Development of domestic suppliers of electronics in viet nam the case sudy of canon viet nams strategy

129 Extent of Autonomy of Subsidiary Company ….………… 145 Extent of Knowledge Transfer from Subsidiary Company to Local Suppliers ……… 164 Case Studies of Four Canon’s Local Suppliers …………

i

_

A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines

in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam

Submitted in Partial Fulfilment of the Requirements for the Degree

DOCTOR OF BUSINESS ADMINISTRATION

A program offered by Southern Luzon State University,

Republic of the Philippines in collaboration with

Thai Nguyen University, Socialist Republic of Vietnam

has been approved by Oral Examination Committee

MELCHOR MELO O PLACINO, PhD EDWIN P BERNAL, DBA

WALBERTO A MACARAAN, EdD ALICE T VALERIO, PhD

CECILIA N GASCON, PhD

Chairman Endorsed by: Recommended by:

EDUARDO T BAGTANG, DBM APOLONIA A ESPINOSA, PhD

Accepted in Partial Fulfilment of the Requirements for the Degree

Doctor of Business Administration

_ WALBERTO A MACARAAN, EdD

Date Vice President for Academic Affairs

iii

iv

Firstly, I am particularly grateful to my dissertation committee: Dr Cecilia N Gascon, Dr Walberto A Macaraan, Dr Edwin P Bernal, Dr Milo

O Placino, Dr Alice T Valerio, and special thanks to my adviser, Dr Eduardo

T Bagtang, It is only with their precious assistance, support and guidance that

I was able to fulfill my dissertation They shared valuable time from their busy schedules to help and give me critical comments and suggestions

I gratefully acknowledge Southern Luzon State University, Thai Nguyen University, Thai Nguyen University of Agriculture and Forestry, International School - Thai Nguyen University, International Training Center of Thai Nguyen University of Agriculture and Forestry, and the staff I have greatly benefited from good study facilities, materials, and dynamic academic environment

I want to express my deep gratitude to Hanoi People's committee, Hanoi Vocational College of High Technology who supported my studies

I am greatly indebted to the researchers and all my colleagues who have helped me to overcome many difficulties and for sharing their views and insights on this dissertation as well

Finally, I wish to thank my family members for their spiritual encouragement and material support My gratitude also goes to all those who may not have participated directly in the accomplishment of this humble research output but their works have been essential to the success of my dissertation

Tran Xuan Ngoc

v

This dissertation is dedicated to:

My great teacher, Dr Eduardo T Bagtang, whose support and guidance has inspired me to be able to fulfill my dissertation,

Hanoi People's committee, Hanoi Vocational College of High Technology, my second magnificent home with hope and support,

My great parents, who never stop giving moral support and even sacrificed themselves in countless ways,

My dearest wife, Hanh Nguyen, my loving companion for the rest of my life,

My beloved kids: Phuong Uyen, and Bao Chau, whom I shall love forever,

My beloved brothers and sisters who have always stood by me when things look bleak,

