developing domestic suppliers of electronics in vietnam the case study of canon vietnam’s strategy

0 DISSERTATION ABSTRACT DEVELOPING DOMESTIC SUPPLIERS OF ELECTRONICS IN VIETNAM: THE CASE STUDY OF CANON VIETNAM’S STRATEGY DOCTOR OF BUSINESS ADMINISTRATION BY DBA. Candidate: TRAN XUANNGOC (RONALDO) Scientific Adviser: Dr. EDUARDO T.BAGTANG November, 2013 1 PREFACE The general objective of this research is to find out the theoretical reasons and practical evidence proving that the subsidiaries company (Canon Vietnam) can influence on the development of local suppliers’ capacity in order to promote the competitive advantages and expand production. This study focuses on the following specific contents: 1. Profile of the subsidiaries; 2. Autonomy of the Subsidiaries; 3. Knowledge transfer strategies; 4. Competitive advantages of the subsidiaries in Vietnam that can help develop local suppliers; 5. Government policies towards developing local or domestic suppliers’ capabilities. CHAPTER I: INTRODUCTION 1.1. Background of the Study In the manufacturing industry, Electronics industry is highly representative for a developing country with a large population as Vietnam. On the domestic market, the supply businesses in Vietnam are of much weaker position than firms with foreign capital investment. In terms of the value chain, the electronics industry of Vietnam mainly assembles consumer products, focusing on the stages with low added value. Very few companies produce detailed parts and accessories in electronics. The assembling phase is mainly toward cheap labor, but this is not possible advantage to gain a long-term health. In the context of a group of electronics manufacturers closed their plants in Vietnam, Canon Vietnam is a different case. For over 10 years, Canon Vietnam has been continuously expanded their production, especially effectively building a network of local suppliers. 2 The topic of "Developing Domestic Suppliers of Electronics in Vietnam: The case study of Canon Vietnam’s strategy" is meaningful and useful for managers of multi-national companies in electronic field when considering invest or now operating in Vietnam, the firms who are now providing electronic domestic products the Vietnam Policymakers. 1.2. Statement of the Problem The recent state of electronics industry in Vietnam revealed problems of competition of local suppliers with foreign suppliers. Local suppliers of Vietnam are much weaker when compared to the foreign suppliers. Foreign investors import most of the components of the electronic products; hence, the local suppliers can no longer compete with them even with their cheap labor. This situation limits the development of electronic industry in Vietnam. 1.3. Objectives of the Study The overall objective of the study is to determine factors that can help develop the capabilities of local or domestic suppliers in Vietnam. 1.4. Significance of the Study Basically, multinational companies competing on the international market have to deal with the changes of the local environment. Building an efficient network of domestic suppliers by transferring technology, developing existing relationships, helping these suppliers involve in the value chain, improving the key elements of local environment will help multinational companies promote their 3 strength. This is important for leaders to review and adjust the orientation 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. In fact, the industrial development policies of Vietnam government are usually considered in a wide range of various types of electronic companies. The role of multinational ones is underestimated. Focusing on Canon Vietnam, this study will explore the role of a large company in accelerating the development of domestic suppliers. The results of this study will help domestic suppliers determine needs of multinational companies, adjust their operation strategy, improve capacity and competitiveness. This study will be the important reference source for local supporting industries. Students and researchers can use this study as reference for future studies. CHAPTER II: REVIEW OF RELATED LITERATURE AND STUDIES 2.1. 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 4 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 to develop simultaneously efficiency, responsiveness and learning as strengths for success. 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 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). One of theoretical frameworks to identify the interaction of the MNC and the host country is the diamond of competitive advantage of nations (Porter, 1990). It is based on four country-specific determinants and two external variables that are chance and government. The four determinants are factor condition, consumer demand, suppliers, and firm strategy and structure and nature of domestic rivalry. The four determinants and the two external forces interact in the diamond, with the nature of a country’s international competitiveness depending on the type and quality of these interactions. 