Foreign Direct Investments In Vietnam

ASSESSING INTERNATIONAL JOINT VENTURES
IN VIETNAM
by
Lai Xuan Thuy
A research study submitted in partial fulfillment of the requirements for the
degree of Master of Business Administration
Examination Committee: Dr. Fredric William Swierczek (Chairman)
Dr. Truong Quang
Dr. Bettina Buchel
Nationality: Vietnamese
Previous Degree: Bachelor of Science (Econ.)
Economic University of Sofia, Bulgaria
Bachelor of English
Pedagogy University of Hue, Vietnam
Scholarship Donor: The Government of Switzerland
Asian Institute of Technology
School of Management
Bangkok, Thailand
April 1999
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ACKNOWLEDGEMENT
The author would like to express his deepest acknowledgement to the research advisor, Dr.
Fredric William Swierczek for his intensive supports, valuable suggestions, guidance and
encouragement during the time of the study.
Many sincere thanks are also due to Dr. Truong Quang and Dr. Bettina Buchel for their
valuable time, comments, and advice. Their constructive suggestions were of great help in
successfully completing this study.
The author would like to express his sincere gratefulness to Mr. Nguyen Minh, General
Director and Ms. Thu Nga, Director Assistant at HBC, Mr. Anh Hung, General Director,
Ms. Marilyn Glorioso, Chief Financial Controller, Ms. Thu Hang, Executive Secretary and
Mr. Le Bo, Human Resource Manager at Century Riverside Hotel, Mr. Nguyen Nam,

Deputy Director and Ms. Lan Huong, Office Assistant at Luck Vaxi Vietnam, Mr.
Christophe Kaczowski, Project Manager at Thyssen Ascenseurs, Mr. Dinh Khanh, Chief of
the International Relations Department in the Planning and Investment Service of Thua
Thien Hue Province, Ms. Thanh Hai Project Assistants at MASCED, Ms. Minh Chau,
Senior Lecturer at HCMC Economic University, and others for their precious information
related to the research.
The author would like heartily to dedicate this study to his beloved parents, his wife, Minh
Ly and his children, Little Mai and Bao Thai who have always sacrificed to encourage and
support him in life.
Lastly but not least the author would like to express his faithful thanks to the Director of
SAV Program and the Government of Switzerland for giving him opportunity and financial
supports so that he could successfully complete his MBA study.
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ABSTRACT
Based on the information from the questionnaires and direct interviews with managers of
the international joint ventures, this paper focussed on assessing the joint ventures
performance in Vietnam. The research results indicated that the joint ventures performed
rather well in behavioral and learning, satisfactorily in strategic, but rather poorly in
economic perspectives. The analysis also found significant differences in partners’
perception on success performance. The five key dimensions in success perceptions of the
joint venture managers have found to be Functional efficiency, Competitiveness,
Effectiveness and efficiency, Equity, and External customer relations. There are significant
correlations between success factors and the operational results as well as between success
factors and input, process and output indicators. Important problems and issues in the joint
venture relationships have also discovered in the interviews with the managers.
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TABLE OF CONTENTS
CHAPTER TITLE PAGE
Title Page i

ACKNOWLEDGEMENT...................................................................................................................................II
ABSTRACT.........................................................................................................................................................III
TABLE OF CONTENTS...................................................................................................................................IV
LIST OF TABLES................................................................................................................................................V
LIST OF FIGURES............................................................................................................................................VI
INTRODUCTION.................................................................................................................................................1
1.1.BACKGROUND AND RATIONALE...............................................................................................................1
1.2.STATEMENT OF THE RESEARCH PROBLEM................................................................................................2
1.3.RESEARCH OBJECTIVES............................................................................................................................2
1.4.SCOPE OF THE STUDY...............................................................................................................................3
1.5.ORGANIZATION OF THE REPORT...............................................................................................................3
LITERATURE REVIEW.....................................................................................................................................4
2.3.JOINT VENTURE CONCEPTS......................................................................................................................4
2.2.ADVANTAGES AND DISADVANTAGES OF THE JOINT VENTURE................................................................5
2.3.MOTIVATION OF CREATING A JOINT VENTURE.......................................................................................6
2.4.BASIC TYPES OF JOINT VENTURES..........................................................................................................7
2.5.PROBLEMS AND ISSUES OF INTERNATIONAL JOINT VENTURES................................................................8
2.6.MEASURING SUCCESS IN THE JOINT VENTURE.......................................................................................12
5.1.1.Problems in measuring success of joint ventures............................................................................................12
5.1.2.Theoretical aspects of measuring success in joint ventures.............................................................................12
FOREIGN DIRECT INVESTMENTS IN VIETNAM...................................................................................15
3.1.FOREIGN DIRECT INVESTMENT..............................................................................................................15
3.2.IMPORTANT FEATURES OF FDI IN VIETNAM IN 1998.............................................................................18
RESEARCH METHODOLOGY......................................................................................................................20
4.1.ANALYTICAL AND CONCEPTUAL FRAMEWORK......................................................................................20
4.2.ASSUMPTION AND CONCEPT EXPLANATION...........................................................................................22
4.3.METHOD OF DATA COLLECTION............................................................................................................23
4.4.METHOD OF DATA ANALYSIS................................................................................................................23
RESULTS OF THE SURVEY...........................................................................................................................24
5.1.THE QUESTIONNAIRES RESULTS............................................................................................................24

