ENTRY STRATEGY INTO VIETNAMESE ENVIRONMENTAL MARKET A CASE STUDY OF ALTECH ENVIRONMENT PTE LTD

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

ENTRY STRATEGY INTO VIETNAMESE ENVIRONMENTAL MARKET

A CASE STUDY OF ALTECH ENVIRONMENT PTE LTD

by

Dang Tran Bao Hanh

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

Development and Cooperation (SAV program)

Asian Institute of TechnologySchool of ManagementBangkok, ThailandApril, 2000

Acknowledgment

It is a rare pleasure for me to express my profound gratitude and thanks to Dr Do Ba Khang,advisor to this research, for his valuable guidance, explicit direction, and encouragementthroughout this research

I also want to give my sincere thanks to Dr Fred and Dr Johri for serving as members of theexamination committee together with their constructive and useful advice

My acknowledgements are due to Swiss - AIT - Vietnam Management Development Programand Swiss Government who gave me a great chance to participate in MBA study by providingfinancial support

My special thanks also go to the management of Altech Pte Ltd Company, especially Mr GohBoh Chung, for providing me helpful information and giving critical comments on thisresearch

My thanks are also extended to the companies and organizations in Vietnam for their helpand cooperation during period of my data collection in Vietnam

Thank all SAV5 members and those who have made my MBA study an unforgettablememory

To all my lovely friends, I give my sincerest appreciation for their warm encouragement,friendship and help at all times, especially their motivation during my studying time

I shall forever remain grateful to my beloved parents and my elder brother who want to see aconstant progress in my life for their eternal love and enduring encouragement during mywhole life

Abstract

Throughout the world, communities are confronted with evidence of environmental pollution

A growing number of environmental problems are global in scope and face all communities.Developing countries, including Vietnam, therefore have to cope with the dual problems ofpoverty and the consequences of environmental and natural resource degradation.Development policies and strategies therefore need to be designed and implemented to bothalleviate poverty and improve community living standards, and to protect the environment.Besides that, Vietnam has adopted a policy strategy that encourages and is dependent uponforeign investment A crucial priority for the development plans of the Vietnamesegovernment to the year 2020 is attracting and utilizing a significant infusion of foreign capital Coming form the demand of expansion business overseas, especially to developing countriessuch as Vietnam, Laos, Myanmar, a case study was undertaken to devise market entrystrategy for a Singaporean company to enter the environment sector in Vietnam The studywas conducted to examine the business in environment industry and to determine whetherthe industry is attractive for foreign companies to enter Vietnamese environmental market.The company situation analysis was carried out to determine the strengths, weaknesses,opportunities and threats for Altech Company Moreover, the strategic audit withdrawn fromcompany reports has helped further understand the current situation and strategic posture ofthe company

Finally, various options for entering the market were analyzed and the choice of most suitableentry strategy was proposed with their advantages and disadvantages as the outcome of thisresearch

Table of contents

ACKNOWLEDGEMENT ii

ABSTRACT iii

LIST OF FIGURES vi

CHAPTER 1 INTRODUCTION 1

1.1 BACKGROUND 1

1.2 PROBLEM STATEMENT 1

1.3 OBJECTIVES 1

1.4 METHODOLOGY 2

1.5 RESEARCH FRAMEWORK 3

1.6 STRUCTURE OF THE STUDY 3

CHAPTER 2 LITERATURE REVIEW 4

2.1 ENTRY STRATEGY 4

2.1.1 Entry strategy 4

2.1.2 Elements of Entry Strategies 4

2.1.3 Mode of Entry: 5

2.1.4 Advantages and Disadvantages of each entry mode 9

2.2 DISCUSSION: PROBLEMS AND SOME EXTENSIONS OF THE STATE OF MARKET ENTRY THEORY: 10

2.2.1 Introduction: 10

2.2.2.Country of Origin-Specific Effects on the Market Entry Decision 10

2.2.2.1 Comparative Advantages 11

2.2.2.2 Cultural 12

2.2.2.3 Organisational and Institutional 12

2.2.2.4 Political-Economic 12

2.2.2.5 Governmental Strategy: 13

2.3 ENVIRONMENTAL TECHNOLOGY INDUSTRY 14

2.3.1 An era of environmental awareness 14

2.3.2.Overview of environmental technology: 15

CHAPTER 3 EXTERNAL ENVIRONMENT ANALYSIS 19

3.1 MACRO ENVIRONMENT ANALYSIS 19

3.1.1 Economic trends and outlook 19

3.1.2 General remarks on the regulatory environment 22

3.1.3 Major Political Issues affecting the business climate 23

3.2 ENVIRONMENTAL INDUSTRY 25

3.2.1 Background on Vietnam’s environment and its biological resources 25

3.2.2 Environmental issues in Vietnam 26

3.2.3 Environmental management in Vietnam 28

3.2.3.1 Legal framework in environmental management in Vietnam 28

3.2.3.2 Institutional framework in environmental management in Vietnam 29

3.2.3.3 Environmental strategies and plans in Vietnam 29

CHAPTER 4 COMPANY SITUATION ANALYSIS 32

4.1 COMPANY PROFILE 32

4.1.1 History 32

4.1.2 Background of Business: 32

4.1.3 Scope of activities-Product and services: 33

4.2 STRATEGIC AUDIT OF ALTECH PTE LTD 34

4.2.1 Altech’s vision: 34

4.2.2 Altech’s business strategy: 34

4.2.3 Altech’s corporate objectives: 35

4.3 PERFORMANCE: 35

4.3.1 Projects performed: 35

4.3.2 Financial data: 37

4.4 STRATEGIC MANAGERS 38

4.5 MAIN CHARACTERISTICS OF THE TOP MANAGEMENT 38

4.6 ALTECH’S ORGANIZATION STRUCTURE: 39

4.7 INTERNAL AND EXTERNAL ENVIRONMENT: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT) ANALYSIS 40

4.7.1 Internal environment: 40

4.7.1.1 Strengths of Altech: 40

4.7.1.2 Weaknesses of Altech 41

4.7.2 External Environment 42

4.7.2.1 Opportunities for Altech: 42

4.7.2.2 Threats for Altech: 44

4.7.3 Altech’s competitive advantage 45

4.8 TOWS MATRIX 45

CHAPTER 5 PROFILES OF MAIN COMPETITORS IN VIETNAM 47

5.1 CHI MEI INTERNATIONAL TECHNOLOGY CO.,LTD 47

5.1.1 Company background and philosophy: 47

5.1.2 Overview of Chi Mei International Technology Co.,Ltd 48

5.1.3 Overview of Chi Mei Entech Co., ltd 48

5.1.4 International Technology corporation (IT Corp.) 49

5.1.5 Goals: 49

5.1.6 Scopes of services: 50

5.1.7 Business expansion and market entry 51

5.1.8 Market Entry Mode 51

5.2 SALCON LIMITED: 51

5.2.1 Salcon Pte Ltd: Overview 51

5.2.2 Company background: 52

5.2.3 Scope of activities: 52

5.3 OTHER CONSTRUCTION COMPANIES DEALING IN ENVIRONMENTAL INDUSTRY: 56

5.3.1 Construction Company: 56

5.3.1.1 Investment and Construction Development Company (INVESCO) 56

5.3.1.2 Water construction company limited (WACO) 58

5.3.1.3 Viet Chau Construction Co.,ltd 59

5.3.2 Treatment technique company-P&G Engineering Pte Ltd 60

CHAPTER 6 DESIGN OF ACTION PLAN 62

6.1 PHASE I : SET UP REPRESENTATIVE OFFICE IN HOCHI MINH CITY 62

6.1.1.Objectives: 62

6.1.2 Activities: 62

6.1.3 Duration: 62

6.1.4 Human resources: 62

6.1.5 Budget: 63

6.1.6 Advantages: 63

6.1.7 Challenges : 63

6.2 PHASE 2: SET UP A BUSINESS ENTITY 64

6.2.1 Alternative 1: Joint venture with local companies 64

6.2.2 Alternative 2: Altech’s wholly-owned company 65

REFERENCES 66

LIST OF FIGURES

e

4.2 Chart on projected turnover and profit before tax form 2000-2005 43

of soil/groundwater on land used by industries This trend will continue in the Asian regionuntil standards are compatible with or exceed present U.S and European standards.

