 These countries have received investment licensesfor 66 projects of $2.1 billion in the year, accounted for more than half of the total FDI in thecountry

The total revenue of the FDI projects in 1998 was about $3 billion, 27.7% increased incomparison with 1997 These projects contributed $320 million to the government budgetthrough tax obligations, an 1.6% increase compared with 1997 (The Governmentconsiderably reduced the price of land licensing and regulated tax priorities for FDI projects

in the year)

The export from these projects, excluding the oil sector, was about $2 billion, 11.7% increasecompared with 1997 and accounted for more than 20% of the total export value of theeconomy in the year In 1998, the foreign invested projects imported $2.656 billion, whichwas only 91.9% of the 1997 level This on the one hand, reduced the export deficit in theyear, on the other hand, may slow the investment implementation progress in 1999 Foreigninvested projects accounted for about 23.5 per cent of the national industrial value comparedwith 20.6 per cent in 1997 and 21.4 per cent in 1996

Table 3.2 General information about FDI projects in 1998

Newly licensed projects Capital-raised projects Capital implementation

Revenue Export value Import value Employees Prematurely terminated Tax contribution the government budget

Changing ownership from JV to foreign

wholly-owned Changing ownership from JV to Vietnam

wholly-owned

260 projects

133 projects 1,900 $U.S million (58.2% of 1997) 3,000$U.S million

1,965$U.S million 2,655$U.S million 269,500

95 projects, $2,432 million (compared with 80 projects and $339 million in 1997)

320$U.S million

8 projects, $124 million

6 projects, $21 million

Source: MPI Report No 11BKH/KCN Jan 2, 1999; VIR and VET

Seventy-seven projects completed their construction phase and started manufacturing in theyear, including important projects, such as Morning Star Cement ($346 million), Vinaflour,LG-Vina, Machino, Inoue-Vietnam, and so on These projects absorbed additional 35,000labors and considerably relieved the unemployment problems in the country

Exports in the first two months of the 1999 combined were worth US$1.4 billion, 14.6% ofthe year's plan and up 0.4% over a year ago Exports by foreign-invested firms accounted forUS$290 million (excluding crude oil), down 8.5%, while export turnover by domestic firmsreached US$1.17 billion, up 2.9% (Vietnam Economic Times, March 2, 1999)

In 1998, eight and seven international joint ventures were converted into Vietnamese whollyowned and foreign wholly owned (or nearly wholly owned) companies respectively (seeTable 3.2)

Chapter 4

RESEARCH METHODOLOGY 4.1 Analytical and Conceptual Framework

In order to make an assessment of the joint ventures certain theoretical concepts must beclarified, such as performance measurements as well as problems related to assessing a jointventure The conceptual and analytical framework is illustrated in Figure 2.1

MotivesStrategiesContributions

JV Performance

 Operational performance

 Strategic position change

 Behavioral change

 Knowledge change

Local partner

satisfaction

(Dissatisfaction)

Foreign partner satisfaction (Dissatisfaction )

RECOMMENDATIONS FOR IMPROVEMENT

Table 4.1 Framework for assessing joint ventures

Operational performance Efficiency and

effectiveness Productivity (o)Cost control (o)

ROI (o)Cash flow (o)Competitive position

Marketability

External customer relations

Competitive position (o)Company size (i)

Innovative strength (p)Reputation (p)

Technology (i)Resource safeguarding (p)Market adaptability (p)Relative price (o)Relative quality (i)Market share (o)Sales growth (o)Customer base (i)Customer satisfaction (o)Cooperation (p)

Relationship with suppliers (p)Access to finance resources (i)Relationship with authorities (p)Behavioral change Equity

Functional efficiency

Complementarity (i)Harmony (i)

Profit sharing (i)Honorability (i)Trust (o)Commitment (i)Fair wage (i)Clear responsibility (i)Transparent staffing (i)Transparent compensation (i)Effective communication (p)Work well together (p)Good relationship (i)Work satisfaction (o)Learning (i)

Synergism (p)

Market know-how (o)Technological know-how (o)Note: i, p, o stand for input, process, and output indicators

For assessing the joint venture, a framework was made so that the measurements must reflectall of dimensions and aspects of the joint venture success performance The assumeddimensions and respective measurements are shown in Table 4.1.

