Final Research (3)

One year after the Sixth Congress of the Vietnamese Communist Party adopted the Doi Moi policy in 1986, the Law on Foreign Investment was approved. Thanks to the incentives it offered and the economic potential of the country, the number of foreign direct investment (FDI) projects in Viet Nam has been significantly increasing

Chapter Introduction 1.1 Rationale One year after the Sixth Congress of the Vietnamese Communist Party adopted the Doi Moi policy in 1986, the Law on Foreign Investment was approved Thanks to the incentives it offered and the economic potential of the country, the number of foreign direct investment (FDI) projects in Viet Nam has been significantly increasing The Joint Venture (JV) has emerged as the most preferred form of foreign investment by foreign investors This is demonstrated by the high number of JV projects and the total investment capital among other forms of FDI From 1988 to 1995, the total JV projects are 1,031 and the accumulated investment capital occupies 70% total capital of FDI However, during the first six months of 1996, the number of joint venture projects has been decreasing (VIR, 19-25 August 1996) There are signs that foreign investors are consciously shifting to other forms of FDI in Viet Nam Although there have already been several studies on JVs in Viet Nam, they have mainly focused on the implementation phase such as managerial problems, conflicts between partners or human resources issues in JVs As a matter of fact, the pre-investment stage is equally important in which most decisions for investment have been made It deserves, therefore, more scrutiny in order to better grasp the current situation of FDI in Viet Nam 1.2 Problem Statement of the Study The decreasing trend of the joint venture form in the current inflow of FDI has become a serious concern of the Vietnamese government It needs to be thoroughly analyzed and relevant solutions should be developed in order to ensure a sustainable success of the doi moi policy 1.3 Objectives of the Study The objectives of the research study are: To identify the factors which make investment attractive and unattractive to foreign investors in Viet Nam in choosing joint venture form To determine the difficulties or problems for foreign investors in forming JVs in Viet Nam To provide recommendations for the Vietnamese authorities, the Vietnamese partners and the foreign investors with a view to improve the investment environment in attracting foreign investors choosing JV form 1.4 Research Methodology 1.4.1 Information Needs -1- To achieve the objectives of the study, the following information were needed to be collected: • The government regulations concerning foreign direct investment in Viet Nam, especially joint ventures (secondary data) • The favorable and unfavorable factors for foreign investors forming joint ventures in Viet Nam (primary data) • The difficulties or problems for foreign investors forming joint ventures in Viet Nam (primary data and secondary data) • Opinions on how to improve the investment environment for foreign investors forming joint ventures in Viet Nam These were collected from foreign investors, Vietnamese partners, as well as from the business experts/consultants and government policy makers (primary data) 1.4.2 Data Collection Methods The information needs were collected from: a Secondary data: a desk research on the FDI was carried out This exploratory study was mainly based on the secondary data which were available in various newspapers, magazines, official documents b Primary data were obtained from in-depth interviews with business experts/consultants of CESAIS (Centre For Economic Studies and Applications), government officials in Ho Chi Minh City, officials of the former SCCI and FDI promoters in Viet Nam, particularly those from Korea, Taiwan, Hong Kong, Singapore Beside personal interviews, a mail survey was also conducted with the assistance and support of the CESAIS members A total number of 200 questionnaires were delivered to foreign investors and Vietnamese partners who were sampled from the comprehensive “List of FDI by the End of April, 1996”, in Viet Nam Info, compiled by the VCCI The questionnaire was developed to serve the objectives stated in section 1.3 To ensure a high response-rate, we constantly used follow-up telephone calls to remind the respondents about the questionnaire An additional questionnaire was sent out in case the respondents did not receive one in the first mailing Despite all the efforts, we were able to collect only 40 questionnaires, representing a response rate of 20% Among these 40 returned questionnaires, were considered invalid because of various reasons: due to missing page of the questionnaire, blank questionnaire for any reasons Consequently, we finally had 37 usable questionnaires for analysis The list of respondent companies is shown in Appendix C 1.4.3 Data Processing Data from the mail survey were inputted via Microsoft Excel 5.0 with