In the pursuit of ISO 14000 accreditation, increasingly more companies are looking at theresponsible discharge of wastes from their manufacturing facilities In order to minimize thewastage and high costs of disposal, an emerging market in resource and recycling is alsomade available to companies like Altech Environment

Altech Environment Pte Ltd is a specialist environmental engineering company in the fields ofwater and wastewater treatment, contaminated soil/groundwater remediation, air pollutioncontrol and resource recovery and recycling It possesses expertise and experience in waterrecycling, heavy metals recovery, composting, biogas-from-waste generation etc which allcontribute to waste minimization and resource recovery

This research work aims to provide some information about environmental market in Vietnam

to countries which are attracted by this potential market from the perspective of entry strategy

in general; and to give some recommendations on the most suitable entry strategy for AltechEnvironmental Pte Ltd in particular

1.2 Problem statement

This research is dealt with these two following problems:

 What are the business environments trends in Vietnam for the environment industry?

 What kind of entry strategy should be adapted by the Altech Environmental Pte Ltd inorder to expand its business into Vietnam Environmental market?

1.3 Objectives

The overall goal of this study is to help the Altech Pte Ltd with the most appropriate entrystrategy when entering Vietnamese environmental technology market The study also help toprovide the management of Altech Pte Ltd a business environment in Vietnam through:

 the macro environment in Vietnam, involving its politics, legal, culture and economy

 the environmental sectors in Vietnam

 the advantages and disadvantages of various international entry strategies

The study of external environment, competitive advantages of the company, its strengths andweaknesses, opportunities and threats is also conducted to come up with the bestalternatives Then, an action plan for Altech Environmental Pte Ltd is designed

1.4 Methodology

This research is conducted in 3 stages:

Stage 1: Preliminary study of Vietnamese environmental market

A preliminary study of Vietnamese environmental market was carried out to understand theexternal and internal environment conditions such as the political, economical, social,business:

 economic trends and outlook

 general remarks on the regulatory environment

 major political issues affecting the business climate

 background on Vietnam’s environment

 environmental issues in Vietnam

 environmental management in Vietnam

The above details were obtained through reports from UNDP, from European commission,the socio-economical statistical (1998-1999) and through interviews with Mr Tran NguyenHien, Vice Director of the Management Department of the Department of Science,Technology and Environment

Stage 2: Company analysis

A comprehensive study was carried out in Altech Pte Ltd and a strategic audit of the companywas conducted The study included the

 Overview of Company

 Technology capabilities of the company

 Organizational strengths, weaknesses, opportunities and threats along with itscompetitive advantage and core competencies

The company’s analysis was done based on the information to be collected during personaldiscussions with the respective company’s Project Directors: Mr Goh Boh Chung and based

on the information of the company’s business plan

Stage 3: Action plan design

Following company analysis and a study of market environment, the identification andevaluation of various strategic options are suggested to Altech

1.5 Research Framework

1.6 Structure of the study

Chapter 1: Presents the research background, targeted problems, research methodology,research framework and limitation of the study

Chapter 2: Introduces the literature review of relative previous researches and theories

Chapter 3: External environment analysis

- Companie s

- Competiti on

- Strategies

Market:

- Potentia l

- Structur e

- Capabili ty

- Resour ces

Alternatives Entry Strategies Literature Review

Action Plan Design

Chapter 4: Internal environment analysis

Chapter 5: Profile of competitors in Vietnam

Chapter 6: Designing action plan for strategic choice

Chapter 2

Literature Review

This literature review consists of three parts The first part is overview of the theories of entrystrategy The second part is the discussion on some problems and the extension of thetheory Then in the third part, some notion and scope on environmental technology arepresented

2.1 Entry strategy

2.1.1 Entry strategy

Entry strategy for international markets is a comprehensive plan It sets forth for theobjectives, goals, resources, and policies that will guide a company’s international businessoperations over a future period long enough to achieve sustainable growth in world markets[Root,1994]

2.1.2 Elements of Entry Strategies

Figure 2.1.: Elements of in International market entry strategies

Source: Root, entry strategies for International Markets, 1994

Entry strategy is a composite of several individual product/market plans Managers need toplan the entry strategy for each product in each foreign market Once the individualproduct/market plans are completed, they should be brought together and reconciled to formthe corporate international entry strategy

The constituent product/market entry strategies require decisions on:

1 The choice of a target product/market;

2 The objectives and goals in the target market;

3 The choice of an entry mode to penetrate the target market;

4 The control system to monitor performance in the target market

Choosing the entry mode

Licenses Contractual argreements FDI

JV Wholly owned subsidiary

Designing the marketing plan

Target Market

Control system Monitoring operations/

Revising entry strategies for other market

Entry operation s

The design of a market entry strategy is iterative, with many feedback loops Evaluation ofalternative, for instance, may cause a company to revise target market objectives or goals oreven to initiate the search for a new target market Again, the formulation of the marketingplan may call into question an earlier preference for a particular entry mode After operationsbegins, variances in market performance may lead to revisions in any or all of the first fourelements, as indicated by arrows emerging form the Control system box In short, planningfor international market entry is a continuing, open-ended process.

2.1.3 Mode of Entry

After deciding which target market to enter, the next step to select an entry mode is acomplex decision mainly because of different internal and external variables involved Oneimportant internal variable is the degree of control the company wants to have in theoperations in the target market About external factors, one of the important external variables

is the governmental policy towards foreign investments These internal and external factorsare further explained in the rest of the discussion on mode of entry for the firms as discussedbelow

This business strategy approach is well explained by Root (1987) who mentions a wide range

of external and internal factors influencing the choice of market entry mode (see figure 2.2)

Figure 2.2 Factors in entry mode decision

The most important external factors include the following:

1 Target countries environmental factors (risk factors)- the political, economical and cultural characteristics of the target market, including government policies regardinginputs and inward direct investment, geographical distance, economic growth andperformance, the countries external relations (including exchange rate influences),cultural distance and political risk

social-2 The target country market factors (rate of return factors) – market size, growth prospects,competitive structure, marketing infrastructure, etc

3 Target countries cost factors (rate of return factors) – the availability, quality and cost ofinputs, labour and other cost factors together with economic and technologicalinfrastructure

4 Home country factors (rate of return factors) – the market, cost of services, competitiveand environmental conditions of the home country which will influence the entry modedecision through their impact on firm size, competitiveness and reasons for expansion.The most important internal factors influencing the choice of foreign market entry mode arethe following:

1 Company product/service factors – the extent of the product differentiation, the servicecontent, technology intensity, and the ability to standardize products globally

2 Company resource/commitment factor – management, capital, technology resources,services and marketing skills, companies over all commitment to international business

Target country

market factors Target country environmental

factors

Target country cost factors Target country factors

resource/commitment factors

Foreign market entry mode decision

From an economist’s perspective, a company can arrange entry into a foreign country in onlytwo ways First, it can export its product to the target country from a production base outsidethat country Second, it can transfer its resources in technology, capital, human skill, andenterprise to the foreign country, where they may be sold directly to users or combined withlocal resources to manufacture products for sale in local markets From amanagement/operations perspective, these two forms of entry can be broken down intoseveral distinctive entry modes that offer different benefits and costs to the internationalcompany The classification of entry modes is as follows [Root, 1994]:

* Export Entry Modes

* Investment Entry Modes

- Sole venture: new establishment

- Sole venture: acquisition

- Joint venture: new establishment/acquisition

 Exporting is the most traditional and quickest way to enter a foreign market, which is

confined to physical products Exporting is often identified as a low-cost alternativebecause it requires no investment in manufacturing operations abroad However, if it is

done effectively and well, exporting needs significant investments in marketing, Port [1994]defined the indirect exporting by using middlemen who are located in the company’s owncountry and who actually do the exporting In contrast, direct exporting may use targetcountry middlemen, which leads to a distinction between direct agent/distributor exportingand direct branch/subsidiary exporting The former depends on target-country middlemen

to market the exporter’s product while the latter depends on the company’s own operatingunits in the target country