To all my family, the symbol of love and giving,

My friends and my colleagues who constantly encourage and support

me,

All the people in my life who have touched my heart,

I dedicate this research

vi

TITLE PAGE ……… i

APPROVAL SHEET ……… ii

CERTIFICATE OF ORIGINALITY ……… iii

ACKNOWLEDGEMENT ……… iv

DEDICATION ……… v

TABLE OF CONTENTS ……… vi

LIST OF TABLES ……… viii

LIST OF FIGURES ……… xiii

LIST OF APPENDICES ……… xiv

ABSTRACT ……… xv

CHAPTER I INTRODUCTION ……… 1

Background of the Study ……… 1

Statement of the Problem ……… 5

Objectives of the Study ……… 5

Hypothesis of the Study ……… 8

Significance of the Study ……… 8

Scope and Limitations of the Study ……… 10

Definition of Terms ……… 11

II REVIEW OF LITERATURE ……… 15

Conceptual Framework ……….… 117

III METHODOLOGY Locale of the Study ……… 118

Research Design ……… 119

Populations, Sample & Sampling Technique ……… 122

Research Instrument ……… 123

Data Treatment and Processing Method ……….…….… 124

Statistical Treatment ……… …….…… 124

vii

Extent of Profile of Canon Vietnam ……… 129

Extent of Autonomy of Subsidiary Company ….………… 145

Extent of Knowledge Transfer from Subsidiary Company to Local Suppliers ……… 164

Case Studies of Four Canon’s Local Suppliers ………… 187

Extent of Competitive Advantage of Canon Vietnam … 200

Extent of Implementation of Government Policies …… 218

Extent of Factors Affecting the Capacity Development of Local Suppliers ………

230 V SUMMARY, CONCLUSION AND RECOMMENDATION Summary ……….……… 253

Conclusions ……… 256

Recommendations ……… 258

REFERENCES ……… ……… 271

APPENDICES ……… 279

CURRICULUM VITAE ……… 289

viii

1 The Development of the Electronics Industry and its

Supplier Industries in ASEAN Countries

4

4 Transferred Knowledge Between Canon and Local

5 Localization of Canon’s Electronics 83

6 The Situation of the Electronics Industry and its Supplier

8 Comparison Between the Perceptions of Managers of

Canon Vietnam and Managers of Suppliers as to Profile of

the Canon Vietnam Affecting the Capacity Development of

9 Comparison Between the Perceptions of Managers of

Canon Vietnam and Managers of Suppliers on the Extent

of Profile of Canon Vietnam Affecting Domestic Electronic

10 Comparison Between the Perceptions of Managers of

Canon Vietnam and Staff as to Extent of Profile Affecting

the Capacity Development of Local Suppliers 138

11 Comparison Between the Perceptions of Managers of

Suppliers and Employees as to Extent of Profile Affecting

the Capacity Development of Local Suppliers 139

12 Comparison Between the Perceptions of the Canon

Vietnam Employees and Suppliers’ Employees as to

Profile of Canon Vietnam Affecting the Capacity

13 Comparison Between the Perceptions of Staff of Canon

Vietnam and Employees of Suppliers on the Extent of

Profile of Canon Vietnam Affecting Domestic Electronic

ix

14 Mean Difference of the Perceptions of the Managers and

Staff of both Canon and Suppliers on the Extent of Profile

Affecting the Capacity of Domestic Suppliers 144

15 Comparison Between the Perceptions of Managers of

Canon & Managers of Suppliers on the Extent of

Autonomy Affecting Capacity Development of Suppliers 145

16 Comparison Between the Perceptions of Managers of

Canon & Managers of Suppliers on the Extent of

Autonomy Affecting Capacity Development of Suppliers 157

17 Comparison Between Perceptions of Canon Managers and

Staff on the Extent of Autonomy Affecting Capacity

18 Comparison Between the Perceptions of the Managers of

Suppliers and their Staff on the Extent of Autonomy

Affecting Capacity Development of Local Suppliers 159

19 Comparison Between the Perceptions of Employees of

Canon and Suppliers on the Extent of Autonomy of Canon

Vietnam Affecting Capacity Development of Local

20 Comparison Between the Perceptions of Canon

Employees & Employees of Suppliers on the Extent of

Autonomy of Canon Vietnam Affecting Capacity

21 Mean Difference of the Perceptions of the Managers and

Staff of both Canon and Suppliers on the Extent of

Autonomy Affecting the Capacity of Domestic Suppliers 163

22 Comparison Between the Perceptions of Canon Managers

and Managers of Suppliers on the Extent of Knowledge

Transfer Affecting the Capacity Development of Local

23 Comparison Between the Perceptions of Canon Managers

and Managers of Suppliers on the Extent of Knowledge

Transfer Affecting the Local Suppliers’ Capacity

24 Comparison Between the Perceptions of Canon Managers

and Staff on the Extent of Knowledge Transfer of Canon

Vietnam Affecting the Capacity Development of Local

x

25 Comparison Between the Perceptions of Suppliers’

Managers and Staff on the Extent of Knowledge Transfer

Affecting Local Suppliers’ Capacity Development 173

26 Comparison between the Perceptions of Employees of

Canon & Employees of Suppliers on the Extent of

Knowledge Transfer Affecting the Capacity Development

27 Comparison Between the Perceptions of Canon

Employees & Employees of Suppliers on the Extent of

Knowledge Transfer Affecting Capacity Development of

28 Mean Difference of the Perceptions of the Managers and

Employees of both Canon Vietnam and Suppliers on the

Extent of Knowledge Transfer Affecting the Capacity of

29 Comparison Between the Perceptions of Canon Managers

& Managers of Suppliers on the Extent of Competitive

Advantage of Canon Vietnam Affecting the Capacity

30 Comparison Between the Perceptions of Canon Managers

& Managers of Suppliers on the Extent of Competitive

Advantage of Canon Vietnam Affecting the Capacity

31 Comparison Between the Perceptions of Canon Managers

and Staff on the Extent of Competitive Advantage of

Canon Vietnam Affecting the Suppliers’ Capacity

32 Comparison Between the Perceptions of Managers of

Suppliers and Staff on the Extent of Competitive

Advantage of Canon Vietnam Affecting Suppliers’ Capacity

33 Comparison Between the Perceptions of Canon

Employees & Employees of Suppliers on the Extent of

Competitive Advantage of Canon Vietnam 215

34 Comparison Between the Perceptions of Canon Staff &

Staff of Suppliers on the Extent of Competitive Advantage

xi

35 Mean Difference of the Perceptions of the Managers and