initial screening Secondary screening was done when converting the Excel file to SPSS format All the calculations and tabulations were done via SPSS and Excel for Windows -2- For data analysis, the mean score of each factors from the SPSS results will be mainly used to illustrate the discussions of findings 1.5 Scope and Limitations of the Study The study only covered FDI in Viet Nam, and focused especially on the joint venture form It mainly considered the reasons or factors which make foreign investors choose or not choose joint venture among forms of FDI The survey was only conducted in Ho Chi Minh City It, therefore, does not reflect the situation of the whole country 1.6 Organization of the Study This report is presented in chapters Chapter is the introduction It includes the rationale, problem statement, objective, research methodology, scope and limitations, and organization of the study Chapter is literature review consisting of three parts: the first part will provide a general understanding about joint venture; the second part is the benefits and difficulties of joint ventures; the third part is the problems faced by joint ventures in developing countries Chapter presents the current situation of foreign investment in Viet Nam This includes the government policy on foreign direct investment, the current status of foreign direct investment and joint venture in Viet Nam Chapter contains the major findings and discussions that were collected through questionnaires and in-depth interviews with business experts/consultants and policy makers in Ho Chi Minh City Chapter provides conclusions and recommendations to the Vietnamese government, Vietnamese partners, as well as foreign investors for consideration Chapter Literature Review 2.1 Definition of Joint Venture -3- There are different definitions about joint ventures For this research study, the following seems to be most relevant: A joint venture is a cooperative business agreement between two or more firms that want to achieve similar objectives This agreement usually involves the creation of a new corporate entity to satisfy the mutual needs of all parties involved (Bae, 1990) 2.2 Benefits and Difficulties of Forming Joint Ventures Joint venture is a form of FDI It is popular over the world Joint ventures often have benefits as well as difficulties 2.2.1 Benefits of Joint Ventures The benefits of joint ventures are presented in the following table: Table 2.1 Benefits of Joint Ventures No Benefits Facilitates technology transfer:   codification/public knowledge   converting head knowledge to production   impact of technology on marketing relationships   discovery of price of technology Access to resources:   rapid products diversification strategies as means of corporate growth favors joint ventures   provides funds and assets to local capital markets   each partner concentrates resources on an area of greatest advantage   avoids necessity of developing international management skills   access to knowledge of local environment and markets   may reach critical mass for internationalization   more efficient competitive position Political pressures:   host country pressure for local participation   local control of job creation and technology transfer   preferential treatment (remittance of royalties)   may avoid local tariffs and non-tariff barriers Access to markets:   quick and efficient access to distribution   by-passed trade barriers   image/attitude to local company Other reasons:   good public relations   curbs potential competition -4- • provides temporary relief for weak product portfolio Source: Bradley (1991) 2.2.2 Difficulties of Joint Ventures The difficulties of joint ventures are shown in the following table: Table 2.2 Difficulties of Joint Ventures No Difficulties Loss of control over foreign operations   large investment of financial, technical or managerial resources favors greater control than is possible in a joint venture Joint ventures are difficult to co-ordinate   lack adequate procedures for protecting proprietary information   shared decisions affect global marketing arrangements Loss of flexibility and confidentiality   changes in product-market mission may make joint venture a liability   unease about sharing technology   one partner may form alliance with other partner’s competitor • managerial dependency between joint venture and one of partners Source: Bradley (1991) 2.3 Problems and Difficulties of Joint Ventures in Developing Countries In developing countries, joint ventures often face problems related to general issues, partner selection, negotiation, management, and problems related to host country environment 2.3.1 General Issues Experience has learned that joint ventures are difficult to manage and frequently unstable A survey conducted in 1985 showed that there was a failure rate of 30% in developing countries (Columbia Journal of World Business, 1985) A major reason for this high failure rate is the structural complexity that makes a