 Contractual entry modes are long-term non-equity associations between an international

company and an entity in a foreign target country that involves the transfer of technology

or human skills

 In a licensing arrangements, a company transfers to a foreign entity for a defined period

the right to use its industrial property (patents, trademarks, product or processtechnologies or company name) in return for a royalty or other compensation Licensingavoids the risks or product or market development by exploiting the experience of firmsthat have already developed and marketed the product It also provides a good vehicle forthe internationalization of small firms that might not have the capital or the foreignexperience to establish a joint venture or a wholly owned subsidiary [Carstaira and Welch,1983] It possesses the advantage of reducing firm’s exposure to financial risk as fixedasset investment is minimized due to the utilization of another’s existing investment[Bradley,1991]

 Franchising is form of marketing and distribution in which the franchiser grants individual

or small company, the franchisee, the right to do business in a prescribed manner over acertain period, in a specified place [Ayling 1988] Adams and Mendelsohn (1986) deemfranchising at a particular form of licensing of intellectual property rights and viewfranchising as a marketing method with four distinct characteristics as follows:

1 A contractual relationship in which the franchiser license the franchise to carry outbusiness under a name owned by or associated with the franchiser and in accordancewith a business format established by the franchiser

2 Control by the franchise over the way in which the franchisee carries on the business

3 Provision of assistance to the franchisee by the franchiser in running the business bothprior to commencement and throughout the period of the contract

4 The franchisee owns his/her business that is a separate entity from that of the franchiser;the franchisee provides and risks his own capital

 A contract manufacturing arrangements has two major options: a firm can either supply a

manufacturer with parts or have the manufacturer assemble them, or it can have themanufacturer fabricate the whole product according to the specifications The business,however, retains marketing responsibilities [Akhter,1995]

 In management contracting, a firm provides management expertise and technical

know-how to another concern or to the government Although the management team basicallyacts as consultants, it may also get involved in operational activities [Akhter,1995]

 Under turnkey operations, a firm agrees to complete a project before handing it over to

the owner The responsibilities of the company generally include the design, construction,and operation of the project Turnkey agreements are usually made with governments whohave large public service and construction projects [Akhter,1995]

 A joint venture is formed when two or more firms form a third to carry out productive

economic activity [Harrigan,1985] More specifically, Weston, Chung and Hoag (1990)provide a joint venture’s characteristics:

1 Contribution by partners of money, property, effort, knowledge, skill, or other asset to acommon undertaking

2 Joint property interest in the subject matter of venture

3 Right of mutual control or management of the enterprise

4 Expectation of profit, or presence of adventure

5 Right to share in the profit

6 Usual limitation of the objective to a single undertaking or ad-hoc enterprise

 A sole venture is the most extensive form of participation in the global markets, which

may be achieved by new establishment or acquisition Ownership requires the greatestcommitment of capital and managerial effort and offers the fullest means of participating in

a market It assumes full responsibility for strategic and operational functions, exclusivelyassumes the risks, and enjoys the financial rewards

 Strategic alliances allow firms to share their resources to gain a competitive edge in the

marketplace, Unlike joint ventures that require companies to contribute specified amounts

of resources to create an independent business organization, strategic alliances promotecooperation between firms without creating a new business organization [Lynch,1990].The alliances are motivated by a desire of sharing technology, production, and marketingresources Root (1998) classifies risks associated with alliance agreements on the basis ofwhether they are fiduciary or environmental Fiduciary risk refers to the probability that thepartner will fail to honor elements of the agreement, Environmental risk is the amount ofthe firm’s assets that would be directly affected by changes in the political, economic,competitive environment According to Root, there is a trade-off between the two types ofrisk The acquisition of control is often at the expense of increased exposure toenvironmental risk

2.1.4 Advantages and Disadvantages of each entry mode

Source: Charles W.L.Hill, Gareth R.Jones, 1999

Entry mode Advantages Disadvantages

Exporting  Ability to realize location and

experience-curve economies  High transport costsTrade barriers

 Problems with local marketing agents

Licensing  Low development costs and risks  Inability to realize location and

experience-curve economies

 Inability to engage in global strategic coordination

 Lack of control over technology

Franchising  Low development costs and risks  Inability to engage in global

 Inability to realize location and experience-curve economies

 Lack of control over technologyWholly owned

subsidiaries  Protection of technologyAbility to engage in global

strategic coordination

 Ability to realize location and experience-curve economies

2.2 Discussion: Problems and some extensions of the state of market entry theory

2.2.1 Introduction

Market entry theory is increasingly attracting attention as interest in international businessalso increases However, the theory is not yet fully developed Despite recent contributions tothe body of theory, market entry strategy literature is still deficient in a number of areas

2.2.2.Country of Origin-Specific Effects on the Market Entry Decision

One particularly area which has not been fully investigated in the literature is that of thecountry-of-origin of the internationalizing firm upon the market entry decision A particularproblem with this area is the difficulty in many cases of determining the ownership of the firm

A related issue is that even when ownership resides in a particular country, it is notnecessarily the case that the country of ownership determines the cultural and organizationalfactors that shape country-of-origin effects For example, a company that has beenestablished for a significant period is taken over by a firm from another country Establishing

at what point the firm will act like a firm from the overseas country can only be properlyachieved through close attention to firm-specific conditions An additional point to raise is thedanger of cultural stereotyping For example, it is possible to gain an impression of the waysthose firms from, for example, Japan, will behave and then assume that all firms will exhibit

the same characteristics In reality, research has shown that market-specific and specific conditions have significant impact upon market entry decisions Nevertheless, it isapparent that this form of analysis does have some valency.

industry-In discussing country of origin-specific effects on the market entry decision, it is convenient togroup comments into the following five areas:

of course, not by accident, Korean firms could successfully export their goods while firmsfrom countries without equivalent labor inputs would have to look to joint ventures or firmacquisition in order to be able to compete effectively

In many cases, the boundaries of resources providing advantages of these sorts will notneatly coincide with national or political boundaries Cross-border regions can give rise toareas known as "growth triangles," which have been demonstrated as providing effectivepromotion of economic development in, especially, East Asia This idea is now beingdeliberately pursued as a means of stimulating industrialization in suitable regions Marketentry strategy in such situations is, consequently, considerably modified by the need to usethe resources that are available most effectively

2.2.2.2 Cultural

Although it is notoriously difficult to provide a satisfactory definition for culture or arrive at anunderstanding of what it means, there can be little doubt that it has been considered arelevant factor in explaining business behavior Hofstede’s seminal work divided individuals

from different countries in terms of such dimensions as uncertainty avoidance and powerdistance Subsequent efforts have sought to demonstrate that such cultural differences arereflected in terms of firm level behavior As examples of this, cultures that are thought toexhibit low levels of tolerance to uncertainty would therefore be expected to adopt marketentry strategies that emphasize control of the overseas unit Another strand of the literaturehas focussed on areas such as religion and philosophy to try to explain variations in firmstructure, the structuring of relationships within firms and, consequently, the impact thesevariations have upon strategy and strategy-making processes There is a danger here thatselective use of sources can be used to adduce a range of different arguments However,there does seem to be genuine reason to believe that cultural factors will cause firms tobehave differently

2.2.2.3 Organisational and Institutional

Whitley has described how the institutional and structural characteristics of a country impactupon the nature of business units and how, in the case of some East Asian states, this canlead to significant differences between them An example of how this can be relevant here is

in the case of firms’ ownership structure In Britain, for example, many firms are effectivelycontrolled by large, institutional shareholders, who see their responsibility as ensuring thattheir investment is handled primarily in terms of the returns that can quickly be made from it.They have, therefore, an incentive to influence management to behave according to a short-term timescale Meanwhile, the board level ownership of German firms is subject to a rathergreater level of responsibility as to the future of the firm and, so, has incentives to ensureprofitable, long-term security Similarly, those Korean firms that remain under strict familyownership may adopt strategies exactly as owners’ demand and, as has now become wellknown, in the case of Korea that generally has meant long-term market share While the

ownership structure of chaebol may well be required to change as a result of recently

imposed IMF conditionally, it is still apparent that there is more than one viable model ofcapitalism This diversity is reflected in the goals that are desired to be achieved and this, inturn, structures the strategies that are chosen to enact those goals