Staff of Both Canon and Suppliers on the Extent of

Competitive Advantage Affecting the Capacity of Domestic

36 Comparison Between the Perceptions of Canon Managers

& Managers of Suppliers on the Extent of Implementation

of Government Policies Affecting Capacity Development of

37 Comparison Between the Perceptions of Canon Managers

& Managers of Suppliers on the Extent of Assistance of the

38 Comparison Between the Perceptions on the Extent of

Assistance of the Government as Perceived by Canon

39 Comparison Between the Perceptions of Managers of

Suppliers and Staff on the Extent of Assistance of the

Government Affecting the Capacity Development of

40 Comparison Between the Perceptions of Canon

Employees & Employees of Suppliers on the Extent of

Assistance of the Government Policies 226

41 Comparison Between the Perceptions of Canon

Employees & Employees of Suppliers on the Extent of

Assistance of Government Policies 227

42 Mean Difference of the Perceptions of the Managers and

Staff of Both Canon and Suppliers on the Extent of

Government Assistance Affecting the Capacity of

43 Comparison Between the Perceptions of Canon and

Suppliers’ Managers on the Extent of Factors Affecting the

Capacity Development of Local Suppliers 230

44 Comparison Between the Perceptions of Canon and

Suppliers’ Managers on the Extent of Factors Affecting the

Capacity Development of Local Suppliers 231

45 Comparison Between the Perceptions of Canon Vietnam

Managers and Canon Vietnam Employees on the Extent of

the Factors Affecting the Capacity Development of Local

xii

46 Comparison of the Perceptions of Managers of Suppliers

and Employees on the Extent of the Factors Affecting the

Capacity Development of Local Suppliers 233

47 Comparison of the Perceptions of Canon Vietnam

Employees and Employees of Suppliers on the Extent of

the Factors Affecting the Capacity Development of Local

48 Comparison of the Perceptions of Canon and Suppliers

Employees on the Extent of the Factors Affecting

Capacity Development of Local Suppliers 235

49 Comparison of the Mean Differences of Perceptions of

Canon Managers & Suppliers and Employees of Canon &

Suppliers on the Extent of the Factors Affecting the

Capacity Development of Local Suppliers 236

50 Mean difference of the Perceptions of the Managers and

Employees of Both Canon and Suppliers on the Extent of

the Factors Affecting the Capacity Development of

51 Correlation of the Factors Affecting the Capacity

Development among Local Suppliers 238

52 Reliability of the Independent Variable: Company’s Profile -

57 The reliability of the Control Variable: Capability

Development of Local Suppliers – CDLS 245

58 Statistical Description of the Scale 246

xiii

1 Vietnam’s Import Value of Electronic Components,

2 Performance Results of Canon Vietnam 28

4 Environment Change and Canon Response 70

5 Definition of Supporting Industries 75

7 “Supplier Industries” Concept of Japan 96

8 “Players” Network of the “Game Theory” 100

9 “Players” Network in Supplier Industries 101

10 Expanded “Players” Network in Supplier Industries in a

11 Production Process of Electronic Products 104

12 Export Value of Vietnam’s Electronics Components and

13 Vietnam’s Import Value of Electronic Components,

xiv

A Canon’s Evaluation on Supplier Capabilities 280

B Characteristics of Newly Established Enterprises 281

D Questionnaire 1: For Canon Vietnam 283

`

xv

Title of Research : DEVELOPMENT OF DOMESTIC SUPPLIERS OF

ELECTRONICS IN VIETNAM: THE CASE STUDY

OF CANON VIETNAM’S STRATEGY

Researcher : TRAN XUAN NGOC (RONALDO)

Degree Conferred : DOCTOR OF BUSINESS ADMINISTRATION

Name and Address

of Institution

: Southern Luzon State University Lucban, Quezon, Philippines and Thai Nguyen University, Socialist Republic of Vietnam

Adviser : Dr Eduardo T Bagtang

Year Written : 2013

The study was conducted to determine the extent of the factors that can help develop the capacity of local or domestic electronic suppliers in Vietnam Specifically, the study was focused on the extent of autonomy, knowledge transfer strategies, comparative advantage and government services of local suppliers

A total of 250 respondents were identified, 6 managers of Canon Vietnam, 4 managers of local suppliers, 100 staff members of Canon Vietnam and 144 staff members of local suppliers that were randomly selected Structured questionnaire was used in gathering data Secondary data were obtained from the Ministry of Industry, Ministry of Finance and Ministry of Security to determine the profile of the companies The SPSS program was used in processing the data The t-Test was used to determine the significant differences regarding the perception of managers and staff on the factors that affect the development capacity of local electronic suppliers while Pearson correlation was used to determine the relationship between the variables

xvi

model for capability building to be adapted by the local electronics suppliers

Findings showed that both the managers and suppliers of Canon agree that the profile of Canon Vietnam affects the development capability of domestic suppliers with a mean of 3.59 while the employees of Canon and suppliers were uncertain with a mean of 3.14 This finding implies that there is

a gap in the operation at the local level hence there is need for Canon Vietnam to strengthen or expand their operation in the local areas to be able

to reach out to their clients

On the extent of autonomy, it was found out that there was no significant difference regarding the perceptions between the managers of Canon, managers of suppliers, employees of Canon and employees of suppliers Managers have a total average weighted mean of 4.3 while employees have obtained 4.21 where they both agree Likewise, it is noted that organizational structure and research & development found out to have

the lowest mean

As to the extent of knowledge transfer, it was found out that there is no significant difference regarding the perceptions between the managers of Canon, managers of suppliers, employees of Canon and employees of suppliers