4.2 Assumption and Concept Explanation

It is assumed that success perceptions of the managers would belong to seven maindimensions as follows:

Efficiency and Effectiveness: This factor represents effective use of the joint venture

resources and their efficiency, such as the venture’s labor force, capital investment,expenditures, and so on Effectiveness measures the results, while efficiency involves bothresults and resources used to get the results In this study Efficiency and Effectiveness wereused to measure successful operational performance of the joint ventures

Competitiveness: This factor was assumed to measure the company’s success in building its

competitive position and brand reputation, as well as its capability to expand the market,production capacity, and innovative strength Developing resource bases was also considered

as improving the competitiveness of the joint venture

Marketability: Marketability measures the joint venture marketing capabilities, such as

comparatively low price, high quality, market share, and sales growth Marketability is close

to competitiveness and both of these two factors reflect competitive position change of thecompany

External Customer Relations: This factor constructed to measure the joint venture success in

developing customer base and quality of customer service Developing relationship withother companies and suppliers, as well as with the local authorities are also considered asactivities of this kind External Customer Relations also reflects the competitive strength ofthe joint ventures

Equity: The terminology of Equity in the Webster’s Dictionary expresses “fairness or justice

in dealing with persons” Therefore it can be used to measure the relationships and behaviorsbetween partners in the joint venture, such as harmony, honorability, trust, and commitment.Good relationships and behaviors between participants can help successful performance andenhance satisfaction, therefore can be considered as success factors

Functional Efficiency: The terminology was used in the research study to express the

efficiency and effectiveness of the relationships between partners Effective relationshipslead to higher work satisfaction, create favorable environment for learning, and encourageexploitation of the synergy Equity and Functional Efficiency reflect behavioral change in thejoint venture

Learning: Learning was assumed as a factor, which measures the joint venture success in

improving the participant knowledge including technological, managerial, and market how This factor reflects the knowledge change in the joint venture

know-Some other particular concepts also need additional explanation “Overall Performance” was

used for measuring the level of partners’ satisfaction on the joint venture performance ingeneral, computed as an weighted average score of all success indicators

“Operational performance results”: The terminology was used to express output indicators

of Cash flow, ROI, Sales growth, and Market share

“Input”, “Process”, and “Output” express the resource-oriented, process-oriented, and

result-oriented indicators respectively (see page 13)

4.3 Method of Data Collection

Secondary information was collected from various sources, including Vietnam Yearbooks,Reports of the Ministry of Planning and Investment, Newspapers, previous research studies.Primary information was collected from the two main sources: questionnaires and directinterviews with the joint ventures managers

The questionnaires were made basing on a pretest survey Firstly, open questions were given

to the managers of the joint ventures to collect as much as possible aspects and criteria,which were considered to be measurements of a joint venture’s success These concepts afterserious adjustment processes were classified into groups, which were assumed to be themajor dimensions of the managers’ perceptions on the joint venture success (see Table 4.1).Then, based on these concepts, grading questions were prepared for gathering the managers’evaluation on the issues of interest

A set of 40 questions finally was drawn out for gathering the managers’ evaluation on thejoint ventures’ performance Other questions were used for additional information, necessaryfor the analysis (see Appendix 4)

Ninety questionnaires were sent to managers in 15 selected joint ventures in the twoprovinces: Thua Thien Hue and Danang Fifty-seven questionnaires were successfullyreturned with a response rate of 63 percent Four of these questionnaires were omitted forlacking of too many items Finally, 53 questionnaires were used for the analysis Out of these

53 questionnaires, 22 are from foreign and 31 from Vietnamese managers with a ratio of1/1.4 All of the respondents are managers and involved in decision-making responsibilities

at a certain managerial hierarchy in the joint venture About one tenth of the respondentswere playing chief executive function and more than one third were managers at thedepartment level About 65 percent of the respondents had been working in the current jointventures for two to four years The more detail characteristics of the respondents are shown

in the Appendix 2

4.4 Method of Data Analysis

The data was processed and analyzed by using SPSS Descriptive statistics was used foridentifying level of successful performance of the joint venture and problems in itsrelationships Comparison method was employed to clarify the differences in successperception between the Vietnamese and foreign managers Factor analysis was performed totest whether the findings fit the research assumptions Furthermore, based on the factoranalysis correlation and regression analysis were played to identify the relations between keysuccess indicators and major operational results of the joint ventures