2.2.2.4 Political-Economic

Relations between governments of different states of course vary States, which maintainpowerful positions vis-à-vis, other states generally wish to pursue policies, which retain thatpower differential After all, "international political economy is the study of the inequality orasymmetry between nations and peoples and collective learning and positioning patterns thatpreserve or change this asymmetry." Relations between the USA and states of NorthEastAsia - notably Korea, Japan and Taiwan - have been primarily conditioned by the Americanperception of a strategic imperative in the region In another way, the relations existingbetween Britain and countries around the world are determined to a large extent by whetherthose countries are part of the Commonwealth

Such relations can have an important impact on market entry strategy In Korea, researchhas shown, for example, that American firms are significantly more likely to be older andlarger than British firms and to operate in a different range of industries Not only does thelength of time influence the amount of specific market knowledge gained and, hence, therange of market entry decisions that are feasible, it is also significant in Korea in particularbecause the number of industries in which foreign participation has been permitted has beenstrictly controlled and, although increasing, remains subject to regulation

American firms enjoy some advantages in Korea with respect to firms from other countriesand these result mostly from:

 the greater level of pressure that can be applied by US administrations compared toothers;

 the long-term presence of US troops in the country and their desire to be serviced byfirms providing US goods and services

American firms have been presented with market entry opportunities that have not beenavailable to their rivals from many other countries A similar reason also helps explain theprevalence of Japanese-US partnerships in the semi-conductor sector as compared to thoseinvolving firms from other places Currently, the dominant idea in the world economic ordersupports the increasing prevalence of overseas trade and investment conducted under avariety of free market economics Simultaneously, there exists almost as an undercurrent athreat of the increasing difficulty for outsiders of being successful in regional trade blocs, such

as the EU and NAFTA States will, therefore, tend to act to promote freedom of action fortheir firms in overseas markets while looking to restrict that freedom in domestic markets.While this is unlikely to appear as a simple dichotomy, there is certainly a tension involved Insuch a situation, the more power that a firm has, deriving both from itself and from itsgovernment, the more it can influence and shape the overseas environment to allow it thefreedom of action it might desire to possess This is a variation of an argument used againstmultinational corporations in what were then called Third World countries Those corporationsstill wield considerable influence: after all, the ability to provide employment, especially whencombined with the possibility of raising levels of skills and technology in otherwise unfavouredareas, has been considered sufficiently appealing as to inspire governments to provide hugefinancial incentives to attract them

2.2.2.5 Governmental Strategy

For firms from East Asian states in particular, the government-business relationship has been

of considerable importance in shaping not only the strategies that they have followed but alsothe ways in which they have been able to do business The relevance of this relationshippersists in many aspects of market entry strategy in the ASEAN region A particular example

of this is the attempt of the government of Singapore to create an external economy incountries such as Vietnam, China and India in order to compensate for the small size of thedomestic market and to provide a low cost offshore manufacturing base, as well as investingcapital in long-term growth projects that help to knit together the disparate elements of theregion This policy has featured extensive investment in industrial parks and economic zones

in places such as Suzhou and Ningbo in China and Bangalore in India Analysis of 822 cases

of investment in Vietnam during 1995-6 indicates that projects from Singapore weresignificantly larger than those from other countries and also that contracts were likely to besignificantly longer than those from other Asian countries, which perhaps indicates that long-term planning is more prevalent in those cases

Investment in parks and zones of this kind constitutes an advantage to Singaporean firmsand those able to enjoy cultural affinity with them in that the costs of doing business arereduced when a stable and psychically cognate infrastructure has already been put in place.Consequently, such firms are enabled to invest in production facilities, for example, whilerivals from firms from other countries might only be able to export and, hence, unable toexploit the competitive advantages of low wage costs afforded to investors in the country

Another example might be the case of Taiwan, where the government has taken steps toupgrade the competitiveness of the economy and provide positive externalities through acombination of support for the IT industry and ensuring that all sectors of society benefit from

it Taiwanese firms have, therefore, been able to perform international operations through ITwith a facility that firms from competing countries cannot afford This tends to widen the range

of options available to such firms Table 5 illustrates the significant variations recorded inVietnam for market entry choice with country-of-origin of the firm According to the literature,selecting a joint venture rather than 100% foreign owned firm, assuming that meaningfulchoice is possible, entails choosing a mode which offers less control and more uncertainty Itwould be expected that this choice would be more popular, therefore, amongst firms whichare more familiar with specific local conditions or which generally have a more sanguineattitude towards doing business in the overseas market The results reveal that, among otherthings, joint ventures are more frequent among Vietnam’s erstwhile communist allies,American, and Singaporean firms, which have developed their knowledge of internationalbusiness They are less frequent in the case of geographically distant European countriesand in the comparative newcomers of Korea and Taiwan

In short, it is considered that an extended analysis of the impact of country-of-origin effects onthe market entry decision would constitute a useful addition to the literature

2.3 Environmental Technology Industry

2.3.1 An era of environmental awareness

In the 1960s, a broad awareness of environmental pollution problems developed among thegeneral public Many people came to realize the value and importance of protectingenvironmental quality Clean air and clean water were worth rallying about, and publicdemonstrations were held People wanted streams and lakes that could be used forswimming and fishing, for safe drinking water supplies as well

The word ecosystem and biosphere became popular buzzwords, and newspaper articlesabout local pollution problems become more common Educational programs that focused onenvironmental issues were developed for grade school through the university level and grew

in popularity

In addition to stopping air and water pollution, solving problems related to garbage disposal,radiation, noise, pesticides, and wildlife preservation became important in the modern questfor environmental quality Although infectious diseases like typhoid and cholera had virtuallydisappeared in the United States, people became aware of other types of problems caused

by human and ecosystem exposure to industrial toxic chemical substances

The emergence of an environmental awareness on the part of the general public in the 1960swas apparently more than just a passing fad It was a genuine concern that served to focusthe attention of politicians, lawmakers, and governmental agencies on the need for anappropriate legal and regulatory framework for environmental quality control

Unfortunately, the objectives of environmental protection often seem to be at odds with those

of industrial growth and economic “progress” In the long run, however, the “externaldiseconomies” caused by environmental degradation will be far greater than the costs of

regulation and control This simply means that if our environment is damaged now in theinterest of maximizing profits, we will have to “pay the piper” in the future, either in the form ofexpensive clean-up operations and increased health problems and medical costs, or in agenerally lower quality of life with respect to our natural surroundings.

Although there is controversy on just what steps to take and how much to spend forenvironmental protection, most people agree that the problems cannot be ignored altogether

A certain amount of governmental regulation will always be necessary Eventually, a balancewill be reached in which environment, energy, and social problems will be solved withoutpreempting or overshadowing the others Meanwhile, there will be a need for technicalpersonnel at all levels of training and education to plan, design, build, and operateenvironmental control systems

2.3.2.Overview of environmental technology

Environmental technology involves the application of engineering principles to the planning,design, construction, and operations of systems for:

 Drinking water treatment and distribution

 Sewage disposal and water pollution control

 Storm water drainage and control

 Solid and hazardous waste disposal

 Air and noise pollution control

 General community sanitation

The structure and facilities that serve these functions, including pipelines, pumping stations,treatment plants, and waste disposal sites, comprise a major portion of society’sinfrastructure-the public and private works that allow humanities to thrive and functionproductively

The practice of environmental technology encompasses two fundamental objectives:

 Public Health Protection-to help prevent the transmission of diseases among humanbeings

 Environmental Health Protection-to preserve the quality of our natural surroundings,including water, land, air, vegetation, and wildlife

Actually, there is considerable overlap of these two objectives because of relationshipbetween the quality of environmental conditions and the health and well being of the general

population In fact, the terms public health and environmental health are often used

synonymously

Environmental technology is usually considered to be part of the civil engineering profession,

which has traditionally be called upon to plan, design, build, and operate the facilities requiredfor public and environmental health protection This particular specialty field within civilengineering is also called:

 Sanitary engineering

 Public health engineering

 Pollution control engineering

 Environmental health engineering

Whatever the profession is called, a knowledgeable and skilled team of engineers,technologists, and technician is needed to accomplish its fundamental objectives

Environmental technology can be characterized as an interdisciplinary field because itencompasses several different technical subjects In addition to such traditional civilengineering topics as hydraulics and hydrology, these include biology ecology, geology,chemistry, as well as others This variety makes the field an interesting and challenging one

To present overview of such a broad subject, we can consider a fictious project involving thesubdivision and development of a tract of land into a “newtown”, which will include residential,commercial, and industrial centers Whether the “project owner” is a governmental agency or

a private developer, a wide spectrum of environmental problems will have to be consideredand solved before the construction of the new community can begin (in this paper we limit just

to the water/waste water pollution part) Usually the project owner retains the services of anindependent environmental consulting firm to address these problems

WATER SUPPLY:

One of the first problems the project developers and consultants must consider is the

provision of a potable water supply one that is clean, wholesome, safe to drink, and available

in adequate quantities to meet the anticipated demand in the new community Some of thequestions that must be answered are as follows:

1 Is there an existing public water system nearby, with the capacity to connect with andserve the development? If not,

2 Is it best to build a new centralized treatment and distribution system for the wholecommunity, or would it be better to use individual well supplies? If a centralized treatment

is selected,

3 What type of water treatment processes will be required to meet federal and state drinkingwater standards? (Water form a river or a lake usually requires more extensive treatmentthan groundwater does, to remove suspended particles and bacteria.) Once the sourceand treatment processes are selected,

4 What would be the optimum hydraulic design of the storage, pumping, and distributionnetwork to ensure that sufficient quantities of water can be delivered to consumers atadequate pressures?

SEWAGE DISPOSAL AND WATER POLLUTION CONTROL

When running water is delivered into individual homes and businesses, there is an obvious

need to provide for the disposal of the used water or sewage.

Sewage carries human wastes, wash water, and dishwater, as well as a variety of chemicals

if it comes from an industrial or commercial area It also carried microorganisms that maycause disease and organic material that can damage lakes and streams as it decomposes

It will be necessary to provide the new community with a means for safely disposing of thesewage, to prevent water pollution and to protect public and environmental health Some ofthe technical questions that will have to be addressed include the following:

1 Is there a nearby municipal sewerage system with the capacity to handle the additionalflow from the new community? If not,

2 Are the local geologic conditions suitable for on-site subsurface disposal of the water (usually “septic system”), or is it necessary to provide a centralized sewagetreatment plant for a new community and to discharge the treated sewage to a nearbystream? If treatment and surface discharge are required,

waste-3 What is the required degree or level of waste water treatment to prevent water pollution?Will a “secondary” treatment level, which removes al least 85 percent of the pollutants, beadequate? Or will some form of advanced treatment be required to meet federal and statedischarge standards and stream quality criteria? (Some advanced treatment facilities canremove more than 99 percent of the pollutants.)

4 Is it possible to use some type of land disposal of the treated sewage, such as sprayirrigation, instead of discharging the flow into the stream?

5 What methods will be used to treat and dispose of the sludge or sewage solids, than areremoved form the wastewater?

6 What is the optimum level and hydraulic design of a sewage collection system that willconvey the wastewater to the central treatment facility, with a minimum need forpumping?

SOLID AND HAZARDOUS WASTE MANAGEMENT

The development of a new community (or growth of an existing community) will certainly lead

to the generation of more refuse and industrial waste materials Ordinarily, the collection anddisposal of solid wastes is a responsibility of the local municipality However, some of thewaste form the industrial sources may be particularly dangerous, requiring special handlingand disposal methods

Hazardous wastes, such as poisonous or combustible chemicals form industrial processes,must receive special attention with respect to collection, transport, treatment, and finaldisposal This is particularly necessary to protect the quality of groundwater, which is thesource of water supply for about 100 million people in the United States In recent years, anincreasing number of water supply wells have been found to be contaminated with syntheticorganic chemicals, many of which are thought to cause cancer and other illnesses in humans.Improper disposal of these harzadous materials, usually by illegal burial in the ground, is thecause of the contamination

Chapter 3 External environment analysis

3.1 Macro environment analysis

3.1.1 Economic trends and outlook

Vietnam, a nation of approximately 77 million people, has been engaged in a process ofmarket reform since 1986-1987 Known in Vietnamese as “Doi Moi” (“renewal”), the process

is aimed at restructuring Vietnam’s regulatory, legal, administrative, business, investment,and foreign trade apparatus and policies to produce a market economy “with socialcharacteristics” under state management

The reforms have achieved impressive results Vietnam’s economic growth has averaged 8-9percent a year for the past five years In 1996, it grew 9.3 percent Industry and constructionare growing at 15-16 percent per year Foreign investment-which stood at zero just a fewyears ago, now exceeds $28 billion in commitments and around $8 billion in actual inflow.Vietnam’s foreign trade levels are also growing quickly In 1996 exports ($7.3 billion)expanded 40 percent over 1995 ($5.2 billion), while 1996 imports ($11.1 billion) increased 36percent over 1995 figures ($8.e billion) As a result, Vietnam had a trade deficit of nearly $4billion, or 17-18 percent of GDP ($22-23 billion) Economic analysis agrees that Vietnamcannot sustain a trade deficit of this magnitude over the medium term

Vietnam exports significant amounts of coal, textiles, footwear, coffee, rice, seafood, and oil.Bilateral trade with United States has grown rapidly and now exceeds $1billion a year.Overseas Development Assistance (ODA) also plays an important role in Vietnam, withcapital commitments by the end of 1996 totaling around $8.4 billion per year and actual cashdisbursements of $2.7 billion

With per capita incomes in the range of $300 per year (several times higher in “purchasingpower parity” terms), Vietnam still is an extremely poor country Although urban residentsmay enjoy incomes two-to three times higher than average, three-quarters of Vietnam’spopulation is engaged in subsistence farming (mostly wet rice production) and theoverwhelming majority of Vietnamese live in villages, not cities

The agricultural sector is contributing an ever-shrinking proportion of national economicoutput, however, amounting to 27 percent for 1996 Industry now contributes 31 percent ofthe economic pie, while services account for 42 percent Agricultural output is growing 4-5percent yearly Rural schools, hospitals, and roads are in pure condition In general, ruralinfrastructure continues to lag behind urban infrastructure, primarily because so much newinvestment has been directly toward the cities Continued government quotas on rice exports,strict regulation of the internal rice trade, and limiting rice traders to non-competitive state-owned firms all keep farm incomes and rural investment rate much lower than free marketconditions would warrant These policies also decrease export earnings and reduceincentives to increase rice production

Vietnam’s development strategy is based on heavy use of foreign investment To keep ourGDP growth rates in the 9-10 percent range for the five-year period 1996-2000, thegovernment calculates that Vietnam’s economy will need to attract $42 billion of investment.Fully half that figure ($21billion) must come form foreign sources, the reckons, two-thirds($14billion) from Foreign Direct Investment (FDI) and one-third ($7billion) form ODA Theremaining $21 billion will come form domestic sources.