As to the extent of comparative advantage, it was found out that there

is no significant difference of the perceptions between the managers of Canon, managers of suppliers, employees of Canon and employees of suppliers

xvii

was found out that there is no significant difference regarding the perceptions between the managers of Canon, managers of suppliers, employees of Canon and employees of suppliers

As regards the extent of influence of the factors on the capacity development of local suppliers, it was found out that there is no significant difference of the perceptions between the managers of Canon, managers of suppliers, employees of Canon and employees of suppliers Hence, profile, autonomy, knowledge transfer, comparative advantage and government policies had affected the capacity development of local suppliers

The results of correlation coefficient was highly significant among competitive advantage ,autonomy, knowledge transfer, government policies and company profile indicating that all the factors included in the study influenced capacity development of local suppliers; hence, model 4 of the Canon Vietnam strategy shall be adopted by other suppliers

Finally, this study found out that there were identified gaps on profile such as organizational structure and company culture ; autonomy research & development and financial management ; knowledge transfer impacting responsiveness and absorptive capacity; competitive advantage affecting production capacity and product design ; and government policies focusing more on the enhancement of the Central Management Unit ; hence, all the identified gaps are recommended for capacity enhancement among the local suppliers of Canon Vietnam

Chapter I INTRODUCTION

After 25 years of reform, Vietnam's economy has grown stronger and since then has been steadily being integrated deeper into regional as well as global economies Likewise, a number of industries have experienced fast growth like the first Vietnam businesses that have been involved in the global supply chain Vietnam is now an emerging market that is very attractive to international investors ,multinational stakeholders and economic researchers

Experience has proven that the emerging markets could bring businesses the most important investment opportunities and growth The emerging markets are the places to test the concept, model, and existing theories of business growth and progress At the same time, these very markets also create opportunities for research and the development of new theories in the field of business administration

The topic "Developing Domestic Suppliers of Electronics in Vietnam: The Case of Canon Vietnam’s Strategy” is indeed vital, meaningful and useful for managers of multinational companies in the electronic field in terms of attracting investors that are now operating in Vietnam The owners of the firms who are currently providing electronic domestic products are now Vietnam’s policymakers

Background of the Study

Amongst the emerging markets, Vietnam is a very classic example of the great and profound changes in attracting foreign investments to a

developing domestic industry However, the industrialization of Vietnam today faces huge challenges It must survive under the conditions of trading liberalization with other countries all over the world The competitiveness of the Vietnamese industrial products in general is weak, especially those in manufacturing machinery, equipment, components and materials It seems that the most basic weakness of Vietnam's industry stems from the weakness

of supporting industries This involves the "survival" of Vietnam industries, which is closely associated with whether the economy of Vietnam can be internationally competitive enough to develop On the other hand, the weaknesses of the fundamental facility have contributed to the deficit of the trading balance in Vietnam because the country itself has to import a lot of components and raw materials for export production which therefore can invariably cost more if it aims to improve the export capacity of the products

As a result, if Vietnam boosts exports, the faster the demand for inputs increases, the sooner it will lead to trade deficit which eventually might be harder for the country to take

Currently, the development of the domestic market is fraught with spontaneity and lacks sustainability Even though micro to small businesses are common in Vietnam, they are not developed enough for international export purposes For those businesses which suit the international export market which are few, as the majority belongs to small and medium businesses, those of which are uneducated due to the poor condition of fundamental and technical facilities and which lack developmental strategies, capacity are in fact the ones which are in a weak position to deal with the international market on the whole The implementation of regional and

international commitments regarding Vietnam is still passive at this time The major businesses are still expecting an extension of protectorate to remain afloat The slow application of international standards in production and trade has caused some businesses in Vietnam difficulties when joining the production cycle within the local market

Within the manufacturing industry, electronics is highly representative

of a developing country with a large population like that of Vietnam In the context of scientific and technological progress and globalization today, the present status of the electronics industry in Vietnam has revealed a number of problems On the domestic scene, the supply businesses in Vietnam are in a much weaker position than firms with foreign capital investment On the other hand, the electronic products of Vietnam are put under a huge competitive pressure from China In terms of the value chain, the electronics industry in Vietnam mainly assembles consumer products, focusing on the stages with minimal value attached Very few companies produce detailed parts and accessories in electronics Foreign investors in this sector are mainly export-oriented, not oriented to promote connectivity supporting industries within the country to create a shift in the value chain This limits the ability to develop this sector and likewise limits the impact of technological transfers as well as the scalability to attract FDI The assembling phase is mainly focused toward cheap labor, but this is not an advantage to maintain the long-term economic health of the country