5.1.3.Joint venture objectives....................................................................................................................................24
5.1.2.Assessing Joint Venture Performance..............................................................................................................26
5.1.3.Results of Factor Analysis...............................................................................................................................32
5.1.4.Other issues of discussions .............................................................................................................................36
5.2.INTERVIEWS RESULTS............................................................................................................................37
5.2.1.Problems Resulted From Differing Basic Objectives......................................................................................38
5.2.2.Differences in partner size ..............................................................................................................................40
5.2.3.Ownership and Control of the joint venture ...................................................................................................40
5.2.4.Technology transfer .....................................................................................................................................41
5.2.5.Brand name......................................................................................................................................................42
5.2.6.Cultural Problems............................................................................................................................................42
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5.2.7.Management payment......................................................................................................................................43
5.2.8.Problems Related to the Government policies.................................................................................................43
CONCLUSION AND RECOMMENDATION................................................................................................45
6.1.CONCLUSION..........................................................................................................................................45
6.1.1.Joint venture objectives....................................................................................................................................46
6.1.2.Joint venture performance................................................................................................................................46
Table 6.1. Ranking success factors by level of partner’s satisfaction......................................................................47
6.1.3.Problems in the joint venture relationships......................................................................................................50
6.2.RECOMMENDATIONS..............................................................................................................................50
6.2.1.Recommendations to the joint venture managements.....................................................................................50
6.2.2.Recommendations to the policy makers..........................................................................................................51
6.3.FURTHER RESEARCH SUGGESTION.........................................................................................................52
REFERENCES....................................................................................................................................................52
APPENDIX...........................................................................................................................................................54
APPENDIX 1: A CASE OF HBC.....................................................................................................................54
APPENDIX 2: MAJOR CHARACTERISTICS OF THE RESPONDENTS..................................................................58
APPENDIX 3: LIST OF THE INTERNATIONAL JOINT VENTURES .....................................................................58
APPENDIX 4: THE SURVEY QUESTIONNAIRE................................................................................................59

LIST OF TABLES
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TABLE TITLE
Table 2.1. Major reasons for joint ventures
Table 2.2. Basic types of joint ventures
Table 2.3. Areas of Problems in the Joint Venture
Table 3.1. Licensing new projects and capital raising in 1997-1998
Table 3.2. General information about FDI projects in 1998
Table 4.1. Framework for assessing joint ventures
Table 5.1. Respondents’ perceptions on the joint venture objectives
Table 5.2. Comparison between Vietnamese and foreign managers
Table 5.3. Overall Performance of the Joint Ventures
Table 5.4. Respondents’ Evaluation of the Joint Venture’s Performance
Table 5.5. Comparison of the respondents’ evaluation on the JV’s performance
Table 5.6. Partners’ Perceptions on the Input, Process, and Output
Table 5.7. Correlation Matrix of Input, Process, and Output
Table 5.8. Results of factor analysis
Table 5.9. Factor Scores: Comparison between Vietnamese and Foreign Partners
Table 5.10. Correlation Matrix of Success Factors and Operational Results
Table 5.11. Regression analysis of Success Factors on Operational Results
Table 5.12. Correlation Matrix of Factors and Input, Process, and Output
Table 5.13. Regression analysis of Factors on Input, Process, and Output
Table 5.14. Respondents’ views on decision-making, communication
Table 5.15. Major areas of the joint venture problems and issues
Table 5.16. Comparison between utility fees for SOEs and non-SOEs*
Table 6.1. Ranking success factors by level of partner’s satisfaction
PAGE
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LIST OF FIGURES
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FIGURE TITLE
Figure 3.1. Trend of Foreign Direct Investment for the period 1988-1998
Figure 3.2. Foreign Direct Investment Structure by Sectors
Figure 4.1. Analytical framework of the research
PAGE
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16
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Chapter 1
INTRODUCTION
1.1. Background and Rationale
Since 1988, Vietnam has been accelerating in the process of transformation from the centrally-
planned as having been for more than forty years to a freer market-oriented economic
mechanism and merging with the regional and global economies. The “Doi moi” policy of the
Government has actually been effective in pushing the economic development of this planned-
to-be-80-million-by-2000 nation. It has created more opportunities and favorable conditions for
exploiting the internal and external development factors, encouraging investments of different
forms, especially foreign direct investment under various modes, including joint venture as one
of the most important cooperative strategies for companies to enter and win this rigorously
competitive emerging market.
According to the information of the Ministry of Planning and Investment, in 1998, more than
260 foreign direct investment projects were licensed with a total registered capital of US$4.06
billion. In addition, 133 projects were approved to increase their investment capital with the
amount of US$769 million. Therefore, at the end of the year, a total of US$4.83 billion of
direct foreign investment capital were registered. The investment of these projects come from
32 countries around the world, leading by Russia with one project of US$1.3 billion and
Singapore with 36 projects and US$893.005 million. More than 70 percent of the projects are
joint ventures.
Although the renovation policy of the Government has created better environment for
investment, a trend of reducing foreign direct investment has been observed during the last
recent years. In comparison with 1997, the number of FDI projects licensed and newly
registered capital in 1998 was reduced by 21.5 % and 10% respectively. The number of failed
joint ventures has been growing, while others have been trying to change the ownership to
wholly owned foreign companies. Investors may start to rethink and adjust their strategies to
enter the Vietnamese market through joint venture.
On the other part of the landscape, the situation is more optimistic. Many international joint
ventures have actually found their position in this difficult market, namely Vinacpecial,

Proconco, Mekong Concrete Mix, VN/CN Catering Service, and others (Phong, 1995). Some
of the joint ventures are continuing to successfully expand the market share and realize benefits
such as Telstra, Long An Mineral Co., Chinfon-Haiphong Co., and so on (MPI Report No. 11
BKK/KCN January 1, 1999), despite the current financial crisis in the region.
In 1998, the Government awarded certificates of merit (CM) to four foreign invested
enterprises: Ajinomoto Monosodium Glutamate (Japan), Vedan MSG (Taiwan), CP Vietnam
(Thailand) and Proconco Animal Feed (France) for their outstanding achievements in business
activities and implementing social programs for the community.
Then, what is actually the situation of the joint ventures in Vietnam? Have the joint ventures
been running well? And do they have a future? Many of recent research concentrated on the
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legal, cross-cultural, compatibility, and conflict aspects of the joint ventures to identify factors
for more effective foundation and operation of the joint venture.
This study is focusing on assessing the joint venture’s performance with the major objective to
help the joint venture partners as well as the potential investors to have an insight into the
current situations of the joint ventures in Vietnam and adjust their corporate strategies.
1.2. Statement of the research problem
Knowing how well a joint venture is running is practically important for the managers and
participants in the venture to adjust and develop their business strategies. Based on the
information from the questionnaires and in-depth interviews with the joint venture managers,
this paper is focused on evaluating the performance of the joint ventures in Vietnam.
The major problem of the research is therefore to clarify the current performance of the joint
ventures, that is, to answer the question of how well the joint ventures have been performed in
Vietnam and what problems they meet in their operations.
1.3. Research objectives
The general objective of the research is to help understand the current performance situation of
the joint ventures in Vietnam, their achievements and future position in this newly emerging
market. Based on the systems analysis approach, an extensive literature review, and in-depth
situational analysis, the research would provide useful information for the current joint venture
managers to understand the actual situation of the joint ventures and have necessary strategic