To achieve its investment goals, Vietnam will have to continue to improve conditions forforeign and domestic investors and boost the domestic savings rate Now hovering around30-40 percent attained in other East Asian countries (such as China, Taiwan, Malaysia, SouthKorea) during significant periods of their development Increasing the savings rate poses aformidable challenge for their development, because the financial system is weak and underdeveloped and because popular faith in local banks is weak to nil The entire country has only46,000 checking accounts

Most of Vietnam’s growth and foreign investment is concentrated in Hanoi and Ho Chi MinhCity (HCMC), in the provinces directly too the north of HCMC and, to much lesser extent, inthe area around Danang Hanoi, the capital, is undergoing a significant boom, but HCMC still

is the investor’s lodestar and continues to attract the lion’s share of investors and economicactivity One big reason for this is that HCMC residents have far more experience than theirnorthern cousins dealing with Westerners and with Western-style business practices andmarket concepts Vietnam’s most successful Export Processing Zone (EPZ), the Tan ThuanEPZ, is located in HCMC, and many of the other functioning or planned EPZ’s or IndustrialZone (IZ’s) are in HCMC or close by Urban planners are worried that HCMC’s growth,congestion, and overcrowding may impede its further development, They have proposedambitious “satellite city” development schemes to address this problem Of these, the giantSaigon South project is the most noteworthy

An important growth area in Vietnam’s economy is services (especially tourism, hotels,restaurants, construction, informatics, and telecommunications); mining and manufacturing;oil gas exploration; water supply, waste disposal, and power generation

Since a market economy cannot flourish without a rational, predictable, and secure legalenvironment, one crucial area prioritized for reform in Vietnam is the law and legalenvironment The country has passed many new laws and law codes in recent years, Forinstance, after years of discussion, Vietnam promulgated a new civil Code in 1996, whichregulates everything from inheritance to intellectual property and mortgages The Nationalassembly has just approved the country’s first Commercial Code The new laws haveincreased transparency and measurably improved the business environment The countryalso hopes soon to promulgate an entirely new Companies Law that will, among other things,set the rules for establishing and operating private businesses for many years to come Also,the government announced changes in the Foreign Investment and Tax laws in 1996

Administrative reform also is progressing in Vietnam This ambitious program includesreforming the government’s regulatory, personnel, and financial management apparatus tomake it more responsive to the people’s needs This process includes such diverse aspects

as reducing the size of the bureaucracy; rationalizing and reorganizing the administrativestructure; increasing efficiency of government offices by training civil servants and eliminatingcorruption; raising salaries; “streamlining” procedures to license foreign investment; andestablishing foreign representatives offices

The government plays a significant role in the economy, Vietnam’s Constitution calls forstate-management of the economy and the Communist Party of Vietnam believes the statesector should continue indefinitely as Vietnam’s “leading” economic sector State-ownedenterprises (SOEs) probably account for 40-45 percent of industrial output and absorb 60-65percent of available credit Vietnam’s four state-owned commercial banks account for 80percent of lending Almost all joint venture deals involving foreign firms have been struck withSOEs, to the exclusion of local private firms.

Government regulatory agencies, particularly the Ministry of Planning and Investment (MPI)and the Prime Minister’s office, play an all-important role in licensing foreign investment Withgovernment participation in the economy so extensive and intrusive, conflict of interestabounds and many private and foreign firms find themselves in the unfavorable position ofcompeting with their regulators Although MPI makes the final decision on most investments,local authorities wield considerable influence The 1996 changes in the Foreign DirectInvestment Law delegates more control to local authorities, No foreign investment goessmoothly without full support form local authorities

With continued strong inflows of foreign financing Foreign Direct Investment (FDI) and ODA,the capital amount has offset the deficit in the current account and has allowed the balance ofpayments to maintain an overall positive position Vietnam's official foreign currency reservesare fairly strong, equivalent to 8-10 week of exports The government believes the currentaccount deficit trend can be curtailed, and many even contend that a large proportion ofimports actually is capital equipment, which soon will be producing export goods

International Financial Institutions (such as World Bank and the International Monetary Fund)note that a worrisome amount of imports may actually be consumption goods bought oncredit In addition, the IMF has estimated that as much as 70 percent of Foreign DirectInvestment actually is debt, not equity In itself, this is not overly troubling Vietnam’s debtservice payments are estimated at 16 percent of exports, well within a manageable range

By joining the ASEAN Free Trade Area (AFTA) in 1995, Vietnam committed itself to reducingtariffs along with other AFTA member countries (Malaysia, Indonesia, Brunei, Singapore,Thailand and Philippines) to 0-5 percent by 2006, and is taking steps to join the World TradeOrganization (WTO) and the Asia-Pacific economic Cooperation Forum (APEC) The country

is engaged in negotiations with the United States to conclude a comprehensive bilateral tradeagreement that will include provisions on tariffs, intellectual property, services, investment,and trading rules, and which will eventually lead to Most-Favored Nation (MFN) status forVietnam Vietnamese officials have stated many times that the country is committed toadopting international trading and business practices and to integrating itself into the worldeconomy

Nevertheless, Vietnam still has significant tariff and non-tariff barriers to trade Tariffs arerelatively high and are based on imputed than actual cost “Special consumption taxes” areapplied to imported cars, alcoholic beverages, and tobacco The government runs a complex,highly non-transparent system of trade licensing which applies to all imports, as well as, toexports of rice No foreigners may engage directly in trade; only a relatively small number ofVietnamese firms (most of the state-owned) have this right Licenses are required yearly foreach commodity to be exported, although the permits required in the past for each shipmenthave been dropped In addition, certain commodities (petroleum products, sugar, fertilizer,cement, and steel) are subjected to special import surcharges, which the government says it

needs to “regulate” these markets Around 25 percent of the state budget come directly formimport taxes.

Vietnam’s labor force is overwhelmingly young (more than half the population is under 25years old), relatively well educated (the literacy rate is 80-90 percent), and willing to work forlow wages (the minimum wage is $40-45 per month) Despite relatively high literacy, foreignemployers often note the work force requires extensive training Few workers in Vietnam,government included, has much experience working in a Western business environment.Many new recruits for factory jobs come straight form the countryside Vietnamese workersare eager to learn and perform well in many work situations The country has experienced anumber of strikes at foreign-run plants in recent years, but this seems to be the result more offoreign management misconduct than of a fractious labor union situation

Vietnamese infrastructure is improving slowly but still is deficient and, in many cases,dilapidated and obsolete Specifically, Vietnam’s roads, bridges, railroads, airports, powergeneration plants, shipping, seaports, telecommunications, schools, hospitals, andgovernment buildings are in poor condition or need to be increased substantially With helpform bilateral and multilateral donors, Vietnam has made improving its infrastructure a majoreconomic priority

3.1.2 General remarks on the regulatory environment

This section is devoted to a brief review of the general trends in the Vietnamese legal andregulatory environment

 There has been a very large flow of new legal and regulatory decisions, reflecting the desire to accompany the economic reform process, but resulting in increased confusion and seriously compromising the initial objective.

More than 4000 legal or regulatory documents were issued in 1997, at various level of theadministration It appears that no central administrative body is fully able to co-ordinate thedifferent sources of regulations, and it is only very recently that new rules explicitly includethe list of old rules cancelled or modified, especially when moving away from the CentralAdministration to local or technical entities

Vietnamese authorities appear to look for balance between the regulatory environmentrequired for the economic transition towards market-oriented mechanisms, and the politicalobjective of keeping a significant state control over the economy Hence the temptation toodefine precisely what is allowed, with the accepted assumption that everything which is notspecified is forbidden, which in principle should allow a more extensive control However,the multiplication and un-coordination of texts create a much more opaque environment,with heightened uncertainty for economic agents and a built-in rigidity in their ability toadapt to changing market conditions; it also induces increases corruption and finallyweakens the effective control on economic changes

 Related to the multiplication of rules, instability has persisted.

The perceived need to organize the legal framework around the precise definition ofallowed activities in a context of rapidly changing domestic and international economicenvironment inevitably leads to frequent changes in texts related to the same subject orarea Trade and FDI regulations give a very clear example, including barriers to trade and

financial or administrative conditions for foreign investment projects There are alsofrequent public announcements of regulatory changes, including through laws adopted bythe National Assembly, which are not allowed by the requested decrees, creatinglengthened periods of uncertainty It should be stressed again that, as was stated in theprevious reports, this instability of rules is considered by European companies operating inVietnam as a greater obstacle than the rules themselves, even when the latter areconsidered as restrictive.

