Strengths, weaknesses, opportunities, and threats for architectural, engineering, and construction firms case study of vietnam

After Vietnam became a member of the World Trade Organization, Vietnamese architectural, engineering, and construction AEC firms face competition from not only their domestic competitors but also from foreign AEC firms. As most Vietnamese firms are used to operating under a protected setting, they may face difficulties competing in the globalized environment. This study undertakes a strengths, weaknesses, opportunities, and threats SWOT analysis of Vietnamese AEC firms, investigates how they respond to oppor tunities and threats, and recommends how foreign AEC firms operating in Vietnam could respond

CASE STUDIES

Strengths, Weaknesses, Opportunities, and Threats

for Architectural, Engineering, and Construction Firms:

Case Study of Vietnam

Florence Yean Yng Ling1; Vu Min Chau Pham2; and To Phuong Hoang3

Abstract: After Vietnam became a member of the World Trade Organization, Vietnamese architectural, engineering, and construction

共A/E/C兲 firms face competition from not only their domestic competitors but also from foreign A/E/C firms As most Vietnamese firms are used to operating under a protected setting, they may face difficulties competing in the globalized environment This study undertakes a strengths, weaknesses, opportunities, and threats共SWOT兲 analysis of Vietnamese A/E/C firms, investigates how they respond to oppor-tunities and threats, and recommends how foreign A/E/C firms operating in Vietnam could respond Using semistructured interview questions, face-to-face interviews were conducted with Vietnamese and foreign A/E/C firms The SWOT analysis reveals that Vietnamese A/E/C firms are lagging behind foreign firms in financial capacity, experience in complex projects, knowledge in advanced design and construction technology, and management ability Industry practitioners from outside Vietnam who are contemplating entering the Viet-namese market can leverage on VietViet-namese firms’ strengths by forming joint ventures with strong and reputable private VietViet-namese firms

To improve their competitive advantage, it is recommended that foreign A/E/C firms offer superior products and services and familiarize themselves with local culture and regulations They should be mindful of corruption and set up surveillance systems to curb wasteful spending

DOI: 10.1061/共ASCE兲CO.1943-7862.0000069

CE Database subject headings: Vietnam; International factors; Engineering firms; Construction companies; Agriculture; Economic

factors; Case reports

Introduction

On January 11, 2007, Vietnam became the 150th member country

of the World Trade Organization共WTO兲 WTO member countries

cannot normally discriminate between their trading partners, and

imported and locally produced goods and services should be

treated equally following the “national treatment” principle of

giving others the same treatment as one’s own nationals关World

Trade Organization共WTO兲 2005兴 As a WTO member, Vietnam

must allow WTO member-country’s architectural, engineering,

and construction 共A/E/C兲 firms to operate in its construction

in-dustry, albeit in a controlled way

Vietnam attracted a record of US$20 billion foreign direct

in-vestment 共FDI兲, rising by 70% over the previous year 共Blume

2007兲 Foreign A/E/C firms are expected to enter Vietnam to de-velop the facilities which are needed by foreign investors In line with Vietnam’s WTO commitments to open up its construction market to foreign businesses, Vietnamese A/E/C firms now face intense competition from foreign entrants, when hitherto most of them are only used to operating under a protected environment Vietnam’s construction market is attractive to foreign A/E/C firms because spending in the construction sector will grow healthily at 5.5% from 2005 to 2015共Lubien 2008兲

The aim of this study is to investigate the strengths 共S兲 and weaknesses共W兲 of domestic A/E/C firms in Vietnam’s construc-tion industry, the opportunities共O兲 and threats 共T兲 that they face, and how foreign A/E/C firms that operate in Vietnam should re-spond The specific objectives are to: 共1兲 undertake a SWOT analysis of Vietnamese A/E/C firms;共2兲 investigate how Vietnam-ese A/E/C firms respond to the opportunities and threats; and共3兲 recommend how foreign A/E/C firms operating in Vietnam could respond The first purpose of this study is to let Vietnamese A/E/C firms ponder how their strengths may be leveraged to realize op-portunities and how weaknesses which exacerbate threats, may be overcome The second purpose is to inform foreign A/E/C firms that are considering setting up operations in Vietnam on how they can adjust their practices in order to respond to Vietnamese A/E/C firms’ strategies, so that they can be more competitive in Vietnam The findings may be helpful to foreign A/E/C firms competing or cooperating with domestic A/E/C firms in Vietnam

The scope of this research is confined to studying domestic A/E/C firms with headquarters in Hanoi or Ho Chi Minh City