adjustments.
The research also helps potential investors to have more objective views on the situations of
the international joint ventures in Vietnam, which would be useful for them in preparing and
adjusting their entry strategies into the country. For the policy makers, the research would be
an important source of information to give them an insight into the current performance of the
joint ventures to have necessary policies for supporting the foreign direct investment
companies in general and joint ventures in particular to achieve their goals.
Specific objectives of the research can be stated as follows:
1. To develop an analytical framework for evaluating joint ventures;
2. Based on the survey, to evaluate the joint venture performance;
3. To identify the major success factors and how they affect the operational performance of
the joint venture; and
4. To make important recommendations for the joint venture managers, potential investors,
and policy makers in making necessary adjustments on the strategies and policies.
The author would also make a suggestion of further research in the fields of interest for a
deeper and more complete assessment of the joint ventures in the country.
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1.4. Scope of the study
The study was focused only on the joint ventures in the Central part of Vietnam, mainly Thua-
Thien-Hue and Danang, the two major economic centers in the region. So it limits the
generality of the research findings.
The research did not deal with the issues of partner selection, negotiation, and termination
phases of the joint ventures. Instead, the study was focusing only on the joint venture
operational performance, based on the interviews and questionnaire data from the managers,
currently working in the joint ventures. Therefore, it limits the wholeness of the finding
information.
1.5. Organization of the report
The report is divided into six chapters. As principle, the first Chapter is an introduction to the
research study. The second Chapter is an extended literature review on the issues of joint
venture and joint venture success measuring. Understanding the joint venture and problems

related to its assessing would help easier understand the finding information.
In Chapter 3, an overview of the foreign direct investment in Vietnam is made to provide an
insight into the situations, in which international joint ventures are operating. Occupying about
70% of FDI projects, the joint ventures have actually played important roles in the economic
development of the country. Chapter 4 deals with the issues of the research methodology.
Conceptual and analytical frameworks are built to guide the research and support
understanding the research results.
Chapter 5 is the research result. It is subdivided into three sections. In the first section, the
questionnaire results are discussed to give an overall landscape of the joint venture
performance, based on the subjective information from the questionnaires. In the second
section, factor analysis was employed to find key success indicators and how they affect
operational results of the joint venture. And the last section is the interviews result of selected
managers from the joint ventures to address the operational problems related to the joint
venture performance.
In Chapter 6, important conclusions about the research finding are made to give an extracted
summary on the problems studied. Appropriate recommendations are also made for both policy
makers and businessmen interested in the joint venture and its issues. The author also makes
suggestions for further research.
Additional issues of decision making, communication, and conflict solving approaches are also
discussed in Chapter 6 to make clearer picture of the joint venture situations. Especially, a real
case of financial performance in a joint venture was also discussed additionally in the appendix
section as an illustration of the findings (see Appendix 1).
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Chapter 2
LITERATURE REVIEW
2.3. Joint Venture Concepts
According to Thorelli, a well-known specialist in International joint ventures issues, in a
rapidly changing world environment, firms should build networks “with a vast hierarchy of
subordinate, crisscrossing relations” (Thorelli, 1986). An important feature of the global firm’s
network is that partners may develop relationships between themselves and collaborate with

the market leaders. Alliances thus formed are seen as part of a process of strengthen the firm’s
position in an industry and are essential for its survival (Hakansson and Johanson, 1988).
A joint venture is formed when two or more firms form a third entity to carry out a productive
economic activity (Harrigan, 1985). A joint venture has also been defined as an equity
arrangement between two or more independent firms. This definition includes equity alliances
between two firms to organize production and marketing on a regional rather than a country
level. Joint ventures have increased in various forms and have become more strategic rather
than tactical in nature.
According to Czinkota, Rivoli, and Ronkainen (1989) joint ventures can be defined as “the
participation of two or more companies jointly participating in an enterprise in which each
party contribute assets, owns the entity to some degree, and shares risks.”
For many developing countries, joint venture is a very important method of technology transfer
to acquire and build necessary technological capability for the national industries. One of the
most important reasons for forming joint venture companies is to reduce the exposure to risk
associated with the development of new products and technologies (Harrison, 1987).
Many researchers have emphasized the importance of the joint venture as an appropriate entry
strategy to go abroad. For the purpose of evaluating the international joint venture, the
definition of Zeira and Shenkar (1990) is suitable because it encompasses the unique
characteristics consistent with most other definitions. According to the authors, an international
joint venture is “a separate legal organizational entity representing the partial holdings of two
or more parent firms in which the headquarters of at least one is located outside the country of
operation of the joint venture”. And this entity “is subject to the joint-control of its parent
firms, each of which is economically and legally independent of the others”.
According to Lane and Beamish (1990), a successful joint venture is a stable, healthy, and
profitable business relationship based on cooperation and two-way communication that meets
the needs of both partners over a long term, mutual condition.
Buchel and other authors (Buchel et al., 1998) argue that joint ventures “are clearly becoming
more popular as a form of cooperative arrangement, not only between partners from different
countries but also between companies operating in the same business area”. According to the
authors, joint ventures “are a form of cooperation, which stand between the traditional