 The effective application of the rules remains uncertain

Partly related to the multiplication of regulatory texts, the effective application of rulesremains a significant obstacle to better trade and investment conditions Difference intreatment between foreign and domestic entities (as for key issues like guarantees, access

to trade license, etc.) can create difficult situations, especially when the domestic entity isstate owned (at a central or local level of the administration) Both the lack of specificadministrative jurisdiction and the extensive regulatory powers of the administration make

it almost hopeless for a foreign partner to have its case examined by a judiciary body

In that respect, it is revealing that, following a negative perception of the relations with theadministration as noted in the 1996 and 1997 reports, the 1998 survey of Europeancompanies operating in Vietnam shows only 20% of respondents considering that therehas been any significant improvement, and 80% declaring that it is either unchanged oreven worse On the more detailed question of industrial property rights but this reflects theoverall qualitative appreciation of the regulatory framework European companies declarethat, notwithstanding an improvement in the regulation, the effective protection of theirrights has either remained stable (implying poor) or worsened

3.1.3 Major Political Issues affecting the business climate

The Socialist Republic of Vietnam (SRV) is a one-Party state controlled by the VietnameseCommunist Party (VCP) The VCP’s constitutionally mandated leading role, the occupancy ofnearly all senior government positions by Party officials, and the Party’s extensive networkdown to the village level and through mass organizations ensures the primacy of guidelinesfrom the Party’s Political Bureau (Politburo) The Party and the Government have a long-standing policy of not tolerating dissent and of prohibiting independent political, religious andlabor organizations The National assembly, chosen in elections in which all candidates areapproved by the Party and most are Party members, remains largely subservient to the VCP,

as does the judiciary

Vietnam’s foreign policy is to cultivate friendly relations with all nations and integrate itself intoregional and global organizations Although it is hindered by corruption and a cumbersomebureaucracy, Vietnam’s domestic policy continues to be committed to economic reform andopening up to the world economy

 Domestic policy: Since introducing the “Doi Moi” policy of economic reform in 1986,

Vietnam’s leadership, the Party and the Government have remained committed toreforming Vietnam’s economy and integrating it into the region and the world The officialeconomic model is “market-based economy with socialist orientation”, the definition ofwhich is unclear but generally interpreted to mean allowing market mechanisms but with

a leading role for the State and maintenance of one-Party rule

Debates continue over the proper pace of reforms and the future role of state-ownedenterprises and foreign investors in Vietnam’s economy The Eighth Party Congress in

1996 reaffirmed Vietnam’s commitment to continuing under “Doi Moi” renovation TheCongress re-elected Party General Secretary Do Muoi, President Le Duc Anh and PrimeMinister Vo Van Kiet There may be changes in the top leadership this year They are notexpected to result in a significant shift in policy direction, but could affect the pace ofreform

A Party proposal in 1996 to allocate state-owned enterprises a 60% share in theeconomy was dropped due to domestic protest and foreign concern, but the Party andgovernment actively support the state sector’s leading role in the economy, Politicalcommentators within the Party and government often write about the need to attractforeign capital and technology, while protecting against undue foreign influence in theeconomy and society

The government is engaged in extensive efforts at legal and administrative reform,including in areas affecting economic activity and foreign investment The financial sectorand tax regime has been given priority emphasis The most recent National Assemblypassed legislation that provides for the Country’s first Commercial Code and a revisedForeign Investment Law was put into place at the end of 1996 Decrees promulgated in

1995, in support of the 1993 Land Law, have caused considerable public debate ascitizens and officials try to resolve decades-old competing claims over land use rightsthroughout the country The National assembly, in April 1997, passed a law concerningland transactions

High level Party officials have urged formation of Party cells within every enterprise,including foreign joint ventures and wholly owned foreign enterprises Foreign investorsare watching warily how this issue develops, concerned it will increase Party control ofbusinesses Technically, wherever three or more Party members work, they should form

a cell, and Party members are to actively recruit new members in their workplace SomePart officials believe the cell have not been active enough

Widespread official corruption and inefficient bureaucracy are often cited by Vietnam’sleadership, press and citizenry, as well as by foreigners, as serious obstacles tocontinued economic growth and foreign investment Despite regular denunciations ofcorrupt practices by individuals, Party and government officials in public speeches andthe press and several high profile court cases resulting in long prison sentences andexecutions, the problem of corruption remains pervasive Competition among thegovernment agencies for control over business and investments has created a confusion

of overlapping jurisdictions and bureaucratic procedures In addition, decisions handeddown by the central authorities often do not translate into action at the province or districtlevel, where the interests of local authorities or other economic actors may becounterpoised Both local and nation decision-makers must be taken into account whenpursuing commercial projects

 Foreign policy: Vietnam has adopted an ‘open-door” policy of cultivating friendly relations

with all nations in support of its economic development and attempts to attract foreigninvestment In July 1995, Vietnam normalized diplomatic relations with the United States,became a member of the Association of Southeast Asian Nations (ASEAN) and, thereby,

of the ASEAN Free Trade Area (AFTA), and signed a memorandum of understanding for

commercial cooperation with the European Union Vietnam aspires to obtain AsianPacific Economic Council (APEC) and World Trade Organization (WTO) membership.Vietnam and China normalized relations in 1991 Disputes over their borders, especiallyover control of Spratly and Paracel Island groups, remains problematic and a potentialsource of regional instability in the medium to long term For the time being, bothcountries remain committed to negotiation and conduct regular talks on the issue.Vietnam and Cambodia continue to dispute their border and, occasionally, the status ofethic Vietnamese in Cambodia, but there appears to be little danger of major conflictbetween the two countries.

3.2 Environmental industry

3.2.1 Background on Vietnam’s environment and its biological resources

Vietnam is a tropical country located in the southeast of the Indochina peninsula, stretchingfrom 8030’ N to 23022’ S, with a total land area of over 33.104 million hectares It is relativelymountainous country, with a narrow central coastal strip and major deltas in the northern andsouthern extremities Vietnam possesses a long coastline of 3.260km and a claimedExclusive Economic Zone of almost one million km2 The country is endowed with latitudesand altitudes, land forms, and a monsoon climate varying form humid tropical conditions inthe southern lowlands to temperate conditions in the northern highlands, Vietnam has a highdiversity of natural ecosystems, species, and genetic resources, which have significanteconomic and environmental value

Investigation has shown that Vietnam has about 12,000 species of flora, including over 7,000macrophytes and 1,400 fungi 275 mammals, 8000 species of birds, 80 species ofamphibians, 180 species of reptiles, over 500 fresh water fish, 2000 marine fish, andthousands of invertebrate species have been identified in Vietnam Vietnams’ biodiversity isrelatively unique 10% of the world’s mammal, bird and fish species can be found in Vietnam.Over 40% of local plant species are endemic Among the four new mammal speciesdiscovered in this century, 2 new species, the Vu Quang Ox and the Giant Muntjac, werefound in Vietnam In addition, many species important to agricultural development have beenselected in this country for thousands of years

In terms of economic value, all agricultural, forestry, or marine products, which come form thebiodiversity resources, is estimated to bring about US$2billion to the country’s revenue everyyear In many places, especially in the mountainous regions, the food and foodstuff sources,medicine plants and essential source of income rely largely on the biodiversity exploitation.Vietnam has undergone rapid economic growth and industrialization in the past decades Theshift to a market-oriented economy in Vietnam has resulted in higher personal wealth andfurther integration of Vietnam into regional and global economies Population growth andeconomic development, however, are posing a serious threat to the country’s environmentand natural resources Environmental issues in Vietnam, focussing on problems ofbiodiversity loss and greenhouse gas emission, are discussed below

3.2.2 Environmental issues in Vietnam

The most serious environmental problems in Vietnam: deforestation, degradation of landresources; inefficient use of fresh water; degradation of coastal and marine ecosystem;overexploitation of biological resources and significant loss of biodiversity; and increasingenvironmental pollution

Today, Vietnam is facing a combination of environmental issue, including water, air and solidwaste pollution The contributing factors include high growth and urbanization, rising incomesand accelerating industrialization Obsolete equipment and technology has significantlyreduced the quality of environmental services

Moreover, Vietnam is one of the untapped markets for equipment and services to protectenvironment, Years of delay and neglect in addressing pollution problems create a criticalsituation for the country

Deforestation is now occurring in Vietnam at an alarming rate Forest cover decreased from67% to 29% of total area between 1943 and 1991 The main causes of forest degradation areagricultural encroachment, fuelwood consumption, commercial logging, shifting cultivationdamage, fire damage and other causes (overgrazing, construction of dams and war damage)

In addition to the degradation of forest ecosystems, a wide range of wetland, coastal andmarine ecosystems are being converted for agriculture, aquaculture and urbandevelopments This has resulted in rapid degradation of these ecosystems and theirresources The expected growth in economic activity will further increase the stress onwetland, coastal and marine ecosystems in forthcoming years