1

Associate Professor, Dept of Building, National Univ of Singapore,

4 Architecture Dr., Singapore 117566, Singapore 共corresponding author兲.

E-mail: bdglyy@nus.edu.sg

2

Quantity Surveyor, KPK Quantity Surveyors Pte Ltd., 865

Mount-batten Rd., 07-01, Singapore 437844, Singapore E-mail: mizchou@

yahoo.com.sg

3

Quantity Surveyor, Rider Levett Bucknall Pte Ltd., 150 Beach Rd.,

09-01, Singapore 189720, Singapore E-mail: vivian0705@gmail.com

Note This manuscript was submitted on July 24, 2008; approved on

March 24, 2009; published online on March 26, 2009 Discussion period

open until March 1, 2010; separate discussions must be submitted for

individual papers This paper is part of the Journal of Construction

Engineering and Management, Vol 135, No 10, October 1, 2009.

©ASCE, ISSN 0733-9364/2009/10-1105–1113/$25.00.

共HCMC兲, and foreign A/E/C firms that are operating in these

cities These two cities were selected because they are the largest

cities in Vietnam, and have a significant presence of foreign firms

Therefore, the Vietnamese A/E/C firms there would have the

nec-essary knowledge of and experience in working with foreign

firms, and can therefore better inform the research Studying only

foreign firms that are already operating in Vietnam ensures that

they are qualified to provide recommendations to other foreign

firms that intend to operate in Vietnam

Vietnam’s WTO Commitments

Vietnam’s application process to be a member of WTO took a

long journey, but it finally came about in early 2007 Her key

WTO commitments in services共of which A/E/C belongs to兲 are

provided in World Trade Organization 共WTO兲 共2006兲 Vietnam

must allow foreign enterprises to establish commercial presence

in the form of business cooperation contracts, joint venture共JV兲

enterprises, and 100% foreign-invested enterprises

To give time to domestic firms to adjust, for a period of 2 years

from the date of WTO ascension, 100% foreign-invested

enter-prises may only provide construction services to foreign-invested

enterprises in Vietnam关World Trade Organization 共WTO兲 2006兴

Construction services include architectural services, engineering

services, integrated engineering services, urban planning, urban

landscape architectural services, and construction work In

addi-tion, for construction and related engineering services, after 3

years from the date of ascension, foreign firms would be allowed

to set up branch offices, but the chief of the branch has to be a

resident in Vietnam For urban planning and urban landscape

chitectural services, the service must be authenticated by an

ar-chitect who has a Vietnamese practicing certificate, and who

works in a Vietnamese architectural organization Foreign

architects working in foreign-invested enterprises must possess

professional practicing certificate granted or recognized by the

government of Vietnam

SWOT Analysis

The SWOT analysis is a tool to evaluate the strengths共S兲,

weak-nesses 共W兲, opportunities 共O兲 and threats 共T兲 of enterprises An

enterprise’s strengths and weaknesses demonstrate its internal

characteristics and are controllable; and its opportunities and

threats are determined by external factors on which it has no

direct control but can react to its own advantage共Pearce 1992兲 A

marketing opportunity is an area of need in which a company can

perform profitably, while an environmental threat is a challenge

posed by an unfavorable trend or development that would lead, in

the absence of defensive marketing action, to sales or profit

dete-rioration共Kotler and Keller 2006兲 SWOT analysis is a

method-ology allowing enterprises to understand and plan to use their

strengths to exploit opportunities, to recognize and avoid their

weaknesses, and to defend against or sidestep any known threats

共Pearce 1992兲

Dapice 共2003兲 did a SWOT analysis of Vietnam’s economic

sector and found that the economy’s major strengths are moderate

Gross Domestic Product 共GDP兲 growth, industrial growth, and

macroeconomic stability The weaknesses are slowing export

growth, poor industrial investments, and growing rural-urban

in-come split Vietnam’s economic opportunities include the ability

to attract more FDIs The threats faced include over emphasis on directed investment

Competitive Advantage and Internationalization

Two to three years after Vietnam’s ascension to WTO member-ship, an influx of foreign A/E/C firms is expected Vietnamese A/E/C firms are likely to face fierce competition To succeed, Vietnamese A/E/C firms need to have effective strategies to achieve competitive advantage Competitive advantage is attained from the firm’s ability to control its internal subsystems, exploit opportunities and lessen or avoid threats from its external envi-ronment 共Male 1991兲 A firm is said to have competitive advan-tage when it has superiority over its competitors 共Langford and Male 2001兲