Chapter 5

RESULTS OF THE SURVEY 5.1 The Questionnaires Results

5.1.3 Joint venture objectives

The joint venture is different from other forms of business organizations in that its objectivesmust reflect the objectives of the venture’s partner companies So, if one wants to know how

a joint venture is running, one must firstly look at the objectives it pursues, and then see towhat extent they meet them Because the joint venture managers are mainly selected from theparticipants, they often bring to the joint venture different strategies of their companies Themore complex the parent companies’ objectives, the more difficult the joint venturemanagement in forming their common goals Therefore, analyzing the objectives of the jointventure can help anticipate the potential conflicts of the alliance, that may strongly affect thedecision making and performance of the venture itself

Table 5.1 Respondents’ perceptions on the joint venture objectives

to the lower production prices in the host country, companies enter into the joint venture withthe local companies to produce products and then sell them in foreign markets The dataindicates that the joint ventures are emphasizing the short-term and midterm rather than long-term objectives

There were significant differences in people’s views on the joint venture objectives Foreignmanagers evaluated market access and risk sharing higher than the local managers did Many

country market as inherently more risky than operation elsewhere in the world But theseperceived risks, of course, would be offset by prospects for higher long-term returns.Foreigners also stronger concern the opportunity of taking advantages offered by thegovernment as its economic development policy, for example tax incentives, and transfer oftechnology

The contradictions in objectives of the joint venture’s partners may be important potentialconflicts and create difficulties for the managers in forming and achieving the common goals

of the venture

The first potential conflict may be created in the company’s technology transfer policy.Foreign partners emphasizing technology transfer through the joint venture may include inthe negotiation or at least convince the local partners to equip the joint venture withtechnologies from their companies The local partners, otherwise, may think that buyingtechnology from a third party is better because this can avoid their technological dependence

on the foreign partners

Other conflict source may come from the differences in the participants’ views on export andimport substitution motives Local partners may think that joint venture can help them goabroad through exporting Unfortunately, they often meet export barriers set by the foreignpartners, who in many cases can ban their joint venture to export to their currently servedmarkets due to various reasons, such as quality standards, and cannibalization effects

Table 5.2 Comparison between Vietnamese and foreign managers

Note: ***, **, * Significant at the 0.01, 0.05, 0.1 level

Moreover, foreign partners often see a joint venture as a new market entry strategy Due tothe lack of country familiarity, a foreign company often meets difficulties in entering a newmarket, where local customers have little or never known about it For a foreign company,who needs to deepen its understanding of local conditions, a joint venture provides one way

to shorten what could be a lengthy and potentially expensive process This also encouragesthem in building their brand reputation in the local market, rather than exporting.

Conflicts can also be created in the field of marketing Foreign partners, encouraged by themarket entry motivation may want to spend a large amount of money on advertising at thefirst stages of the joint venture to get the market popularity On the other side, the localpartners may feel that such expenditures were not necessarily so high This conflict may bevery serious in the practice of joint ventures in Vietnam, such as the case of P&G (TruongQuang, 1998)

5.1.2 Assessing Joint Venture Performance

Assessing a joint venture are theoretically and practically difficult issues because its successcan be seen and evaluated from very different perspectives, as noted in the previous sections The data in Table 5.3 shows that managers are moderately satisfied with the joint ventureoverall performance However, there is a significant difference between the Vietnamese andforeign managers in their success evaluation Foreign partners evaluated the joint ventureperformance higher than the local partners did One of the reasons for this differentiationmay be derived from the differing expectation of the joint venture partners SomeVietnamese partners, as noted, when entering the alliance devoted most of their assets to theventure, may have higher commitment and expectation in it They often consider the jointventure’s success as their own For them the joint venture is their future On the other side,many foreign partners may consider a joint venture just as a tool for implementing some oftheir particular strategies

The assessment of the overall performance of the joint ventures, however, may also beaffected by the managers’ views on success Some may be interested more in short-termgoals, while others may look for longer-term interests

Table 5.3 Overall Performance of the Joint Ventures

The evaluation of the joint venture performance should therefore be more detailed by looking

at the individual success indicators By this way, the assessment could give an insight intospecific areas of the joint venture activities Table 5.4 describes the respondents’ evaluation

of the joint venture performance on the individual indicators The data shows that the jointventure’s partners ranked Relative quality and Profit sharing the highest, but Access tofinancial resources and Innovative strength the lowest