Pressures form economic development and population growth has resulted in theoverexploitation of biological resources The exploitation of wood and other forestry productsposes a bid threat to biodiversity loss Overfishing occurs throughout the country Destructivemethods, such as using traps, small-meshed nets, dynamite and toxic substances, have been

in practice in many areas, resulting in not only overexploitation of marine resources but alsoecosystem destruction

Deforestation and other habitat loss and overexploitation of biological resources together withpollution and uncontrolled local and international wildlife trade are the most importantcontributors to the loss of biodiversity in Vietnam While the country’s biodiversity values isrecognized internationally, extinction rates in Vietnam are far higher than the world averagerate with 28% of its mammals, 10% of its birds and 21% of its reptiles and land amphibiansfacing extinction

Land degradation is another serious environmental problem, which has occurred, andcontinues to do so, on a large scale from the coastal, delta areas to the hilly areas inVietnam A category of land designated as “barren lands” (largely denuded former forests,much of which are of low agricultural productivity) now covers about 13.4 million ha or nearlytwice especially in the steep terrain in the Northern and Central Highlands, through intensivefarming, including the improper use of chemical fertilizers and pesticides, slash-and-burncultivation, and deforestation The pressures of rapid population growth and unwise land usehave caused widespread land degradation in many rural areas, resulting in increasing thenumber of land-poor farmers and accelerating poverty

In terms of the problem of greenhouse gas emission, resulting in global warming, it is not asserious in Vietnam as other environmental problems discussed above It is, however, aproblem of growing concern because the country is in the process of industrialization andurbanization The main sources of greenhouse gas emission are from industry andmanufacturing, transport, and biomass burning Most existing industries are backward with alow efficiency of material and fuel use and a high rate of waste generation per product Mostplants and factories have no waste treatment, resulting in releasing greenhouse and otherhazardous gases into the environment Medium-sized and small thermal power plants andcement industry are major contributors of greenhouse gas emission.

In addition to industry, accelerated urbanization leads to the development of transport Theexplosive increase of motorized means of transport, such as motor cars, motorcycles, anddiesel-powered vehicles, significantly increases the release of greenhouse gases into theenvironment

Home use of local and biomass for cooking and heating is a more polluting and inefficient use

of energy Wood is the fuel of choice for households in the Mekong Delta and NorthernMidlands, and urban households in the Central region In addition to these major sources ofgreenhouse gas emission, deforestation and land degradation discussed above significantlycontribute to accelerating global warming

Vietnam is in the early stage of industrialization It is among the countries which have theworld’s lowest rate of energy consumption and greenhouse gas emission per capita.However, energy demand and use, especially fossil fuels, and greenhouse gas emission willrise along with the country’s rapid socio-economic development

In response to the critical environmental issues described above and recognizing that thecountry’s people and economy largely depend on natural resource-based activities, theVietnamese government has made every effort in managing the environment and its naturalresources

3.2.3 Environmental management in Vietnam

Environmental protection and management is high on the political agenda of Vietnam.National strategies and plans have been developed and implemented within a revised andstrengthened legal and institutional framework

3.2.3.1 Legal framework in environmental management in Vietnam

Recognizing that establishing a legal framework for environmental management is of greatsignificance, the Government has revised and strengthened the legal framework TheNational Plan for Environment and Sustainable Development 1991-2000, discussed below,stressed the need for effective environmental laws in environmental protection andmanagement in Vietnam Environmental legislation in Vietnam includes the National Law onEnvironmental Protection (NLEP), which came into force on 10 January 1994 The NLEPitself strongly advocates a preventative approach to environmental management and lays thefoundation for coordination of environmental management between different levels ofgovernment Decree 175/CP of 18 October 1994 provided guidelines for the implementation

of the NLEP and further details on the roles, mandates and responsibilities of the governmentinstitutions involved in environmental management The introduction of sectoral specific laws,such as the Maritime Navigation Law, the Law on Land and Territory, the Minerals Law, as

well as guidelines and decrees, such as guideline on urgent measures to protect and fosterwild animals, and policies and regulation on forest protection and development, and provincialregulations, have added to the legal framework in the area of the environmental protection.Vietnam has also expressed its commitment to protecting the environment by signing andimplementing a number of international environmental conventions, Regarding to biodiversityand climate change issues, Vietnam is a party to:

 Convention on Biological Diversity (CBD)

 Convention on Wetland of International Significance (RAMSAR)

 Convention on International Trade in Endangered species of Wild Fauna and Flora(CITIES)

 United Nations Framework Convention on Climate Change (UNFCCC); and

 Kyoto Protocol on reduction of greenhouse gas emissions

3.2.3.2 Institutional framework in environmental management in Vietnam

The institutional framework dealing with environmental issues has also been revised andstrengthened A Ministry of Science, Technology and the Environmental (MOSTE) has beencreated and given responsibility for the management of research issues relating to sciecne,technology and environment, the preparation of environmental assessments andenvironmental action plans, implementing NLEP and its associated decreess, codifyingregulations and standards, evaluating EIAs and coordinating with the Ministry of Planning andInvestment (MPI) Within the MOSTE, the National Environment Agency (NEA) serves as afocal point for all environmental matters A number of other government institutions withresponsibilities in the management of natural resource use, such as the MPI and the Ministry

of Agriculture and Rural development (MARD), also play an important role in environmentalmanagement and protection The MPI is involved in vetting projects for their impact of theenvironment and administers a department charged with these responsibilities In closecoordination with MOSTE, MPI is also responsible for developing annual implementationplans for each of the BAP’s objectives MARD is responsible for the management of nationalparks, forest reserves and other protected areas, and the management of wildlife trade,wetlands and agriculture Other line agencies, such as the Ministry of Fisheries, Ministry ofLabor, Invalids and Social Affairs, Ministry of Industry, also have a mandate in environmentalmanagement

At a provincial level, departments of science, technology and the environment (DOSTEs)were formed and chaired by a vice-chairman of the People’s Committee These departmentshave the power to review environmental aspects of investment applications and to resolvepollution disputes

Although the institutional and regulatory arrangements that have been put in place arerelatively strong considering Vietnam’s stage of development, their effectiveness isconsiderably weakened by lack of staffing and resources This under resourcing hassignificantly impacted on the implementation and coordination of regulations, especially at theprovincial level

3.2.3.3 Environmental strategies and plans in Vietnam

The Vietnamese Government has formulated a number of plans and strategies aimed ataddressing these environmental problems It has identified sustainable development as itsmajor objective and formulated the National Plan for Environment and Sustainabledevelopment 1991-2000 (NPESD), which was approved by the Government on 12 June

1991 The NPESD outlines the framework for action in the area of environment andsustainable development that will enable Vietnam to address its environmental challenges Itstipulates that appropriate environmental and natural resource management should satisfythe basic material, spiritual and cultural needs of all Vietnamese people, both in the presentand future This is to be achieved by establishing policies, action plans, legislation andinstitutional structures necessary to ensure that the sustainability of natural resource use isfully integrated into all aspects of the social and economic process

In recognizing the economic and cultural importance of its biodiversity, Vietnam has alreadytaken steps to preserve its resources over the past decades The BAP was developed inexpressing the country’s commitment to the CBD, which Vietnam signed in 1993 and ratified

in 1994 The plan was approved by the government in 1995 It provides an overview ofresources, institutions and laws related to conservation of flora, fauna, and outlines an actionplan dealing with the country’s biodiversity, with a focus on biodiversity and green issues.BAP aims to protect the rich and unique biodiversity resources within the sustainabledevelopment framework of Vietnam A number of BAP’s priorities have been identified,including:

 Policy and legal issues;

 Establishment and management conservation areas;

 Public awareness raising;

 Capacity-building and staff training;

 Mitigating authropogenic emission by sources and enhancing sinks of all greenhousegases, using cleaner energies, reducing energy loss, saving energy, planting andprotecting forest;

 Drawing up and enforcing regulations relevant to climate change;

 Fostering agriculture’s adaptability to manage the use of water sources and to preventand mitigate natural disasters; and