joint ventures difficult to manage, regardless of the contrast between their parent environments (Shenkar and Zeira, 1992:55-75) In particular, international joint ventures are unique and problematic in their combination of two major hurdles: multiple national affiliation and multiple ownership (Shenkar and Zeira, 1992:5575) Multiple national affiliation means that international joint ventures bring together parent companies that are anchored in environments differentiated by culture, political, economic and legal systems Multiple ownership means that international joint ventures are owned, and often managed, by at least two parent firms Because of this combination, international joint ventures are probably more problematic to manage than other forms of foreign direct investment (Shenkar, 1990: 82-90) In the study of strategic assessment of international partnership in ASEAN countries, Lasserre (1983) has identified the perceived sources of problems in this geography which is shown in Table 2.3 The major sources of problems were those related to behavioral problems and conflicts, and misunderstanding or attitudes -5- Table 2.3 Perceived Sources of Problems in Foreign Operations in ASEAN Countries As perceived by foreign partner General conditions - Change in economic condition - Devaluation - Imitative competition Government policies - Local content push - Bureaucracy - Remittance Behavior of local partner & employees - Lack of managerial skills - Absenteeism - Poor motivation - Lack of dynamism of local partners - Lack of trust from local partner (%) 30 As perceived by local partner General conditions - Competition - Government regulation - Bad debts (%) 35 Behavior of foreign manager - Lack of trust - Lack of experience - Too many expatriates - Too high technology expectation - Too high sales growth - Lack of communication 65 23 47 Source: Lasserre (1983) On the other hand, Table 2.4 demonstrates that the sources of the problems as perceived by partners in successful partnership were more behavioral in nature The application from this is that if there are unsatisfactory cases of joint venture, problems are mostly caused by partnerships Table 2.4 Perceived Sources of Problems in Satisfactory and Unsatisfactory Partnership between European and ASEAN Firms Problems linked to general conditions and government Satisfactory 16 Unsatisfactory 19 Total 35 Source: Lasserre (1983) Cases Problems linked to behavior of partner and employee 28 36 Total number of cases 24 47 71 2.3.2 Partner Selection The study of Beamish and Lane (1990: 87-102) on joint ventures in developing countries shows that identifying and selecting a partner is possibly the most important consideration in establishing a cooperative venture It may also be the most difficult and time consuming venture Even though partner selection could be the determining factor in making a business partnership a success or failure, it usually is not given the time and attention that it deserves Firms are often in a hurry to find a partner in order to quickly enter an attractive market As a result, they are careless in their selection process and often mistakenly select a poorly qualified partner in their desire for quick action and not to miss the business opportunity Partners are often selected only for short-term and political reasons When the situation changes and the partner has nothing more to offer, the relationship may come to an end The selection of suitable partners has equally become more problematic because most developing countries not possess sufficiently coordinated information systems In summary, problems that may arise during the selection of partners for joint ventures are (Blodgett, 1991): -6- ◊ ◊ ◊ ◊ Less time and attention being given to selection process Limit information on the partners Careless in selection, and Less attention being given to the assessment of the capability of the partners in comparing alternatives 2.3.3 Negotiations Negotiating a joint venture agreement differs from case to case, but it normally include financing, capitalization of know-how, products and markets, the business plan, reporting and meeting procedures, board representation, selection and approval of key people, supply of materials, components, and services by the partners, transfer of and payment for technology, independent audit, dividend payment, minority shareholders protection, and buyout and termination procedures (Berlew, 1984: 48-54) The negotiation to form a joint-venture is a long and arduous process in many countries A description of the major sources of concern and the elements of difficulties during the negotiations for both foreign and local partners are shown in Table 2.5 and 2.6 (Lasserre, 1984: 42-49) Table 2.5 Elements of Importance during the Negotiations Issues Frequency of answers European Local Partner Partner - Financial terms of the agreement 60% 50% - Marketing aspects: distributorship, 20% 17% brand, protection of share, quota - Technical elements 10% 11% - Legal