Table 1

The Development of the Electronics Industry and its Supplier Industries in ASEAN Countries

Thailand 1960s Computer and Accessories

Audio-Visual Products Refrigeration

Office Equipment

620 companies with 521 FDIs 300.000 labor

- Turnover in 2001: US$23 billion

- ASEAN: 22%, The US: 20%

900 companies Two thirds FDIs, especially Japanese

Singapore 1960s Specialized Electronics

Telecommunications Computer

Hi-Tech Accessories

250 companies 150.000 labor

- Turnover in 2001: US$70 billion

60% for export Japan 36%

The US 34%, ASEAN and Asia: 31%

Philippines Early 1970s Specialized Electronics

Consumer Electronics Computer Accessories Terminals

Semi-Conductors

590 companies 72% FDIs- 30% Japanese 350.000 labor

Turnover in 2003: US$10 billion 95% for export

Two thirds FDIs with majority of Japanese

Turnover in 2003: 9 US$billion 95% for export

Source: Compiled from reports by the Ministry of Industry and Commerce, Vietnam Electronic Industries Association, Viettronics

Statement of the Problem

The recent state of the electronics industry in Vietnam has revealed problems of competition regarding local suppliers compared to foreign suppliers Local suppliers in Vietnam are in a much weaker position when compared to foreign suppliers

Foreign investors import the majority of the components in electronic products; hence, the local suppliers can no longer compete with them despite having cheaper labor costs to produce these components This situation limits the development of the Electronic Industry in Vietnam

To assist the local suppliers in Vietnam to remain competitive there is a fundamental need to develop their capabilities Hence this study is primarily aimed to determine the gaps for capacity development amongst the local electronics suppliers through the Canon Vietnam Strategy

Specifically, the study will seek to find out the following issues of concern:

1 What is the extent of critical factors that affect the capacity development regarding local suppliers?

2 What are the factors associated with the capacity development concerning local suppliers?

Objectives of the Study

The overall objective of the study is to determine the factors that can help develop the capabilities of local or domestic suppliers in Vietnam Specifically, the study aims to determine the current operation of Canon Vietnam’s following objectives:

1 To determine the profile of Canon Vietnam as perceived by Managers

of Canon Vietnam, Managers of Suppliers and their Employees in terms of the following:

1.1 Company Culture

1.2 Organizational Structure

1.3 Operation Scale

1.4 Local Operational Duration

1.5 Number of Local Suppliers

2 To determine the extent of autonomy of Canon Vietnam as perceived

by Managers of Canon Vietnam, Managers of Suppliers and their Employees in terms of the following:

3.1 Absorptive Capacity

3.2 Responsiveness

3.3 "Hands-on" Approach in Skills Development Knowledge Transfer

4 To determine the extent of the competitive advantages of the Canon subsidiaries that can help develop local suppliers as perceived by Managers of Canon Vietnam, Managers of Suppliers and their Employees

5.1 Protection of Domestic Production (import tax…)

5.2 Priority for the Electronics Industry (incentives, production tax…) 5.3 Central Management Unit

5.4 Setting Up of Standards regarding Quality and Components

5.5 Reducing the Gap between Policies and Implementation

6 To determine the extent of the factors that affect capacity development

of local suppliers as perceived by Managers of Canon Vietnam, Managers of Suppliers and their Employees

7 To determine the degree relationship of the profile, autonomy, knowledge transfer, competitive advantage, government policies and capacity development

Hypotheses of the Study

This study aims is to test the following hypotheses:

H1 There is no significant difference in the perceptions of the

managers of Canon Vietnam, Managers of Local Suppliers, Employees of Canon Vietnam and Employees of Local Suppliers along

H2 There is no significant relationship between capacity buildings of

local electronics suppliers with regard to the following factors:

Significance of the Study

The results of this study will help local suppliers determine the needs of multinational companies, adjust their operation strategies, improve capacity and strengthen their competitiveness

Likewise, in consideration of how the strategies of Canon will be implemented, the results are vital for practical purposes in order that the business sector will be able to provide insights on how subsidiary companies

will boost the capacity of local suppliers in improving their company profile, eventually becoming autonomous, gaining a comparative advantage and being responsive to government policies in due time

Policy makers, planners, implementors, students, researchers and the interested public can also use the results of this study to improve various aspects of their daily lives Results of this study will indeed provide invaluable contribution to the growth and development of Vietnam’s business economy

Basically, multinational companies competing on the international market have to deal with the changes obtaining in the local environment Effective responses with appropriate strategies and policies will give the companies an advantage over their competitors They can build up a strong capacity when dealing with domestic suppliers Building an efficient network of domestic suppliers by transferring technology, developing existing relationships, helping these suppliers become involved in the value chain, improving the key elements of the local environment will help multinational companies promote their strength in the business world This is important for leaders to review and adjust the orientation policies and goals of the company