2.2. Local Suppliers of Electronics With policies of reforming and calling for foreign investment, Vietnam’s electronics industry has changed as many foreign companies 5 invested in component production for export and for foreign companies operating in Vietnam. Products are like passive components, metal cluster details, tubes, plastic, and parts of printers, computers. The annual growth rate of the industry is 20-30% per year. Factor affecting the electronics supporting industry in Vietnam are summarized in the following table: Strengths - An abundant and fast-learning workforce and rather good electronics staff - Relatively-low labor costs - A potential domestic market with a big population - Good resources of materials to develop the electronic materials technology Weaknesses - Limited production capacity - Dependence on external materials providers - Low competitiveness of products - Lack of information on the world market Opportunities - A favorable position in the arc of East Asia, where to develop electronic products of the world - A completing law system in accordance with international practices Threats - Stiff competition from China and ASEAN countries which have a developed electronics industry - Other competitors’ domination of the domestic market 6 Table 1: SWOT Analysis for the electronics industry of Vietnam 2.3. Factors affecting the development of Suppliers a/ Role of government Policies of Industry Development. In accordance with the standpoint selection, the government will decide the national policies relating to supplier industries say: localization, taxation on import and semi-product and component production; science and technology investment for supplier industries; laws, standards and specifications for sectors and product lines in supplier industries… That these policies enhance or inhibit the development of supplier industries depends on the orientation of the government on this issue. b/ The growth of multinational corporations It is clear that the multinational corporations play a special role in developing supplier industries. A traditional multinational corporation is a firm in a country, which has branches abroad. Today, multinational corporations mainly locate in a country and have foreign partners. In general, the trend of multinational corporations is outward, setting business strategy based on leveraging the competitive advantages and market differentiation in each region and each country. A special feature is that they standardize activities around the world in all areas of business, but meet the different local demands when necessary. This is made through alliances, technical agreements, marketing agreements, research collaboration, and cooperate development programs Multinational corporations’ investment is usually followed by subsidiaries, auxiliary component manufacturers, or core suppliers (Ernst D, 2004). Thus, multinational corporations not 7 only help modernize an economy but also create competitive advantages for the country as well as social contributions. However, suppliers might also become dependent on multinational corporations because their products cannot be sold to final consumers. Due to this, a downturn or recession often leads to the bankruptcy of many suppliers. Governments often make policies to reduce this dependence, however, this risk is unavoidable. Thus, there are not only multinational corporations manufacturing final products but also those supplying components and accessories. Such suppliers master high technology and have sustainable cooperation with large firms. They are usually important sub-level suppliers of core or first-level suppliers. These suppliers ensure to supply important parts and production phases in the production network (Jones and Kierzkowski, 2005). The development of electronics depends largely on electronics multinational corporations worldwide. Although multinational corporations have a production and distribution network in many countries, strategies of their subsidiaries in each country have a huge impact on the ability of component production at assembly sites. (i) Multinational corporation with domestic orientation. In the consumer industry, subsidiaries that produce bulky products such as TVs, washing machines, air conditioners tend to strongly orient to the domestic market. These corporations are often strongly motivated to localize or use avaible infra-technology of the host country. In addition, they tend to localize some stages such as molding, stamping, plating Plants are often built at the sites of service supply because of frequent changes in models and quick response from these stages. 8 (ii) Multinational corporation with global orientation. There are more and more subsidiaries of multinational cooperation that take advantage of production in the host country but direct to the world market. Such multinational corporations are often found in audiovisual industries (JBIC, 2004). Plants are built far from consumer market partly because of slower increase in demand for these products than that of consumer products. In addition, audio equipment and peripheral electronics are relatively small in size, consume less material and very popular all over the world, such as semiconductors, IC, resistors, wire so that they can be easily transported anywhere in the world. Thus, even if the target market is domestic or international, multinational corporations are always motivated to localize components with bulky size and heavy weight such as plastic cases, metal, casting, molding tools. Branches towards local market have higher demand for localization than ones with export orientation. The Factors of subsidiary affect to the development of local Suppliers: the profile of subsidiary; the autonomy of subsidiary; the Knowledge transfer from Subsidiary company to local suppliers and the competitive advantages of the subsidiary that can help develop local suppliers. 9 2.4. Conceptual Framework Input 1.Subsidiary company’s profilein terms of: 1.1. Company culture 1.2. Organizational Structure 1.3. Operation Scale 1.4. Operation duration at the local 1.5. Number of local suppliers 2. Autonomy of Subsidiary company? 2.1. R&D 2.2. Financial Management 2.3. Marketing Strategy 2.4. Production Strategy 2.5. Production Process 2.6. Supplier Selection 3. Knowledge transfer from Subsidiary company to local suppliers? 