Porter共1980兲 proposed three main competitive strategies: dif-ferentiation cost leadership, and focus To gain competitive ad-vantage, a firm must either provide comparable buyer value but perform activities more efficiently than its competitors 共i.e., a low-cost strategy兲, or perform activities in a unique way that cre-ates greater buyer value and commands a premium price共i.e., a strategy of differentiation兲 共Porter 1999兲 In the generic strategy

of focus, the focuser selects a segment in the industry and tailors his strategy to serving it to the exclusion of others Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in cer-tain segments

Oster共1999兲 pointed out that firms could outperform competi-tors either by having lower costs or by offering a superior product that can be sold at a price premium He also concluded that to form a successful basis for competitive advantage, a product must

be important in the market, an improvement over the competition, and defensible against imitation

There are many theories to explain internationalization such as location theory 共Weber 1929兲, international product life cycle theory 共Posner 1961兲, and internalization theory 共Hymer 1976兲 Dunning共1988兲 postulated the Eclectic Paradigm to explain that firms can internationalize successfully if they have ownership, locational, and internalization advantages To this, Low and Jiang 共2004兲 added the specialty advantage Seymour 共1987兲 argued that international contractors face a complex situation in which success is only partially dependent on price competition, and other factors which differentiate a contractor’s product from that

of competitors are more crucial Male共1991兲 stated that competi-tive strategy in international construction is achieved through a combination of firm- and country-specific advantages to achieve differentiation

Gap in Knowledge

While SWOT analyses have been performed on some sectors in Vietnam, the SWOT of Vietnamese A/E/C firms in the construc-tion industry have hitherto not been well studied Dapice 共2003兲 undertook a SWOT analysis of Vietnam’s economy in general However, his study is a broad brush approach, and did not cover Vietnamese A/E/C firms Long et al.共2004兲 investigated the prob-lems faced in large construction projects in Vietnam, and found that these are incompetent designers and contractors, poor estima-tion and change management, social and technological issues, site related issues, and improper techniques and tools Their study did not cover the opportunities and threats to A/E/C firms in Vietnam

Luu et al.共2008兲 proposed a framework that integrates balanced

scorecard and SWOT matrix to evaluate the strategic performance

of large contractors in Vietnam The study focused on one large

construction firm, AnGiang Construction Company, and hence the

findings are not generalizable Past studies on Vietnam did not

investigate strategies used to overcome competitive pressures

after Vietnam’s WTO entry They also did not identify what

strat-egies Vietnamese A/E/C firms could adopt to counter foreign

A/E/C firms’ “invasion” into Vietnam In the fieldwork, SWOT

analysis of domestic A/E/C firms operating in Vietnam’s

construc-tion industry was carried out Vietnamese A/E/C firms’

competi-tive strategies and how foreign firms should respond are also

investigated

Research Method

Research may be quantitative or qualitative in nature This

re-search adopted a primarily qualitative method because

under-standing a phenomenon from the point of view of the participants

and its particular social and institutional context may be lost when

textual data are quantified共Kaplan and Maxwell 1994兲

The data collection instruments were two specially designed

questionnaires which comprised mostly open ended questions to

analyze Vietnamese A/E/C firms’ SWOT, foreign firms’ actions

and recommendations, and other related questions Open ended

questions allowed interviewees to have greater freedom in sharing

their experience and knowledge

Data collection for qualitative research includes interviews,

participant observation, and archival research共Myers and Avison

2002兲 This study adopted the face-to-face interview technique

because probing questions were involved, respondents were re-quired to provide in-depth answers and particularly interesting aspects of the responses could be delved into The advantage of adopting the method is that interviewers are able to establish a relationship with the interviewees, allowing them to answer ques-tions more easily The other advantages of using such a method include a higher participation rate since interviewees only need to give verbal comments rather than fill up a questionnaire with long answers Moreover, clarifications can be made during the inter-views Participant observation was precluded due to interviewees’ concern about confidential information of firms being divulged Archival research was carried out to inspect nonconfidential com-pany reports

Fifty Vietnamese and another 50 foreign A/E/C firms operating

in Vietnam were randomly selected from Vietnam’s Department

of Planning and Investment’s list of registered firms, Vietnam Yellow Pages, and Vietnam branch of the European Union Cham-ber of Commerce The purpose of interviewing Vietnamese A/E/C firms was to collect data to fulfill Objective 1 and Objective 2 Interviews with foreign A/E/C firms were to obtain data relating

to objective 3 Telephone calls were made and follow-up emails were sent to the selected firms, requesting for interviews When

an agreement for interview was secured, face-to-face interviews were conducted in the interviewees’ offices in Vietnam