At the national level, this study has an important meaning for policy makers to understand the behavior of multinational companies when they invest in the host country Government policies should be adjusted to improve the local business environment, encourage contributions from multinational corporations, maximize economic opportunities, and create conditions for all the factors in the market to develop strategically

In fact, the industrial development policies from the Vietnamese government are usually considered in favor of a wide range of electronic companies The role of multinational companies in Vietnam is underestimated Focusing on Canon Vietnam, this study will explore the role

of a large company in accelerating the development of domestic suppliers The major direction of such companies affects the entire electronics industry

Scope and Limitations of the Study

This study is focused on the factors affecting capacity building of local suppliers and the government support system concerning the electronics Industry The study is limited due to the perceptions of the Canon Vietnam Managers, Managers of Suppliers and Employees along with profile autonomy, knowledge transfer, competitive advantage and government policies that can develop local suppliers to meet market demands for electronics

The research is a case study regarding the business operation of Canon Vietnam to develop the capacity of local suppliers The development of Canon Vietnam will be considered a result of the cooperation between outsourcing and domestic suppliers, who have grown over the years of operation in Vietnam

The local environment includes the main elements: suppliers, competitors, consumers and government policies The relationship between company and the relevant elements plays a central role in this study It includes changes and impacts of the elements, reactions and the actions of the company Amongst the elements, the suppliers are given particular

emphasis and special focus when transferring knowledge between the assembly lines and domestic suppliers in Vietnam

Definition of Terms

For clarity and better understanding of this study, the following terms were hereby defined conceptually and operationally:

Absorptive Capacity A set of organizational routines and processes by

which firms acquire, assimilate, transform and exploit knowledge to

produce a dynamic organizational capability

Absorptive capacity depends greatly on prior related knowledge and diversity of background The absorptive capacity is seen as cumulative, meaning that it is easier for a firm to invest on a constant basis in its absorptive capacity than investing punctually Efforts put to develop absorptive capacity in one period will make it easier to accumulate it in the next one

Autonomy A degree or level of freedom and discretion allowed to an

employee over his or her job As a general rule, jobs with high degree

of autonomy engender a sense of responsibility and greater job satisfaction in the employee(s) Not every employee, however, prefers

a job with high degree of responsibility

Capacity Development Refers to the process of enhancing an

organization's abilities to perform specific activities including managers and suppliers An approach in developing a conceptual framework, establishing an organizational attitude, developing a vision and

strategy, developing an organizational structure and acquiring skills

and resources

Capacity General: Specific ability of an entity (person or organization) or

resource, measured in quantity and level of quality, over an extended

period

Manufacturing: Highest sustainable output rate (maximum number of units per month, quarter, or year) that can be achieved with current resources, maintenance strategies, product specifications, etc

Company Culture Set of shared mental assumptions that guide

interpretation and action in organizations by defining appropriate behavior for various situations At the same time although a company may have their "own unique culture", in larger organizations, there are diverse and sometimes conflicting cultures that co-exist due to different characteristics of the management teams The organizational culture

may also have negative and positive aspects

Knowledge Transfer Knowledge Transfer Organizations: 1 One

organization learning from another 2 When knowledge acquired in one organization affects another (either positively or negatively)

Organizational Structure A system used to define a hierarchy within an

organization It identifies each job, its function and where it reports to within the organization This structure is developed to establish how an organization operates and assists an organization in obtaining its goals

to allow for future growth The structure is illustrated using an organizational chart

Production Capacity Refers to the volume of products that can be

generated by a production plant or enterprise in a given period using current resources

Profile of Company Concise description which, among other items of

information, includes (1) a firm's history, (2) number and quality of its human, financial, and physical resources (3) organizational and management structure, (4) past, current and anticipated performance, and (5) its reputation, and the standing of its goods or services

Research & Development Discovering new knowledge regarding products,

processes, and services, and then applying that knowledge to create new and improved products, processes, and services that fill market needs

Standards A technical standard is an established norm or requirement in

regards to technical systems It is usually a formal document that establishes uniform engineering or technical criteria, methods, processes and practices

Strategies These are methods or plans chosen to bring about a desired

result, such as achievement of a goal or solution to a problem

Subsidiary Companies Subsidiary companies are understood to be like

subsidiary multinational corporations These are partially or wholly owned companies that are part of a larger corporation with headquarters in another country Foreign subsidiary companies are incorporated under the laws of the country where they are located

Technology of Production A system for scheduling the manufacture of

products and managing stock inventory that aims to optimize costs,

minimize inventory and maintain a steady work flow The modern production technology that might be used by a manufacturing business can identify production blockages and sense capacity constraints, and

it does not usually operate at full capacity if sufficient inventory to meet demand already exists