characteristics: owner, control, 10% 22% duration of contract Source: Lasserre (1984) Table 2.6 Elements of Difficulties during the Negotiations Issues - Share evaluation - Government interventions and constraints - Duration of contract - Royalties - Change of person - Financial transactions - Defining responsibilities and ownership - Commission on equipment - Quota-evaluation of market - Language - Price of equipment - Credit terms - Transfer pricing -7- Frequency of answers European Partner Local Partner 2 1 1 1 - Brand names - Speed of setting up equipment - Exclusively of joint venture Source: Lasserre (1984) - 1 The major concerns of both partners are often related to the financial aspects of the agreement, e.g.: share evaluation, intangible asset evaluation (when parts of the shares of the foreign partner are constituted by patents or a trademark) or asset evaluation (when it is constituted by equipment) Dividends, royalties, and management fees are also part of the major items to be discussed Lasserre (1983) also shows that the negotiation process is not instrumental, either as a tool for mutual knowledge or as a means for anticipating the major sources of future problems in an industrial joint venture Technological elements relating to the production process and to the effective means of transferring know-how remain hidden until financial, commercial and legal aspects are discussed at length The partners embark on an industrial venture without any prior knowledge of each other or mutual understanding of the crucial issues they are likely to face, which in the future will make their venture difficult to manage In some countries, negotiations are further complicated by cultural, legal and bureaucratic factors which sometimes bring prospective foreign parents to a point of despair (Robinson and Richard, 1964) For example, in the case of China, the Chinese often bring too many people to the negotiating table Chinese representatives are usually acting merely as messenger boys for their absent bosses (Eiterman, 1990: 59-66) 2.3.4 Management of Joint Ventures The problem in managing joint ventures stem from one cause: there is more than one parent The owners, unlike the shareholder of a large, publicly owned corporation are visible and powerful They can and will disagree on just about anything: How fast should the joint venture grow? Which products and markets should it encompass? How should it be organized? What constitutes good or bad management? (Ramanathan, 1992) In particular, managing joint ventures in developing countries often encounter the following difficulties: a Objectives/Interest of the Partners The major problems relate to the conflict of interest between the two partners These conflicts may arise due to differences in opinions on the rate of production, level of output or dividend policies Conflicts can also arise on technological issues The host partner may wish to expand production through new capacity to enable exports, while the technology supplier partner may be satisfied to install only that equipment which is necessary to serve the home market (Ramanathan, 1992) There may also be conflicts with regard to the nature and quality of output The foreign investor may wish to cut down the payback period whereas the local partner may be -8- interested in the growth of the company, which could lead to clear conflict of interest in dividend policy (Lasserre, 1983) There may be also no matching of objectives of the two partners If it happens then there will be great impact on managing the joint venture This asymmetry of objectives is quite typical of joint venture transaction, particularly those bringing together parents from developed and developing countries (Shenkar, 1990: 82-90) b Board of Directors The board of directors (BOD) has particular importance in all joint ventures Because of the multiplicity of parents’ headquarters and because of their frequently conflicting objectives, the BOD tends to “take over” various managerial functions, serving as a “buffer” to conflicting demands The board decision making process is frequently cumbersome In some cases, e.g China, the problem tends to be more serious because of bureaucratic interference (Shenkar, 1990) c Managing Human Resources Many ventures encountered the problem of surplus workers (Park,1983: 105-126) The problem may be particularly severe in international joint ventures which took over operating plants from the local parents When skilled staff is available, the local parent is often reluctant to transfer it to the joint venture and would prefer instead to transfer superfluous and less qualified personnel (Shenkar, 1990: 82-90) Furthermore, overcoming personnel shortage by means of an expatriate work force is difficult in the developing country due to legal constraints Such problems have been encountered in many developing countries (Bivens and Lovell, 1996) Compensation is another problem for foreign expatriates in all joint ventures For example, in