mechanisms of economic coordination, that is market and hierarchy”.
Researchers have tried to categorize the various kinds of cooperative arrangement between
companies. The first important distinction to be made among the different kinds of cooperative
4
arrangement is between contractual arrangements and cooperative arrangements, which involve
exchange or contribution of capital, that is equity arrangements. Among the later, a distinction
may be made between cooperative arrangements, which lead to the creation of a new entity and
arrangements, which involve equity swaps. The extreme form of equity swaps is where the
cooperating companies are combined by means of merger and acquisition (Buchel et al., 1998).
Buchel distinguished joint venture and joint venture system. The former denotes the new entity
created by the joint venture’s partners, and the later means the whole structure of relationships
amongst the partner companies and the new entity. She argued that the relationships amongst
the partners are not necessarily all of a cooperative nature. It often happens that the partner
organizations cooperate in some areas but are competitors in others. According to the author,
an “effective joint venture management is characterized by continuous learning”. At the first
level, the important thing is to learn how a joint venture works, what are problems which may
arise, and what possibilities exist for organizing, guiding and developing in different areas. At
the second level, the aim is to recognize the way in which the joint ventures can be used to
enable the partner companies to learn.
2.2. Advantages and Disadvantages Of the Joint Venture
The reality of global competition today is that few companies possess all of the competitive
advantages that would enable them to be successful internationally. For firms in industrial
countries, prospects for future growth are increasingly seen as being disproportionately in
developing parts of the world, not in more familiar markets in the developed nations. But, for a
variety of reasons, doing business in developing countries is viewed as being considerably
riskier, to be approached with much more caution. Similarly, developing country markets are
becoming much more open to international competition, providing both opportunities and
dangers for domestic companies. To meet these challenges, managements are attempting to
position their firms to become more competitive. Thus, from the perspectives of both industrial
and developing country companies, the evolving global market calls for change from past

competitive practices.
Joint ventures have both advantages and disadvantages. They, on the one hand, may increase
rivalry while also eliminating competition among the participants of the venture. Joint ventures
can enable the participants to unify complementary technical and managerial capabilities to
perform projects whose requirements exceed the expertise and resources of any single firm. By
facilitating the transfer of know-how and technology, joint ventures also can improve the skills
of individual participants and thereby overcome barriers to entry and expansion in specific
markets.
Such collaboration may be particularly valuable in permitting firms to realize scale economies
for research and development by avoiding duplication of effort and assembling a critical mass
of resources and a higher level of investment in inventive activity.
Joint ventures also enable firms to spread the risk associated with financially ambitious
projects. If channeled in this manner, joint ventures can increase output and lower costs and
prices. For many companies in the developing countries, joint venture could help obtain also
investment capital and knowledge.
5
However, collaboration among direct rivals may discourage their independent pursuit of
promising approaches to enter new markets or develop new products. Such cooperation can
lead to direct price fixing or cause spillovers of cost, pricing and design information that
reduce the participants' inclination to compete aggressively against each other.
2.3. Motivation Of Creating a Joint Venture
The reasons for alliance of different partner companies may differ from each other. Harrison
divided the reasons by which a joint venture is formed into internal, competitive, and strategic
goals. These main reasons are summarized in Table 2.1
Table 2.1. Major reasons for joint ventures
Internal reasons:
• Spreading costs and risks.
• Safeguarding resources, which can not be obtained via the market.
• Improving access to financial resources.
• Benefiting from the economies of scale and advantage of size.

• Accessing new technologies and customers.
• Accessing innovative managerial practices.
• Encouraging entrepreneurial employees.
Competitive goals:
• Influencing structural evolution of the industry.
• Pre-empting competitors.
• Defensively responding to blurring industry boundaries and
globalization.
• Creating stronger competitive units.
Strategic goals:
• Creation and exploitation of synergy.
• Transfer of technologies and skills.
• Diversification goals.
Source: Adapted from Buchel et al., in International Joint Venture Management, John Wiley &
Sons (Asia) Pte., Ltd., 1998, pp. 16.
Other authors emphasize the role of a joint venture as gaining faster and easier access to the
local market and the distribution system; improving knowledge of the local economy, politics
and culture; gaining access to local human resources, including managers and labors; sharing
risks; and having preferential treatment (Swierczek et al.,1995)
While, for the local partners, the motivation may be others. Many developing countries seek
foreign investment in order to obtain capital, technology and managerial know-how. For most
developing countries, other benefits include an increase in employment and productivity levels
as well as the efficient utilization of scarce resources such as foreign exchange and imported
material inputs.
A joint venture may permit local enterprises to increase its competitive position in the local
market by upgrading its product line and obtaining technical assistance from foreign firms.
6
Joint ventures help the local firms gain easier access to technological information particularly
from industrially developed countries.
Moreover, through the establishing of the joint venture the local enterprise can bridge the gap

between its vast material resources and the technologies from the developed countries. Joint
ventures can be viewed as a means by which firms can learn to seek or retain their capabilities
of organizing a particular activity while benefiting the superior production technique of a
partner (Williamson, 1985).
2.4. Basic Types Of Joint Ventures
Theoretically, there are countless ways of using and constructing joint ventures. Based on the
existing literature and applications, which are common in practice, six types of joint venture
can be listed as in Table 2.2.
Table 2.2. Basic types of joint ventures
• Complementary technology: The partners combine their technologies to diversify their
product/market portfolios.
• Market technology: Combination of the market knowledge of one partner with the
production or product know-how of the other.
• Sales joint ventures: The producer and a local partner cooperate in an arrangement,
which is a mixture of independent representation and own branch.
• Concentration joint ventures: Competing partners cooperate to form larger and more
economical units.
• Research and development: The aim is to create synergy by making joint use of research
facilities and exploiting opportunities to specialize and standardize, combining know-how
and sharing risks.
• Supply joint ventures: Competitors with similar input need cooperate to safeguard supply,
reduces procurement costs or prevent the entry of new competitors.
Source: Buchel et al., International Joint Venture Management, John Wiley & Son (Asia) Pte.,
Ltd., 1998, pp. 17-18.
In terms of the equity participation by joint venture partners, joint ventures can be classified
into equity and non-equity joint ventures (Tomlinson, 1970). In practice, the equity form is
more common, which involves a financial investment by the partner companies.
Based on the relative strength of the partners involved in the joint venture’s mission, Lei and
Slocum (1991) classify joint ventures as specialization or shared value-adding ventures.
Specialization ventures are those, in which each partner brings and contributes a distinctive