Table 5.4 Respondents’ Evaluation of the Joint Venture’s Performance

Dimensions Measures Mean scores

(standard deviation in the parentheses) Efficiency and

effectiveness ProductivityCost control

ROICash flow

3.73 (0.63)2.74 (0.84)2.67 (0.55)2.89 (0.80)

Competitiveness Competitive position

Company sizeInnovative strengthReputation

Technology Resource safeguarding

2.96 (0.83)3.42 (0.60)2.43 (0.65)3.30 (0.91)3.08 (0.73)3.34 (0.62)

Marketability Market adaptability

Relative priceRelative qualityMarket shareSales growth

3.25 (0.48)3.43 (0.67)4.25 (0.56)3.35 (0.60)3.30 (0.67)

External customer

relations Customer baseCustomer satisfaction

CooperationRelationship with suppliersAccess to finance resourcesRelationship with authorities

3.47 (0.78)3.43 (0.87)3.32 (0.73)3.26 (0.76)2.64 (0.74)3.32 (0.67)

Equity Complementarity

HarmonyProfit sharingHonorabilityTrust

CommitmentFair wageClear responsibilityTransparent staffingTransparent compensation

3.15 (0.53)3.45 (0.67)4.06 (0.79)3.57 (0.59)3.30 (0.75)3.36 (0.71)3.36 (0.86)3.91 (0.69)3.43 (0.87)3.92 (0.87)

Functional

efficiency Effective communicationWork well together

Good relationshipWork satisfactionLearning

Synergism

3.36 (0.55)3.34 (0.65)3.68 (0.58)3.36 (0.74)3.42 (0.64)3.02 (0.50)

Learning Management know-how

Market know-howTechnological know-how

3.45 (0.47)3.74 (0.86)3.34 (0.54)

The economic results of the joint ventures were generally assessed to be unsatisfactory.Although sales is evaluated to be above satisfactory level, net profit and especially return oninvestment are far below the expectation The low level of benefit and return on investmentindicates that the joint ventures have poor financial performance Other indicators are ranked

in between satisfactory and good performance levels

There are significant differences among managers in evaluating company size, market share,customer satisfaction, and customer base Surprisingly, the local managers were not satisfiedwith their joint ventures in building customer base and customer service, while the foreigncounterparts moderately evaluated these factors

Building forward and backward relationships as well as cooperation with other localcompanies is extremely important for the joint ventures to get necessary supports for theirbusiness activities In general, managers highly agree upon these issues

The respondents did not much satisfy with the innovative strength, which is a very importantfactor influencing the successful performance of an enterprise in a dynamic and competitivemarket like Vietnam The low level of satisfaction of the managers to this factor reflects theweakness of the ventures in R&D activities

Financing is also a problem of the joint ventures On the one hand, the ventures could notraise their funds by self-financing, because in many cases, only foreign partners could dothat, but not the Vietnamese partners (even when first participating in the joint venture, theVietnamese partners often contribute only lands and buildings) On the other hand, there hasnot been an effective banking system, especially a stock market to create a free flow of short-term and long-term capital in Vietnam yet Managers often complain that the banks usuallyallow only short-term or midterm loans, which could not meet the business requirements Exploiting the cooperative synergy of the partners is an important factor for a successful jointventure, by creating its competitive advantages over other companies The results show thatmanagers are around satisfactory on this issue Making use of the cooperative synergy of theparticipants depends much on the understanding between them and their willingness tocooperate in loyal and long-term basics

Building good relationships with the local authorities is also strategically important for acompany in a country, where many things are based on custom like Vietnam Theserelationships may help companies to obtain necessary information, related to the social andeconomic development plans of the government, legal and political changes, and sometimethe relationships may facilitate the company in dealing with local companies and governmentagencies The high score of this variable indicates that joint ventures have been successful inbuilding and maintaining good relationships with the local authorities

Behavioral factors are very important in forming the working and other relationships betweenpartners in the joint venture Good relationships would create favorable working environmentand help people achieve their common goals

As noted, a joint venture should be seen not only in short-term, but also in long-termperspectives There for, developing long-lasting relationships in it is extremely important forthe joint venture to achieve its objectives Better relationships result in higher level of trust,understanding, and commitment of the participants, which finally leads to better performanceand higher satisfaction