the People’s Republic of China (PRC), one such problem is downward pressure on expatriate salaries generated by Chinese demands for parity of pay to foreigners and Chinese employees holding similar titles (Cohen and Harris, 1986) Another major problem in the developing country is replacing expatriate personnel within a few years, which make 'start-up' costs for such personnel much higher Another problem may be that both host and foreign parent's managers who work for a joint venture may have a conflict of loyalty between the venture and the parent companies The locals tend to remain loyal to their parent company rather than to the venture (Shenkar, 1990: 82-90) d Staffing Usually, joint ventures that draw functional managers from both parents are more difficult to manage than those that not Managers of all joint ventures may not only have communication problems because of language barriers, they may also have different attitudes toward time, the importance of job performance, material wealth and desirability of change These differences can delay the creation of an effective, cohesive management team (Killing, 1982: 120-177) e Foreign Exchange Repatriation -9- The major problem, particularly in recent years, concerns the depreciation of the hostcurrency The second problem of foreign investors arises from the risk of committing resources to an underdeveloped country where a changing political structure may affect the reliability of returns from the ventures (Shenkar and Zeira, 1992) f Transfer of Technology Technology transfer is not without its consequences The imported technology brings with it many unwelcome elements of western culture (Afriyie, 1988: 51-62) Such elements as social inequality and different perception of relations between people and nature were identified Some of the problems of technology transfer may be due to lack of effective leadership and commitment to successful technology transfer in the developing countries (Madu, 1989: 115124) Another potential source of conflict is the desire of the foreign investor to keep full control over the technology involved in the venture In order to maintain the control of technology in situation of conflict, the foreign investor seeks to maintain his monopoly over technological change The reason for that is also fear of losing competitive advantages, fear of leakage for the benefits of other competitors (Ramanathan, 1992) Another main problem for the foreign investor in technology transfer to developing country is the inadequate protection of property rights, both patented and unpatented g Size and Direction of Exports The desire for increasing exports in developing countries has frequently been in conflict with the interests of the technology suppliers This conflict has taken two major forms i.e., size of the export flows and desire to affect the direction of the export flows The host state may wish to influence the direction of exports, because it may increase the price received for the product, the size of potential markets, and because the government may have more general strategic political interests The technology supplier may resist these policies because they conflict with the international competitive strategy of the firm (Kaplinsky, 1976: 197-224; Ramanathan, 1992) h Taxation A joint venture company has to pay turnover tax, income tax and a so-called tax on wages Taxes can be used effectively to increase the share of the host state This may be an important area of conflict But, there are variety of mechanisms which the technology supplier can use to evade these tax payments (Berg and Friedman, 1980: 143-168) 2.3.5 Problem Related to the Host Country Environment All governments with restrict ownership policies have made exceptions for insisting on the whole ownership To counter this, foreign investors in India, for example, have found creative ways to respond to the government’s demands Sometimes they retained management control of critical activities, while at other times they gained exceptions to the demand for shared equity (Casseres, 1989: 17-26) The attitudes of some countries toward foreign investment are not distinct Legislation is discriminatory in a number of countries, with too many restrictions on foreign investors “Forced negotiations” not create a good impression on many investors (Alen, 1973) For example, the discriminatory treatment to Japanese firms in Korea Korea government demanded that 97% of all locally produced Matushita products must be exported The strong -10- 100% 5.00 90% 4.00 Most important 3.00 80% Very important 60% Mean Percent 70% 50% 40% 2.00 30% 20% 1.00 Somew hat important Less important Not important L.Personnel Quality L.Personnel Loyalty Capable Manager Demand of Parity 0% Mar & Mgnt Knowledge 10% Mean Figure 4.7 The Problems or Difficulties in Human Resources for JVs Lack of Knowledge on the Market Economy and Management: Foreign investors have recognized that Viet Nam has been changing from the centrally planned economy to market