Chapter II

REVIEW OF LITERATURE

This chapter presents the theories and the researches related to the development of subsidiaries and local suppliers Specifically, these factors affect the development of local suppliers in electronics manufacturing The impact of government policies and experiences of foreign countries to developing domestic suppliers is summarized in this chapter At the end of this chapter, the conceptual framework is proposed based on the related theoretical and research analysis

Subsidiary in Local Environment

A multinational enterprise, or multinational corporation, is defined as an enterprise that owns and control activities in different countries, or as a major vehicle for the transfer of mobile resources (technology, capital, management skills) to areas with immobile complementary inputs (markets, raw materials, labor) (Buckley and Casson, 1976; 1985) Market imperfections are factors explaining the existence of multinational firms Thus, the unique characteristic

of the multinational corporation is that it is engaged in multi-activities and in the internal transfer of intermediate products outside its national boundaries

To cope with the inherent volatility of the international business environment, corporations need to adopt their strategies to remain competitive and simultaneously, to develop efficiency, responsiveness and learning as strengths for success

Subsidiary enterprises and affiliates are all referred to as foreign firms and their subsidiaries, in the context of the host country In spite of certain specific characteristics, all multinational operation phenomena can be explained by related theories

Although the static relationship between the subsidiary and its local environment has been studied (Ghoshal and Nohria, 1989; Rosenzweig and Nohria, 1995), and there have been empirical researches on subsidiary expansion (Birkinshaw, 1998; Chang and Rosenzweig, 1998), there has been little consideration of the dynamic question, say, the relationship between local environment changes and subsidiary’s capability development So far studies on local environment-driven subsidiary evolution is still rather limited (Birkinshaw and Hood, 1998a)

The existing paper borrows the model, namely “diamond of competitive advantage”, proposed by Porter (1990) According to this model, subsidiary development is driven by the dynamism of the local business environment determinants, including consumers, suppliers, competitors and production factors, as well as by the subsidiary ability to access resources from MNC Implicitly, the subsidiary itself also develops, in that it becomes capable of adopting and applying increasingly sophisticated levels of the MNC’s technology

The original diamond framework itself emphasizes the role of home nation’s favorable determinants on a firm’s competitive advantages that helps the nation’s firm gain and sustain high position in international market However, there has been little attention on how a global firm can achieve successes in a particular market, specifically in particular a host country that

is undergoing changes By considering Canon development in Vietnam, this research is expected to be a supplement regarding this issue Rather than using the diamond to explain how home country’s determinants maps firms’ position, this research uses the framework to see how host country’s determinants contribute to a particular firm’s competitive advantages and what the firm does to respond and take that advantages when it tries to expand operation in the host country

Vietnam’s Electronics Suppliers

Products of electronics suppliers can be divided into two main categories:

(i) Small components that consume little raw materials and integrate high technology Most are transported from production sites to assembly plants around the world They are components such as circuit boards, semiconductor devices, electronic chips, and motherboards (Nguyen Hoang Anh, 2008)

(ii) Large components that need many materials, warehousing and simpler manufacturing technologies, often produced or outsourced in the nation of assembly plants or of consumer markets (Nguyen Hoang Anh, 2008) The components consist of cases, plastic parts, metal frames, carton packaging, and foam

In fact, the production of plastic and metal components does not require high technology, huge capital investment with sophisticated machinery like that of such audio-visual components such as IC components, semiconductors, electronic chips, etc

Vietnam's total electronics industry has more than 200 domestic enterprises, most of which are SMEs in various economic sectors The total investment in the industry is nearly $ 1.6 billion with 90% of which is from joint ventures and 100% FDI companies There are approximately 60 FDI enterprises in Vietnam, producing electronic and computer components and other relevant items, which are mostly for export

Until now, Vietnam has not commenced companies which produce electronic materials, though there are already some ongoing basic research or production in experimental models Regarding the production of electronic components, Vietnam already has some producers recently and mainly by FDI companies This is an important item group to increase values for the electronics industry The main products include printed circuits, backlights with a capacity of 2 million units / year; printed circuit substrates with a capacity of 8.5 million units / year; types of capacitors, inductors, high-voltage coils, deflection coils, plastic parts, mechanical parts for backlight assembly, types of antenna, and types of packaging such as cardboard boxes, packaging foam Some are supplied to domestic businesses to increase the

localization rate, and most are for export

The number of supporting enterprises to meet the requirements of FDI companies is very few so that the attraction of FDI to develop the industry becomes difficult FDI companies in the electronics industry in Vietnam are always pushed to reduce costs and increase the added value of products produced in Vietnam, so they really need supporting enterprises in Vietnam, but sadly there are only very few meeting the requirements

Sources of components and materials for electronics businesses in Vietnam are mostly imported with main suppliers such as Japan, Taiwan, Korea and Singapore

For this reason, Vietnam cannot go beyond the assembly and processing stages that give the lowest added value in the value chain On the other hand, it also reduces the competitiveness of FDI companies since most parts and accessories are imported The weakness of the local materials industry also makes many investors in the manufacturing sector afraid of investing in Vietnam due to the burden of transporting materials and accessories This is one of the weaknesses Vietnam has to contend with in its move to attract foreign investment in the country’s industries