3.1. Absorptive capacity 3.2. Responsiveness 3.3. "Hands-on" approach to transfer knowledge 4. Competitive Advantages of Subsidiary company? 4.1. Production Capacity 4.2. Capacity of Design and Renewing 4.3. Technology of production 4.4.Qualifications of Management 4.5. Price policy 5. Government policies towards developing local or domestic suppliers’ capabilities? 5.1. Protection of domestic production (import tax…) 5.2. Priority to electronics industry (incentives, production tax…) 5.3. Central Management Unit 5.4. Set up standards of quality and components 5.5. Reducing the gap between policies and implementation Process 1. Assess the CVN’s profile 2. Assess the Autonomy of the CVN 3. Assess the Knowledge transfer strategies of the CVN in the following: 4. Assess the competitive advantages of the CVN in Vietnam 5. Assess the Government policies of Vietnam Output ! ! ! ! ! ! ! ! ! ! Develope d Capabiliti es of Local Suppliers of Electronic s products Feedback [...]... affecting the development of local electronics suppliers under the autonomy of subsidiaries with the judgment of the management of the Canon and domestic suppliers The manager of Canon and domestic suppliers all agree or strongly agree that R &D; Financial Management, Marketing Strategy, Production Strategy, Production Process, Supplier Selection have tremendous 16 impacts on the development of local electronics. .. Assessment of the Subsidiary’s Autonomy by the Canon Vietnam Employees and the Local Electronic Suppliers Employees Table 10 reflects the factors affecting the development of the electronics suppliers in the local autonomy of subsidiaries according to the staff of Canon and domestic suppliers The table above shows the Canon staff and local providers consent or strongly agree that R &D; Financial Management,... enterprises involving in policy-making phases Vietnam needs the participation of businesses in the process of finalizing policy, especially private sector These businesses should be regularly invited to meetings for policy comments and recommendations held by the Ministry of Industry and Trade and other ministries The enterprises in different manufacturing phases have different expectation to the Government... Assessment of the Subsidiary Profile by the Canon Managers and the Local Electronic Supplier Managers Table 7 reflects the factors that affect the development of the local electronic suppliers under the subsidiary companies’ profile as 14 perceived by the managers of the Canon Vietnam and the domestic suppliers Of the five factors, the Company culture close as Vietnam Company culture and the Organizational... multicollinearity phenomenon of the variables in the model, although exists, is at a low level Therefore, Model 4 is selected The model reflecting the capacity development of the local suppliers in electronics industry is as follows: DCLS = 0.984 + 0.302 * (KT) + 0.282 * (CA) + 0.130 * (AC) + 0.1 * (GP) + ε In the four factors affecting the capacity development of the local suppliers in electronics industry,... electronics suppliers according to the competitiveness of subsidiary companies under the judgment of Canon and local suppliers' managers 19 The results show that Canon managers are wondering about the factors affecting Production Capacity with the rating of 3.38 but the management of local businesses agrees with 4:00 The remaining elements such as Capacity of Design and Renewing; Technology of production;... 5.1 Summary In this study Canon Vietnam and the local electronic suppliers are the main subjects In the first chapter the authors has claimed the research hypothesis based on the context and objectives of the study Chapter 2 is a collection of external and internal research papers related to the research model Research methodology and data sources are presented in Chapter 3 Case study with interviews... development, In Vietnam, the way businesses engage in the policy process also needs to be strengthened 27 5.3.2.4.Reinforcing the involvement of the business community to improve the development of industrial support policy The Government could not directly support enterprises but through associations to implement trading promotion, research supporting program In Vietnam, we should also reinforce the way... local suppliers of Canon Vietnam, employees of suppliers of canon 3.4 Subject of the study The study made used of the questionnaire-checklist method as its primary data-gathering tool The questionnaire was pre tested to 5 of respondents, after which, said responses were analyzed statistically using the KuderRichardson Test of Reliability This is to establish the validity and reliability of the questionnaire... long-term business commitment in Vietnam made by Canon Subsidiary of Canon plays a significant role in the development of these local suppliers and vice versa, that is the improvement of local supplier network helps Canon Vietnam to increase competitiveness against its rivals 5.3 Recommendations 5.3.1 Recommendations for Businesses 5.3.1.1 Changing perception of the managers and staff of local suppliers . local suppliers. 2 The topic of " ;Developing Domestic Suppliers of Electronics in Vietnam: The case study of Canon Vietnam s strategy& quot; is meaningful and useful for managers of multi-national. DISSERTATION ABSTRACT DEVELOPING DOMESTIC SUPPLIERS OF ELECTRONICS IN VIETNAM: THE CASE STUDY OF CANON VIETNAM S STRATEGY DOCTOR OF BUSINESS ADMINISTRATION BY DBA. Candidate:. groups of respondents, namely: Canon Vietnam manager, Canon Vietnam employees, managers of local suppliers of Canon Vietnam, employees of suppliers of canon. 3.4. Subject of the study The study