economy, therefore it is very difficult for Vietnamese partners to business in the new situation The lack of knowledge on market economy and the business management of a system deep-rooted in the centrally planned economy were considered the most difficult problem for foreign investors (mean score: 3.89) Lack of Capable Managers: Capable managers are very necessary for JVs to be successful In Viet Nam, it is very difficult to find local employees with potential managerial skills Foreign investors ranked it as the second difficult problem for JVs (mean score: 3.84) It is also recognized by Vietnamese government and MPI, “one of the country’s biggest and most critical problems regarding foreign investment is managing local staff” (VIR, 22-28 July 1996) The Quality of Local Personnel: In terms of personnel, foreign investors often concerned about the low skills in financial and accounting management, the level of understanding of free market system, managerial skills, marketing skills and technical skills (mean score: 3.43) The Loyalty of Local Personnel to JVs: Foreign respondents mentioned it as the fourth important problem for JVs (mean score: 3.32), because the Vietnamese employees often change jobs between companies in order to get higher salaries or better career opportunities The Demand for Parity of Paying between Expatriates and Local Personnel: With the mean score of 3.30, the demand for parity of paying while there are difference in working ability between Vietnamese and expatriates shows an unfavorable trend to foreign investors d Transfer of Technology There are three important problems of technology transfer as shown in Table 4.9 -34- Table 4.9 The Problems or Difficulties in Transferring Technology for JVs Transfer of Technology Level of sophistication of machinery and equipment Pricing of technology Appropriateness of technology to the local conditions 100% Mean Score 3.57 3.49 3.08 5.00 Most important 90% 80% 4.00 Very important 60% 3.00 50% 40% 2.00 Mean Percent 70% Somew hat important Less important 30% 20% 1.00 Not important 10% Appro Tech Sophi.of Mach & Equip Pricing of Tech 0% Mean Figure 4.8 The Problems or Difficulties in Transferring Technology for JVs Technology transfer to Viet Nam is very important for its development Reflecting the official views, Nguyen Xuan Chuan, the first Vice-Minister in charge of foreign economic relations at the Ministry of Industry, said: “Attracting foreign investment into Viet Nam’s industrial sector is crucial to the country’s plans for modernization and economic development” (VIR, 17-23 June, 1996) In addition, Nguyen Nhac, Vice Minister of the Vietnamese Ministry of Planning and Investment, noted that state management of foreign investment activities are crucial to the “master plan” and to ensure that government targets in developing specific industries are met (VET, November 1996) Therefore, “the Ministry of Industry has taken the decision to advance directly to modern technology in order to stop the import of obsolete technology” (VIR, 17-23 June, 1996) If projects not contribute to economic development goals they will not be approved Accordingly JV projects that not facilitate technology transfer have been rejected, as was the case with Hyundai’s application to set up an auto assembly plant (BP April 16, 1996) Another problem is that Viet Nam has few qualified scientists and engineers who can evaluate technology Vietnamese managers said that the Vietnamese side cannot assess alternative sources of technology properly and are unable to bargain on various aspects of the transfers as “It is difficult to value technology and equipment as it depends on know-how” (VIR, 17-23 June 1996) They believe that the foreign side must be cheating them, at least on valuation of technology and know-how (to compensate, they inflate the value of land and plant which they bring to the JV) -35- Facing those difficulties, there were warnings that Viet Nam was not a place to rush into blindly Some investors are being put off, while some are still optimistic all have become more cautious, point out more clearly the very difficult conditions of operating in Viet Nam (AB 1995, 1996, FEER Sept 22, 1994) e Financing and Financial Management Based on the survey result, the difficulties and the level of importance of these factors are recognized as follows: Table 4.10 The Problems or Difficulties in Financing and Financial Management for JVs Financing and Financial Management Difficulty in getting financing Incompatibility in financial systems Difficulty in open repatriate of profit accounts 100% Mean Score 4.14 3.49 2.81 5.00 90% 80% Most important 4.00 60% 3.00 50% 40% 2.00 30% 20% 1.00 Open Repa of Profit Accounts Financial Systems Getting Financing 10% 0% Very important Mean Percent 70% Somew hat important Less important Not important Mean Figure 4.9 The Problems or Difficulties in Financing and Financial Management for JVs The most important problem is the difficulty of getting a financing (mean