Vietnam’s import value of electronic components and electronic items

is shown in the following diagram:

Transport infrastructure in Vietnam, especially air transit systems, is very poor and below the requirements of urgency of a transit point to international airports Likewise, electronic goods mostly compete by time (i.e

a day late or even an hour late could damage the companies), so it is difficult

to attract advanced electronics manufacturers to Vietnam Sources of materials, especially luxury items like titanium and gold are not available in Vietnam, and are limited to import by complicated procedures for delivery and payment This is also an obstacle to investment in production of advanced electronics components in Vietnam

Figure 1: Vietnam’s Import Value of Electronic Components, Electronic and

Computer Items

Unit 1000,000 USD

Figure 1 Vietnam’s Import Value of Electronic Components, Electronic and

Computer Items overview of the local environment in Vietnam showing the

specific case of Canon in Vietnam changing environment (Source: General Statistics Office)

Since Vietnam’s electronics industry was still in its early stages in

2000, the government's policy did give priority to attract FDI and electronics investors towards the direction of localization and developing local suppliers Development factors like consumption demand, supporting industries and domestic production factors were still underdeveloped Competition among most electronics assembly lines with few local suppliers was just fair and based on the band name, reputation and low labor cost In fact, Canon Vietnam was not an exception There were no new products and no efforts to improve technology in Canon at that time

0 1000

From late 2003 and early 2004, Chinese electronic products penetrated Vietnam and quickly dominated the market Assembly plants imported components directly from China Very few components were made in Vietnam

As has been seen in previous studies, the main reason for the domination of Chinese products is the fairly low price The price of electronic products from China is only about a third or a half of that from other companies

Subsidiary Company’s Profile

Canon Vietnam Co., Ltd is one of the 18 manufacturing factories of Canon Group in Asia (excluding the ones in Japan) Vietnam was the first area chosen to produce printer products with Pic Bridge Technology - Compliant (printing photos directly from cameras or digital cameras) in September 2003

Canon Vietnam Co., Ltd is a 100% FDI export-processing enterprise, which was established on the 11th of April 2001, under Investment License Number: 2198 - GP by the Ministry of Planning and Investment, with a legal capital of $ 94 million out of $ 306.7 million investment capital

Canon Vietnam contributed 25% of total production of inkjet printers worldwide and is currently the largest exporter in Hanoi with 53% of the total exports of FDI sectors Its income is over $ 200 million In addition to Vietnam market, inkjet printers are also exported to markets in Asia, Europe and America

Over the time of operation, Canon Vietnam was certified as a technology enterprise by the Ministry of Science and Technology in May

high-2003 The certificate of Quality Management System ISO 9001 and Environmental Management System ISO 14001 in October 2003 has recognized its consistent focus on product quality Despite being a new company, all the staff of Canon Vietnam is striving together to satisfy customers and contribute to the development of Vietnam

Canon Vietnam Company Culture

Canon Group operates with KYOSEI - "symbiotic" philosophy The literal meaning of Kyosei is "living and working together for the common good." In larger context within the Canon group, the word also means “everyone, regardless of race, religion and culture, living and working together in harmony towards the future." Currently the world still exists in imbalance in many areas such as occupation, income or living environment This has caused problems for the implementation of the philosophy Addressing these imbalances is an ongoing mission with Canon doing its part by actively pursuing "Kyosei" International companies today must promote relationships not only with customers and suppliers but also with other countries and pay attention to environmental issues They must also take responsibility for the impact caused by their operation on society and environment That’s the reason why Canon sets the goal in order to contribute to the world’s prosperity and happiness towards continuous growth and finally bring the world closer to Kyosei philosophy

Currently, Canon is actively contributing to Vietnam through a series of production and social activities Continuously encouraging suppliers in Vietnam, Canon is contributing significantly to the industrialization and development of the country

Through interviews which the author has carried out, many Japanese businessmen assert that the way Vietnam businesses have leveled up against other manufacturers is different with respect to other countries in the region such as Thailand, Malaysia or Indonesia Other countries upgrade their machinery by investing in new equipment and technology while most of Vietnam enterprises rarely change by upgrading the available equipment and labor’s skills This saves costs, reduces risk, helps them to learn from production experience and strengthens the knowledge of workers and management alike

This trend resembles the way in which Japanese companies have applied Thus, many Japanese experts have confirmed the similarities of

“business spirit" or “production culture’’ between Japan and Vietnam This is considered as an advantage for Vietnam enterprises compared with the other countries in the region

Organizational Structure

Canon Vietnam Co., Ltd is a 100% FDI enterprise, under Canon Group

It is an economic organization with legal personality, operating as an independent business mode, having bank accounts at Mizuho Bank Hanoi branch and a seal for transaction