competency in a particular value-adding activity. While in shared value adding joint venture
partners participate and share in the value-adding activity together.
Joint ventures can also be classified into dominant partner joint ventures, when only one of the
partners plays a dominant role in the decision making; shared management joint ventures,
where each partner play an active role in decision making; or independent joint ventures, where
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the joint venture’s general manager enjoys extensive decision making autonomy (Killing,
1983).
A distinction should be made between joint ventures that are limited in scope and number of
market participants (i.e., two or three firm joint ventures) and industry-wide, market-wide or
network joint ventures. The issues that are likely to arise are very different, and should be
handled differently, for each. In addition, it is helpful to distinguish generally between joint
venture formation and joint venture operation. Most of the case law and discussion in this area
revolve around the operation of the joint venture, rather than whether it would be permissible
for the parties to create a joint venture in the first instance. In all instances, the joint venture's
rules should be reasonably related to the justification for the venture. The venture should also
have appropriate safeguards to avoid spillover effects.
2.5. Problems and Issues of International Joint Ventures
Based on statistical data for a long period of time from 1970 to 1995 of the joint ventures
practices in the developing countries, Robert R. Miller and other co-authors made a deep
analysis to find out the critical problems, which the international joint ventures have faced.
These problems can be divided into two kinds: the problems of the joint venture negotiations
and the problems related to the joint venture relationships (see Table 2.3).
According to the authors, the evaluation of the assets each partner brings to the joint venture
during the time of their marriage is among the most difficult problems in the negotiation
process. It is often not a simple matter to evaluate just what these assets are worth. One side,
for example, may be bringing to the JV a going business, but one where no equity shares exists
in a secondary market. Another difficult valuation problem that exists in many developing
country joint ventures concerns new technology to be supplied, usually by the industrial
country partner, and which needs to be evaluated to determine an appropriate licensing fee

structure. Or, there is technology already incorporated in a product to be manufactured and sold
by the JV. These technologies must be evaluated before becoming the joint venture’s common
assets.
Another kind of problems relates to the transparency of the negotiation terms and conditions.
The authors argue that getting accurate data upon which to base valuations and other decisions
can be very difficult in some countries and with some companies. For example, one side or the
other may be a family enterprise in which accounting standards might be quite different from
internationally acceptable rules. According to the authors, transparency is a particular problem
in joint ventures being established in former command economies where there have been no
real markets for outputs, for supplies or for financial instruments. Available accounting
information means very little in such circumstances, yet somehow the joint venture partners
have to come to some mutually agreeable method of assessing the value of assets each side is
contributing.
Table 2.3. Areas of Problems in the Joint Venture
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Problems in Negotiations:
1. Valuation
2. Transparency
3. Conflict Resolution
4. Management Responsibility
5. Changes in Ownership
6. Financial Matters
Problems in Partner Relationships:
1. Multinationalities
2. Export Rights
3. Tax Issues
4. Dividend and Investment Policies
5. Difference in Partner Size
6. Ownership
7. Management

8. Cultural Problems
9. Market c Changes
Source: Robert R. Miller, Jack D. Glen, Frederick Z., “International Joint Ventures in
Developing Countries: Happy Marriages?”.
Conflict resolution is another kind of the joint venture problems. Many joint venture
agreements spell out in some detail just how disputes between the partners are to be resolved,
an apparent requirement that some parties on the developing country side often find
objectionable because they believe it displays a less-than-hopeful attitude toward the new
relationship. The authors suggested that agreement provisions may involve, at the extreme,
quite precise procedures to be used in dissolving the JV, and they are often the subjects of
intense negotiations.
Division of management responsibility is a very important issue in the joint venture as it is
closely related to the interests of the partner companies to enter the venture. The question of
who is to manage the new enterprise is decidedly not a simple matter to resolve, and it is one
not necessarily dependent upon which partner maintains majority control. Agreements can be
quite specific both on this issue and on the issue of the joint venture management
independence. These issues are sufficiently important to companies that many will wish to
insert veto restrictions into the joint venture agreement to assure that actions cannot be taken
without explicit approval from one or both partners.
Problems related to changes in ownership are also common in the developing country joint
ventures. The authors have found particularly important issues when one partner or the other
increasingly setting a question of forming the procedures to be followed in changing the
ownership structure as the JV matures. According to the authors, this becomes an important
issue because it impinges on a number of other operational matters and is quite simply,
recognition of the reality that few joint ventures remain unchangeable over their duration.
Although it is probably sensible to handle the matter early on, rather than suddenly confronting
the need sometime later without clear guidance, the issue obviously is not one that yields to
easy solution. Developing country partners especially can be leery of such provisions, because
9
they see them as their potential death warrant when the industrial country partner, for one

reason or another, wants to take full control.
After all, dividend policy and other financial matters are found to be controversial issues of the
joint venture. Dividend policy goes to the heart of the reasons why companies enter joint
ventures, with some companies hoping rapidly to expand and gain market share while others
strive to gain a quick cash flow to support other operations or, in the case of closely held
companies, possibly for personal reasons. A number of other financial issues come up in
negotiations, of course, some of which can be the cause of consternation on one or both sides.
The authors have also found key problems affecting the relationships between the joint
venture’s partners. According to them the main reason for problems of this kind was the
multinationality of the joint venture. The reality of many joint ventures in developing countries
is that they involve more often than not large multinational companies (MNCs) which have
under their purview a mix of other joint ventures and wholly owned subsidiaries elsewhere in
the world. This contrasts with the developing country firm, which may be quite large by local
standards, but not in comparison with its partner. The upshot of such differences is that the
business perspectives of the two (or more) companies can vary substantially, and this
variability can be at the root of relationship problems later in the joint ventures life.
The first problems of the joint venture relationship relate to the export right. Exporting
sometimes represents a fundamental difference between industrial and developing country
partners and, again, it is an issue difficult to reconcile satisfactorily. Not infrequently, the
industrial country company is a multinational corporation with operations and sales in a variety
of countries. Typically, it will not want to allow the joint venture to be free to export products,
possibly of inferior quality, into markets that may already be served from other manufacturing
points in its system. The MNC looks upon the joint venture as one piece of a complex global
web, and it is not likely to allow that single piece to dictate its own policies where other pieces
or, indeed, the web itself might be compromised. The rule in such situations is for the MNC to
put strict limitations on the rights of the joint venture to export.
The developing country partner, on the other hand, typically has much different ideas. Here the
expectation is that as new technology is brought in and the joint venture absorbs
product/process technologies, exports might provide a natural market for expansion. Indeed,
increased exports might be a primary reason for the developing country side to have entered