Characteristics of the Sample

The 25 domestic and 12 foreign A/E/C firms operating in Viet-nam’s construction industry agreed to be interviewed after much persuasion and follow-up telephone calls Among the 12 foreign

Table 1 Background of Interviewees Working in Vietnamese A/E/C Firms

Interviewee

A2 Deputy Manager Architect Residential, commercial, infrastructure, hotel, and factory A3 Design Deputy Manager Architect Residential, commercial, infrastructure, hotel, and factory A4 Project Manager Architect Residential, infrastructure, and factory

P2 Deputy Manager PM consultancy Residential, commercial, infrastructure, hotel, and factory P3 Managing Director PM consultancy Residential, commercial, office, and factory Q1 Sales and Marketing Manager Cost engineer Residential, commercial, infrastructure, and office Q2 Deputy Manager Cost engineer Residential, commercial, office, and factory

Q4 Managing Director Cost engineer Residential, commercial, infrastructure, and office

C6 Managing Director Contractor Residential, commercial, infrastructure, hotel, and factory

S5 Managing Director Subcontractor Residential, commercial, hotel, and sports hall

A/E/C firms, five of them reported that they were more involved

as real estate development, because prior to Vietnam’s WTO

membership, their A/E/C operations were restricted The

inter-views were conducted in Vietnam between May and October

2007 Each interview lasted between 30 and 90 min

The characteristics of respondents and their firms are given in

Tables 1–3 The interviewees working in domestic firms were

from consultancy firms 共48%兲 and construction firms 共52%兲,

while half of those working in foreign firms were consultants

They had been involved in different types of projects with a

strong focus on residential buildings共local firms兲 and commercial

and industrial projects 共foreign firms兲 The project delivery

sys-tem was generally the traditional design-bid-build method The

majority of the interviewees were mid- and upper management,

with more than 5 years of experience in the construction industry

More than half of the locals had worked with foreigners Local

interviewees’ firms had headquarters mainly in HCMC共72%兲 and

Hanoi共15%兲 As for foreigners, half of them worked in French

companies which had entered Vietnam as wholly owned foreign firms or formed JVs with Vietnamese firms

Results of SWOT Analysis

SWOT analysis of domestic A/E/C firms was undertaken and the results summarized in Table 4 The purpose of the SWOT analysis was to help enterprises to understand and plan to use their strengths to exploit opportunities, to recognize and avoid their weaknesses, and to defend against or sidestep any known threats 共Pearce 1992兲 Unless otherwise stated, the results presented re-flected that of the majority

Table 2 Characteristics of Respondents and Their Firms 共Vietnamese

Firms 兲

Firm Ownership

Workforce

Revenue 共USD兲

Discipline

Designation

Worked with foreigners

Work experience

Table 3 Characteristics of Respondents and Their Firms共Foreign Firms兲

Firm ownership Private: wholly owned foreign firm 6 50 Private: foreign-Vietnamese joint venture 6 50 Firm’s country of origin

Workforce

Revenue 共USD兲

Discipline

Designation

Worked with Vietnamese

Work experience 共Industry兲

Work experience 共Vietnam兲

Strengths of Vietnamese A/E/C Firms

Familiarity with Local Market

As the domestic firms had been practicing in Vietnam’s

construc-tion industry, they are very familiar with the operaconstruc-tions of the

local market, local cultures, and industry practices such as

regu-latory submissions and approvals Most of the interviewees

re-marked that unfamiliarity with local market is one of the main

barriers preventing foreign firms from venturing into Vietnam

For foreign firms, it is recommended that they should study and

understand local regulations and culture before they venture into

Vietnam

Plentiful and Low Cost Labor

The interviewees shared that Vietnam’s large population base is a

potential source of low-cost labor The labor force grows by more

than 0.5 million people every year, 69% of the population are

between the ages of 15 and 64, and the median age is only 26.9

years old关Central Intelligence Agency 共CIA兲 2008兴 The Central

Intelligence Agency共CIA兲 共2008兲 further reported that GDP per

capita is US$2,600 and 15% of the population live below the

poverty line Thus, the 46 million people in the labor force

pro-vide a large pool of low-cost manpower for the construction

in-dustry

Weaknesses of Vietnamese Firms

Lack of Knowledge in Advanced Design and Construction

Technology

The interviewees shared that Vietnamese practitioners lack

knowledge and capability in advanced design and construction

technology The practitioners do not have knowledge in the more

sophisticated and technology-oriented services Their design

knowledge may also be out dated Long et al.共2004兲 also found a

lack of capable consultants and domestic contractors for handling

large projects in Vietnam

The interviewees shared that the low-cost labor advantage has

led to a low degree of mechanization and heavy reliance on

un-skilled workers This has led to low construction productivity

Obsolete technology and equipment can be found in a typical

domestic construction firm共Luu et al 2008兲

It is recommended that local construction practitioners take

steps to acquire new knowledge and practices by upgrading

them-selves Foreign firms entering Vietnam should be aware of this

weakness If they are partnering with Vietnamese firms, they

should not expect too much from their local partners If they enter

as project developers, they should be mindful that Vietnamese A/E/C firms may not be able to meet the high design standards that Western countries are used to

Lack of Experience in Complex Projects

According to the interviewees, a catch-22 situation exists because domestic firms lacked advanced design knowledge They are not awarded complex projects, and therefore lacked the experience This makes them incompetent to handle future complex projects Interviewee A2 commented that:

The design for complex national-level projects is often carried out by foreign firms For example, the My Dinh National Stadium was designed by a Chinese firm It is because Vietnamese firms are not experienced when com-pared to foreigners We especially lack experience in so-phisticated projects such as bridge or underground infrastructure

This confirms the findings of Luu et al 共2008兲 finding that labor-intensive construction is mostly given to domestic firms while complex plant and infrastructure construction, which needs high technology, are undertaken by foreigners

Lack of Project Management Ability

The interviewees opined that strong project management capabil-ity is a key requirement in construction projects, especially in projects that have foreign capital which are also generally more complex The majority of them reported that there is a shortage of project managers who have experience handling large-scale projects in both domestic and international markets They shared that the pool of project management talent is small High occur-rence of project delays and cost overruns are the norm in Vietnam 共Long et al 2004兲 P1 reported that:

We want to recruit more skillful project managers We have actively looked for them by placing advertisements

or through recruitment drives But the applicants are not

up to our expectation Our company is still short in staff who have enough skills to handle our current as well as newly won projects As such, most of our staff are overworked

It is recommended that effective project management at cor-porate, process, project, and activity levels should be introduced

to professionals to enhance construction industry performance in Vietnam共Long et al 2004兲 More continuing professional devel-opment courses could be offered P2 said that:

Table 4 Summary of Vietnamese A/E/C Firms’ SWOT

Favorable Strengths

• Familiarity with local cultures and industry practices

• Labor advantages

Opportunities Vietnam’s WTO membership:

• Increase sales volume

• Acquire knowledge in advanced design and construction technology

• Export service to overseas Unfavorable Weaknesses

• Lack of knowledge in advanced design and construction technology

• Lack of experience in complex projects

• Lack of project management ability

Threats

• Construction market share reduced

• Foreign firms’ competitive advantages over domestic firms

Construction industry practitioners should attend training

courses in project management It is not only beneficial to

the individual but also to his firm I strongly encourage

my staff to attend these classes and we pay their course

fees

Lack of Strong Financial Capacity

Strong financial capacity is important as it enables firms to have

smooth project cash flow and reflects the firms’ capability to

handle large projects The interviewees shared that Vietnamese

A/E/C firms do not have strong financial capacity This weakness

causes local A/E/C firms to lose out when competing with foreign

players Luu et al 共2008兲 also found that the problem is

com-pounded by public owners delaying payments for completed

works due to bureaucracy in government departments

Opportunities Available to Vietnamese Firms

Increase Sales Volume

The rapid growth of Vietnam’s construction industry offers

do-mestic firms many opportunities to increase their sales volume,

said all the interviewees They also pointed out that FDIs in

Viet-nam’s infrastructure lead to more construction projects for local

A/E/C firms C1 commented that:

Although FDI projects are won by foreign contractors,

they always need our participation in these projects as

subcontractors They also seek other local construction

firms because the locals understand the Vietnamese

con-struction law and regulations better and know the cheap

source of labor and material supply

Acquire and Update Knowledge

Vietnam’s WTO membership leads to influx of foreign A/E/C

firms Domestic firms have the opportunity to learn advanced

de-sign and construction technology from foreign firms The learning

opportunities come from cooperating with foreign partners or

working as their subcontractors Updating their knowledge and

learning advanced design and construction technology increase

local firms’ competitiveness in Vietnam and overseas

The interviewees pointed out that local firms also learn from

foreign firms new management skills such as how to provide

superior customer service There is thus opportunity for domestic

firms to learn and change their mindsets, improve their service

standards, and management effectiveness

Export Service Overseas

Vietnam’s WTO membership also provides opportunities for

Viet-namese firms to export their services to other countries The local

interviewees shared that they are excited about the prospect of

exporting They admitted that Vietnam’s ability to export

con-struction and consultancy services is currently limited However,

it has exported building materials and labor to Brunei, Ireland,

Japan, Korea, Libya, and the Middle East共Vinaconex Corporation

2008兲

Threats that Vietnamese Firms Face

Reduced Market Share

In Vietnam’s construction market, small firms make up 74% of

registered companies, but only contribute 11% to construction

output, with medium and large firms contributing 89% of the total revenue共Vietnam Government 2007兲 The interviewees lamented that market share will inevitably become smaller after many new foreign firms are allowed to operate in the construction market This definitely poses a threat to domestic firms as their market share would be reduced