into a joint venture agreement in the first place.
Taxation is another source of the relationship problems. The authors found that part of the
optimization process undertaken by the MNC would cover its worldwide tax burden which, all-
else equal, it would wish to minimize. Such a tax minimization strategy can affect dramatically
relations with the joint venture, particularly when the joint venture either imports parts and
components from the MNC or, as is usual, exports products through the MNC parent. The
MNC in these circumstances will be very aware of transfer prices between JV and parent, and
it may attempt to manipulate that price to lower its taxes. For example, if taxes are
considerably higher in the joint venture’s country of operations than in the MNC’s source
country, then there will be a temptation for the MNC to raise transfer prices to lower profits in
the joint venture
Problems of dividend policy and investment are also found to be in the center of the joint
venture argument. The authors discovered that where these policies are not spelled out in the
10
agreement, differences could be very difficult to resolve. The problem is that the MNC may
have global investment programs that involve the transfer of funds from one region to another.
It might in these circumstances much prefer dividends to reinvestment within the joint venture
a position not necessarily compatible with its joint venture partner’s view. The opposite
problem occurs as well, where the MNC might be quite content to delay dividends in favor of
faster expansion and the local partner demurs.
Another set of problem areas relates to the differing size of the two parties in the joint venture.
In relative terms, the local partner is likely to be considerably smaller than the MNC and,
according the research finding, this difference can cause difficulties during a joint venture
initial, often high growth, years. The local partner may have difficulty coming up with the
necessary capital infusions to support the expansion.
One of the important issues of the joint venture relationship is the problem of ownership. The
desirability of having the operational management of the joint venture independent of either
partner has been a problem arising in negotiating JV agreements. The research found that when
the joint venture is not established in a way that would allow for that independence, one could
expect those relationship problems would emerge fairly quickly. Often this happens when the

industrial country partner desires, for one reason or another, to limit the joint venture’s
operations in ways, which would make it roughly equivalent to a wholly owned subsidiary.
The authors argued that unless such an arrangement had been agreed to early on, it would
cause inevitable problems between the partners later in the joint venture’s life.
Related to ownership problems, but in some ways quite distinctive, are a series of difficulties
that can occur in controlling the enterprise. The research found that product line disputes are
among the more common of these problems. According to the researchers, these raised
generally because the conditions that existed when the JV was formed change and, because of
the change, alter the perspectives of one or the other partner
Another common source of disagreement has found to be when dealing with sourcing raw
materials, parts or components. In this case, the JV agreement can specify in detail that certain
materials are to be sourced from the industrial country partner. Aside from the transfer pricing
issues that such sourcing raises, the original conditions that made the sourcing provision in the
agreement seem logical can change. Over time and as economic development takes place, local
sources may become available which are, possibly, lower in cost and at least as high in quality.
These sources obviously would be attractive to the joint venture’s management. But, the
MNC’s view could be different, because it might benefit more from retaining the original
agreement and continuing to produce the materials for the joint venture.
Partly, the problems are caused by the obvious fact that the two (or more) partners come from
much different cultural backgrounds, and individuals may see the same set of circumstances in
quite different ways. But, there are other dimensions to this cultural gap that are important as
well. Corporations themselves have "cultures" which condition how people view their
environment and how they interpret issues. This factor is one of the primary reasons why joint
ventures established between industrial partners from the same country and even the same
industry often run into trouble.
Finally, joint ventures are exposed to ever-changing panoply of forces that shape and direct
outcomes. The changing environment within which the joint venture operates also alters
11
partner relationships in ways which can sometimes cause stresses that are difficult, and at times
impossible, to resolve. Summarized below are a few cases that arose repetitively in interviews.

The researchers found that the most common cause of change-related problems is the fact that
experience in a joint venture results in learning, and learning can modify how one views the
contributions of one’s partner. This seems particularly true for managements with little foreign
experience, who might feel uncomfortable about their level of understanding with respect to
government relations, labor recruitment and management, or marketing and distribution
techniques. Thus, according to the authors, these aspects are a primary source of comparative
advantage to the local partner when the joint venture is formed.
However, as learning takes place over the years, this advantage begins to erode, and the MNC
side may begin to feel more confident about its abilities to handle these issues. Put slightly
differently, the MNC may come to believe that the contributions being offered by the local
partner are no longer commensurate with his rewards. At such a time, pressure will begin to
mount for a change in the joint venture’s ownership structure to provide more equity to the
MNC.
Changing circumstances not anticipated when the JV was formed could also cause problems in
the joint venture relationship. While both sides to the agreement might agree that the relevant
provisions no longer work properly, making the necessary modifications to the agreement in a
going operation can be quite taxing. One side or the other may have made commitments in
other parts of their operations that are difficult to alter.
2.6. Measuring Success in the Joint Venture
5.1.1. Problems in measuring success of joint ventures
According to Baird, Lyles, and Reger (1993), there exist three factors, which make it difficult
to judge the success of joint ventures. The first obstacle is the cooperative context of the joint
venture. A cooperative venture involves different levels and different partners, which often
have different interests, different technological capability, and different management styles and
practices. The assessment is therefore must take into account the interests of various partners,
the changes in the relationship and behavior between the partner companies, as well as the
learning effects to the joint venture and each partner of it.
The second obstacle is derived from the fact that the objectives for the joint venture are often
not defined clearly enough, and where it is the case, it will obviously difficult to decide
whether they have been met or not.