Competitive Advantages of Foreign Entrants

Local interviewees were asked to rate the perceived strengths of Vietnamese as compared to foreign A/E/C firms on a 5-point Lik-ert scale, where 1 = Vietnamese firms are significantly stronger;

3 = Vietnamese and foreign firms have equal strength; 5 = foreign firms are significantly stronger The test values and significant levels were set at 3共equal strength兲 and 0.05, respectively Table

5 shows that mean values were all above 3.0, and on a 5-point scale, this means that the local interviewees felt that foreign firms

are stronger than Vietnamese firms With p = 0.00, this further

indicates that the results are significant It can thus be concluded that local interviewees perceived that foreign firms are stronger than Vietnamese firms in all the five areas: financial capacity, experience in complex projects, design techniques, management ability, and construction technology The findings confirm the study of Cheah et al.共2007兲 which found that domestic firms in developing countries have to confront the rivalry of foreign firms, which largely possess stronger financial and technological capa-bilities

Discussion 1: Vietnamese Firms’ Strategies

The local interviewees were asked how they would respond to the threat of foreign competition and the competitive strategies that they would adopt The results are shown in Table 6 The top three strategies identified by local interviewees are to restructure their organizations, invest in research and development 共R&D兲, and provide better service

Most of the interviewees would not reduce their profit margins nor rely on the government to help them compete against foreign

Table 5 Comparison of Vietnamese and Foreign Firms

Rank Description Meana t Significance

1 Financial capacity 4.68 17.27 0.000

2 Experience in the complex projects 4.52 12.47 0.000

3 Design techniques 4.32 9.85 0.000

4 Management ability 4.19 9.45 0.000

5 Construction technology 4.00 6.82 0.000

a

5-point Likert scale: 1 = Vietnamese firms are significantly stronger;

3 = Vietnamese and foreign firms have equal strength; and 5 = foreign firms are significantly stronger.

Table 6 Vietnamese Firms’ Response to Threats

3 Provide higher quality service 22 88

firms The interviewees said that it will take too long for the

government to act For example, interviewee P3 said that “the

government’s plan to adjust, amend, supplement, and implement a

better legal system is proceeding at a glacial pace.”

Organizational restructuring is critical to state-owned

compa-nies because they lack competitiveness as compared to

private-owned companies The interviewees believed that reorganizing

their firms would make them more competitive and better able to

attract managerial talent and skilled labor Interviewee C1

con-veyed that a company needs to have a resourceful pool of talent in

order to dominate the construction market It is also important to

transform the traditional seniority-based personnel management

system into a new flexible human resource management system in

order to survive the market competition Luu et al 共2008兲 also

confirmed the importance of reorganizing company structures and

paying attention to human resources Among the firms,

state-owned ones are those in dire need of reorganization Interviewee

Q1 remarked that:

Since we are a stated-owned company, it is difficult for us

to make any changes to our company structure and the

way we want to do business Every time we have an

in-ternal problem, we cannot make our own decision

In-stead, we wait for the government’s decision So, it takes

a long time for us to solve just a minor problem The only

way to make us more competitive is to restructure into a

private corporation

Investing in R&D is the second most frequently cited strategy

that Vietnamese firms would adopt Vietnamese A/E/C firms

in-dicated that they would invest in R&D in order to have design

and construction innovations They shared that they would send

their staff for training to improve their ability to innovate, and

change their mindset in doing business

Providing better service, by delivering high product and

ser-vice quality and offering superior serser-vices to clients, is the third

most frequently cited strategy The finding suggests that

Viet-nam’s construction industry has hitherto neglected to remain

com-petitive in a fast-changing environment共Luu et al 2008兲 Thus,

competition will force firms to sharpen their competitive edge in

order to survive

Discussion 2: Recommendations to Foreign Firms

This section reports the recommendations given by interviewees

working for Vietnamese and foreign firms to foreign A/E/C firms

that are entering Vietnam Foreign firms reported that it is difficult

to deal and comply with Vietnam’s legal system and complex

regulations Some foreign interviewees faced serious difficulties

due to complicated and burdensome regulatory procedures The

interviewees shared that government approvals take a long time to

be obtained Vietnam is known to have complex legal and

insti-tutional framework 共Long et al 2004兲 A foreign designer

re-marked that:

We always face problems in getting government

approv-als for our projects Apart from the lengthy process, the

officials in charge are not helpful Instead of telling us all

their requirements at one go, they will highlight one or

two requirements When we resubmit the updated

docu-ments, they will tell us the documents are still inadequate,

and new requirements would be stipulated

The foreign contractor who was interviewed said that:

Vietnam’s construction regulations are very complicated Some of them contradict each other This sometimes makes even local practitioners very confused, not to men-tion foreigners like us

Foreign interviewees recommended that all employees 共for-eign and local兲 should attend continuing professional develop-ment courses to update themselves on Vietnam’s policies, laws and regulations

Given these problems, all interviewees recommended that for-eign firms form JVs with private Vietnamese firms when they venture into Vietnam The local partner should be in charge of making statutory applications, getting project approvals and per-mits Foreign firms should focus on the design and technical as-pects Studies have shown that developing countries see international JVs as one of the best instruments for meeting the competing interests of national development and preventing for-eign investors from dominating the economy共Sornarajah 1992兲 The advantage of JVs to Vietnamese firms is that they can have fast access to up-to-date technology through their JV partners 共Yoshino and Rangan 1995兲

While Vietnamese A/E/C firms are eager to form international JVs, it is also necessary to find out if this would benefit foreign firms entering Vietnam Ling et al 共2005兲 found that forming nonequity project JVs between foreign and domestic A/E/C firms bring about project success The advantages of JVs to foreign firms are better adaptation to the local environment and easy ac-cess to licenses, human resources, and other expertise through the local partners共Xu et al 2005兲 One foreign consultant who was interviewed recommended that foreign firms should form JVs with reputable and strong local partners In addition, they should form strategic partnerships with key contractors and suppliers to ensure competitive rates

Joint venturing is thus a win-win situation for both foreign and Vietnamese A/E/C firms Vietnamese A/E/C firms benefit by learning from foreign firms that have advanced design and con-struction technology and superior management practices Foreign firms benefit from JVs because with a local partner, they can overcome their non familiarity with the new market, and pen-etrate the market directly without being encumbered by the prob-lem of licensing共Badger and Mulligan 1995兲 Vietnamese A/E/C firms can assist them in understanding and complying with the complex planning and building approval process

Interviewees working in Vietnamese firms were asked the cri-teria they used to select foreign partners The results are shown in Table 7 The top three most frequently used criteria are foreign partners who possess: advanced knowledge in design and con-struction technology, strong financial capacity, and experience in international projects

The need for up-to-date knowledge has always been the focus

of domestic firms in partnering since it helps to upgrade their knowledge, skills and technology These are the areas Vietnamese firms lacked in as well共see section on Weaknesses兲

It is recommended that foreign A/E/C firms focus on niche services and position themselves to offer services in complex and specialized projects The need to have specialty advantages con-firms findings of Low and Jiang共2004兲 on firms having special-ized fields in internationalization efforts

The second selection criterion is foreign firms with strong fi-nancial capacity Luu et al.共2008兲 found that competitiveness in Vietnam is greatly influenced by the capability of capital supply, and it is imperative for construction firms to have financial capac-ity High financial capacity allows work to proceed smoothly

without being over reliant on payment from clients, and allows

firms to manage bigger-scaled projects It is recommended that

foreign firms should have sufficient cash reserves for working

capital before embarking on internationalization However, a

for-eign interviewee cautioned that forfor-eign firms should structure

deals that minimize cash outlay If possible, income should be

priced in U.S dollars共USD兲 or Euro, and not in Dong, so that the

impact of any Dong devaluation can be contained easily

The third most important selection criterion is foreign firms’