The third obstacle is that many joint ventures face especially high levels of uncertainty with
regards to technologies, products or markets. This further reduces the meaning and validity of
short term, quantitative indices of success and puts obstacles in the ways of a traditional
success measurement based on the stable company performance.
5.1.2. Theoretical aspects of measuring success in joint ventures
There are different approaches to assessing the success or failure of an organization. Each
approach has its advantages and disadvantages. Geringer and Hebert (1991) examine joint
venture performance by objective and subjective measurements. Subjective performance
12
measures each parent’s satisfaction with the joint venture’s overall performance, while
objective performance is measured in three ways: survival, stability, and duration of the joint
venture.
Daft (1992) describes three major approaches to measure success based on results, processes or
the ability of an organization to acquire certain scarce resources.
The result-oriented success measurement is based on output dimension that is related to the
goals of the transformation process. The success of a joint venture is measured in terms of
whether, or how far, certain objectives are met. The most important of these are usually
profitability, growth, and market share, but other aims are also significant, for example quality
objectives, number of new products, research findings, stability, and satisfaction.
Process-oriented success measurement is based not on specified output goals, but on an
evaluation of the company’s internal transformation processes. The output and process
dimensions are usually closely related. Effective and efficient transformation processes often
enable a company to be successful in terms of results.
Resource-oriented measurement is based on the company’s ability to obtain scarce resources
from the environment. This approach is used primarily when output is difficult to define and
evaluate. Research institutions and universities, for example, often consider the level of
technological equipment or the number of well-known and respected scientists and professors
as their success criteria.
Picking out individual levels or viewpoints when trying to form a complete picture of the
success of a cooperation, however, is not adequate. On the other hand, it is neither feasible nor

meaningful to work systematically through all possible levels and viewpoints. Buchel and
others (1998) employ a multidimensional approach for measuring success of joint ventures,
which is practicable in the routine context of the ventures. According to the authors, the
assessment should be both easy to use and able to cover different levels, stages, interests and
contexts of the joint venture.
The international joint ventures should be adjusted not only on the short-term objectives, but
also the long-term perspectives. The traditional methods of evaluating the success of
cooperative ventures are all based on economic, strategic or behavioral perspectives (Probst et
al., 1994). Buchel and others emphasizing the role of joint ventures as institutional learning
tools suggest that learning perspective is also needed to be assessed (Buchel et al., 1998).
The economic approaches are in principle output-oriented with the purpose of deciding
whether the cooperative venture is increasing the value of the partner companies. The
economic approach to success judgments is based on the theory of financial and capital
markets and involves examining variables such as free cash flows, returns on investment, net
yearly profit, and increase in the shareholder’s value. Typical criterion for evaluating a joint
venture includes decrease in unit costs through better use of production capacity or increase in
turnover as a result of a sales cooperation in a growing market.
From the strategic point of view, the important criteria for the joint venture’s success are
company size, product-market combinations, market share, competitive position, advantages
based on research results and a strong position on the distribution and procurement markets. A
further criterion is the extent to which the cooperation yields synergies between the partners or
between the joint venture and one of the partners. The strategic approach places more emphasis
13
on core competencies and on strategic focus, which each company has adopted, or wants to
develop. Like the economic perspective, the strategic perspective is also primarily based on the
output criteria. But it is different from the economic perspective from the strategic point of
view that considers the output in the longer time rather than in the short-term period. Typical
criteria of the strategic perspective are the safeguarding of particular resources, assess to new
kind of technology, or increasing the company’s competitive strength by using the special
know-how of a partner.

Joint ventures are also expected to improve the relationship between partners. The behavioral
perspective emphasizes the behavior of the participants in their cooperative relationship. In
this point of view, the essential indicators include the development of a separate culture and
identity, the ability to deal with conflicts and continued survival versus premature dissolution
of the joint venture. Building the joint venture’s culture to increase trust, commitment and
sensemaking of the partners is very important for them so that they can make use of the full
synergy for the purpose of the joint venture. The behavioral perspective is, therefore, is
emphasizing the processes within the joint venture system, rather than the output criteria.
Generally, it can be said that the traditional approaches allow us to make relatively
comprehensive assessments of the success or failure of cooperative ventures. However, they
omit an aspect in which both company managers and business theoreticians are now paying an
increasing attention (Probst and Buchel, 1994). This is the concept of learning. Building a
learning organization that allows the company to consistently reviews its own weaknesses and
strengths and its prevailing patterns of activity, whether it acquires “implicit knowledge”, and
whether it increases its ability to learn, is very important for it to achieve the corporate mission.
The learning view of success and failure combines a result-oriented approach with a process
approach. It takes into account on the one hand the acquisition of knowledge and the
attainment of learning goals, and on the other, the learning processes which support these ends
(Buchel et al., 1998).
Chapter 3
14
FOREIGN DIRECT INVESTMENTS IN VIETNAM
3.1. Foreign Direct Investment
During the period from 1988 to 1998 foreign investors promised to invest $37 billion in
Vietnam, of which about $14 billion have actually been implemented. The growth of FDI into
the country was very high at the first half of the period after a legal framework for foreign
investment was put into practice since 1987, especially when the U.S. embargo was lifted in
1994, with an average rate of about 45-50 percent per year.
Figure 3.1. Trend of Foreign Direct Investment for the period 1988-1998
Source: Vietnam's Statistics Yearbook 1997

MPI Report No. 11BKH/KCN Jan. 2, 1999
In the last several years, however, there has been observed a trend of a considerable reduction
of the foreign direct investment into the country (see Figure 3.1). In 1998, about 260 foreign
direct investment projects were licensed with a total registered capital of US$4.06 billion. In
addition, 133 projects were approved to increase their operating capital with the amount of
US$769 million. Therefore, at the end of the year, a total of US$4.83 billion of direct foreign
investment capital were registered. The growth rates of FDI flows for 1997 and 1998 were
negative with minus 33% and minus 13.9% respectively. For the entire period, the average
number of projects licensed is 223.5 per year, with an average growth rate of 21.5%. Every
year, $3.4 billion FDI was promised to be invested in Vietnam, with an average growth rate of
29.2%.
So far, more than 700 companies from over 60 countries have been undertaking foreign direct
investment projects in Vietnam, leading by Singapore, Taiwan, Hong Kong, Japan,
and South Korea. The investment from these countries account for about more than half of the
total number of the projects (56.4%) and 60% of the total capital registered.
15
0.00
50.00
100.00
150.00
200.00
1988 1990 1992 1994 1996 1998
Year
Average size of a project (in million USD)
Growth in the number of projects (%)
Growth in the capital registered (%)
FDI from Japan, the USA, Western Europe, and South Korea tend to increase rapidly and it is
forecasted that these countries become leading investors in Vietnam in coming years, which
reflects the positive results of the Government policy in diversifying the relations and
cooperation with all countries in the world.