experience in international projects As Vietnamese construction

companies are not involved in many international projects,

col-laborating with a foreign company with such experience will

en-able them to learn from their partners This relates to their thirst

for updated knowledge Having international experience also

as-sures Vietnamese partners that the foreign firm has experience in

cross-cultural encounters, which must be properly managed to

achieve a successful collaboration共Ling et al 2007兲 Foreign

in-terviewees stressed the importance of expatriate staff to learn

Vietnamese culture The implication for foreign A/E/C firms is

that to make themselves desirable JV partners, they must have

prior experience in international projects, and not use Vietnam as

a test bed for their internationalization efforts

It is recommended that foreign firms evaluate themselves

against the selection criteria listed in Table 7, and if necessary

acquire the necessary experience, expertise and capital to make

themselves more likely to be selected by Vietnamese A/E/C firms

for their ventures in Vietnam This study does not recommend

that foreign firms JV with state owned companies The

inter-viewees shared that these firms lacked competitiveness and are

inefficient Moreover, they need to undergo reorganization first

共see Table 6兲 However, since the central government and

provin-cial authorities are major customers for large projects共Luu et al

2008兲, foreign firms should maintain good relationships and

con-nections with higher local government officials and local power

sources in order to win more projects

The interviewees shared that bribery and corruption are

present in the construction industry Vietnam scored 2.6 out of 10

共0=high level and 10=low level of perceived corruption兲 on

per-ceived public sector corruption, placing it 123rd among 180

coun-tries 共Transparency International 2007兲 An example of public

sector corruption is that millions of dollars of foreign aid

ear-marked for construction projects were misappropriated by corrupt

Transport Ministry officials共Asia Times Online 2006兲 Long et al

共2004兲 also found fraudulent practices and kickbacks exist in

Vietnam’s construction industry

It is recommended that foreign firms be mindful of corruption

and set up surveillance systems to curb wasteful spending

For-eign interviewees recommended that forFor-eigners should undertake

commercially viable private projects rather than government

projects as there is less corruption in these projects They should

develop contingency plans to deal with corruption and bribery

Conclusions

With the Vietnam’s construction industry opening to foreign firms, it is crucial for Vietnamese firms to understand their own strengths and weaknesses in competing with new foreign entrants, and recognize the opportunities and threats associated with its competitive environment The research method adopted was based on questionnaire survey Participants in this research were randomly selected local and foreign A/E/C firms operating in Vietnam In-depth interviews were carried out with 25 and 12 construction industry practitioners working in local and foreign A/E/C firms, respectively Their rich working experience gave insights into the current position on local and foreign A/E/C firms after Vietnam’s entry into the WTO

This research contributed to knowledge by uncovering the SWOT for Vietnamese A/E/C firms The main strengths are fa-miliarity with local cultures and industry practices and labor ad-vantages The weaknesses include lack of strong financial capacity and project management ability Opportunities for Viet-namese A/E/C firms include higher construction volume, learning and acquiring advanced design and construction technology from foreigners Threats include reduced market share and having to compete with foreign firms that are stronger

The study reveals that foreign firms are perceived to be stron-ger than Vietnamese firms in terms of financial capacity, design and construction technology, project management ability, and ex-perience in complex projects In the new competitive environ-ment, it is found that the Vietnamese firms would want to restructure their organizations, invest in R&D and form JVs with foreign firms They are particularly keen on cooperating with for-eign firms that possess unique strengths which local ones are lacking of, which are advanced design and construction technol-ogy and strong financial capacity

To respond to Vietnamese firms’ actions, it is recommended that foreign A/E/C firms that are planning to enter Vietnam form JVs with strong and reputable local private firms and focus on working in commercially viable private sector projects that are likely to have less corruption taking place The qualities needed to

be a desirable JV partner to locals are found in Table 7 Foreign A/E/C firms should be vigilant against corruption, waste, and sub-standard quality output Surveillance systems should be in place

to manage these Foreign firms should offer niche products and services and be involved in complex and specialized projects which locals do not have the design and technological capability Income should be priced in a stable currency 共USD or Euro兲 to minimize problems if the local currency is devalued Foreign A/E/C firms should familiarize themselves with the local environ-ment and train locals engaged in the projects in project manage-ment

The practical findings serve as a guide to Vietnamese firms and

Table 7 Vietnamese A/E/C Firms’ Criteria for Selecting Foreign Partners

Interviewees’

main business

Possess knowledge

in advanced design and construction technology

Strong financial capacity

Possess experience

in international projects

Good corporate reputation

boost their awareness of new challenges in their environment and

allow them to be better prepared The findings are also useful to

foreign firms As shown from the study, the factors that

Vietnam-ese firms consider when they are seeking for potential foreign

partners are clearly identified These are valuable to foreign firms

who are considering venturing into Vietnam’s construction

indus-try

One limitation of this study is the small sample size

There-fore, the findings might not truly represent the real situation of

Vietnam’s construction industry or the perceptions of all A/E/C

firms Another limitation is that with constant development of the

Vietnamese construction industry, the competitive strategies to be

adopted by domestic and foreign firms may gradually change over

time Therefore, the study may only reflect a short to medium

term view

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