From these FDI investments, Industry, Oil & Gas, and Construction sectors accounted for
56.3% number of projects and 46.6% investment capital; Hotel, Office Space Business,
Transport and Communication, and Postal Service - 9.8% number of projects and 13.6%
invested capital; Agriculture, Forestry, and Aquaculture - 15.4% number of projects and 5.2%
capital investment. In general, FDI projects have been concentrated in highly profitable sectors
of the economy, such as Hotel & Tourism and Services, especially in Export-Processing Zones.
Although Agriculture is a sector, which has a high need of FDI, but in fact, the capital invested
there is very small, mainly food processing, shrimp plantation, reforestation, forage, and sugar
cane production projects.
Figure 3.2. Foreign Direct Investment Structure by Sectors (in percentage).
Source: VIR, VET, and MPI Annual Report, 1999.
The implementation of the FDI projects was also a problem, needed to be discussed. For the
period 1988-1998, more than 80 per cent of the projects have been implemented, but only one
third of the registered capital actually realized.
With the exception of Oil and Gas sector, which has the implemented capital exceeded the
registered amount, and Financial and Bank sector, which have implemented most of the capital
registered, other sectors have only implemented less than half of the capital originally licensed.
16
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Agriculture
Fishery
Oil and gas
Heavy Industry
Light Industry

Construction
Tourism
Services
Transport
Finance
Culture & Education
Economic Sectors
The worst situation has been with Agriculture and Fishery, where only about half of the
projects and 11-13 % of the capital has been implemented.
Table 3.1. Licensing new projects and capital raising in 1997-1998
Unit 1998 1997 98/97
(%)
I. New projects
Number of projects
Capital
Of which:
Licensed by MPI:
Number of projects
Capital
Licensed by local People’s Committees:
Number of projects
Capital
Licensed by the management of IZ:
Number of projects
Capital
Licensed by the management of EPZ:
Number of projects
Capital
II. Capital raise
Number of projects

Capital
Total
Project
$U.S. million
Project
$U.S. million
Project
$U.S. million
Project
$U.S. million
Project
$U.S. million
Project
$U.S. million
$U.S. million
260
4058.6
86
3537.8
120
254.6
48
221.6
6
44.6
133
769
4827.6
331
4514.0

229
3998.9
59
144.5
42
259.3
15
64.4
143
1095
5609.0
78.5
89.9
37.6
88.5
203.4
176.2
114.3
85.5
40.0
69.3
93.0
70.0
86.1
Source: MPI Report No. 11BKH/KCN Jan. 2, 1999
At the end of 1997, the Government signed an ordinance to give the Hanoi and HCM City
Authorities the power to license foreign invested projects up-to $30 million tripled the $10
million limit set in June 1997. The Government has also recently empowered the local People’s
Committees and Management Boards of the Export & Processing Zones and Industrial Zones
to license FDI projects, especially the small and medium ones. This is a significant effort of the

Vietnamese Government in encouraging FDI into the country.
17
In 1998, the local People’s Committees gave licenses for 120 FDI projects, increased 203% in
comparison with the number of projects they licensed in 1997. This reflects the
decentralization in the FDI licensing of the government. The more detail information about the
foreign direct investment in 1997 and 1998 is shown in Table 3.1.
3.2. Important features of FDI in Vietnam in 1998
In 1998, foreign direct investments in Vietnam have some important changes in terms of
structure, location, and investors.
The investment structure has considerably been changed to meet the requirements of the
industrialization and modernization process of the country. From the newly licensed project in
1998, one hundred and ninety three were in the manufacturing sectors, accounted for 74.5%,
with a capital of $2.828 billion, accounted for 71% of the total FDI in the year.
The investment location has also been improved. Number of projects in rural and remote areas
has considerably increased. Thirty-five projects with total capital of $102 million were invested
in agriculture and fishery in the year. These projects are mainly food processing, production of
seeds for export, flower, tea, forage, and shrimp production. This is important for creating
more jobs, developing and exploiting natural resources in rural Vietnam.
Due to the financial crisis in the region, FDI from the ASEAN countries have sharply reduced.
In 1998, these countries have 47 projects with total registered capital of $925 million,
accounted for 22.8%, of which, Singaporean companies promised to invest $893 million, while
all others countries invest less than $32 million.
Other countries in the region, less suffered by the financial crisis have maintained their
investments in Vietnam. In 1998, Taiwan has 67 investment projects in Vietnam with $253
million, the same level of 1997 and Hong Kong has 23 projects with $225.3 million, 91.14%
compared with the level of 1997. The direct investment from the European countries to
Vietnam has strongly increased in 1998. These countries have received investment licenses for
66 projects of $2.1 billion in the year, accounted for more than half of the total FDI in the
country.
The total revenue of the FDI projects in 1998 was about $3 billion, 27.7% increased in

comparison with 1997. These projects contributed $320 million to the government budget
through tax obligations, an 1.6% increase compared with 1997 (The Government considerably
reduced the price of land licensing and regulated tax priorities for FDI projects in the year).
The export from these projects, excluding the oil sector, was about $2 billion, 11.7% increase
compared with 1997 and accounted for more than 20% of the total export value of the
economy in the year. In 1998, the foreign invested projects imported $2.656 billion, which was
only 91.9% of the 1997 level. This on the one hand, reduced the export deficit in the year, on
the other hand, may slow the investment implementation progress in 1999. Foreign invested
projects accounted for about 23.5 per cent of the national industrial value compared with 20.6
per cent in 1997 and 21.4 per cent in 1996.
Table 3.2. General information about FDI projects in 1998
Newly licensed projects 260 projects
18