score: 4.14) The next important problem is the incompatibility in financial system (mean score: 3.49) and the third is the difficulty in opening repatriate of profit accounts 4.3.4 Other Reasons which Discourage Foreign Investors from Choosing JV Form As shown by the survey result, other reasons discouraging foreign investors from choosing JVs were mentioned by respondents include: all expenses of joint ventures are higher than BCC and 100% foreign owned For the purpose of export, it is difficult to get quotas for JV while it is easier for BCC or 100% foreign-owned companies, especially for the projects in the export processing zones (EPZs) In JV operation, there are difficulties to control employees as -36- well as conflicts among members of the board of decision about decision making Furthermore, foreign investors know more about Viet Nam’s business environment, they don’t need to cooperate with any local partner Respondents are also said that it was difficult for expansion of the business of JVs Another reason, according to Vu Huy Hoang, head of MPI’s foreign investment department, is that the increasing percentage of 100% foreign owned projects was due to increasing investment in export processing zones (EPZ), where products are completely for export (VIR, 19-25 August, 1996) In order to easily consider and realize the level of importance of factors affect foreign investors, Table 4.11 should be summarized as follows: Table 4.11 A Summary of the Survey Results The Factors Motivating Foreign Investors to Invest in Viet Nam Utilization of the abundant and cheap labor Developing raw material supplies (including processing) Exploiting the incentives offered by the Vietnamese government Developing a regional base to serve markets close to Viet Nam Developing Viet Nam as a potential market The Reasons for Choosing the JV Form of Foreign Investment Government incentives or legislation Long term stabilization of own business activities through the JV Reducing financial and political risks Need for local partner's skills The Problems or Difficulties of Viet Nam Investment Environment Faced by Foreign Investors Lack of reliable statistical information Housing, security, hospitals, schools Poor transportation Black market and smuggling Poor banking and financing system Visa and customs procedures Poor communication Inflation and unstable currency value The Problems or Difficulties which Foreign Investors Faced by the Government Policy in Forming JVs Taxes of income and imported materials Complicated procedures of JV approval Capital contribution/equity Hiring procedure of labor Duration of JV (not long enough) Salaries and wages (minimum wage/salary scale) The Problems or Difficulties in Selection Partners for JVs Limited information on local partners Lack of information on Viet Nam The Problems or Difficulties in Negotiations to Form JVs Valuation of capital contribution Understanding the laws Language barrier Marketing aspects: distribution, quota, pricing -37- Mean Score 4.11 3.16 3.11 3.08 2.92 3.61 3.36 2.94 2.42 3.64 3.56 3.47 3.44 3.36 3.36 3.14 2.47 Mean Score 5.00 3.78 2.64 2.61 2.22 2.19 3.73 3.32 3.45 3.32 3.11 3.05 3 Wages/salaries Duration the JV Cultural problems The Problems or Difficulties in Human Resources for JVs Lack of knowledge on market economy and management Lack of capable manager Quality of local personnel Loyalty of local personnel to the venture Demand for parity of pay between expatriates and local personnel The Problems or Difficulties in Transferring Technology for JVs Level of sophistication of machinery and equipment Pricing of technology Appropriateness of technology to the local conditions The Problems or Difficulties in Financing and Financial Management for JVs Difficulty in getting financing Incompatibility in financial systems Difficulty in open repatriate of profit accounts 2.49 2.35 2.30 3.89 3.84 3.43 3.32 3.30 3.57 3.49 3.08 4.14 3.49 2.81 From the summarized table and discussions above, it is realized that there are still many difficulties or problems facing by foreign investors choosing JV’s form of investment Therefore, the investment environment for JVs should be improved much more in order to attract foreign investors The next chapter draws some conclusions and provides some recommendations to improve the situation -38- Chapter Conclusions and Recommendations 5.1 Conclusions Like the other forms of foreign investment in Viet Nam, JVs offer certain advantages such as cheap labor, abundant material resources and preferential treatments offered by the Vietnamese government However, there are many difficulties and obstacles which stand on the way of foreign investors who want to proceed business venture under this form In our opinion, major impediments are focused on the three following aspects 5.1.1 Infrastructure and Utilities Important problems include: (1) the lack of reliable data on key indicators of the country; (2) difficulties in getting enough information about local partners; (3) inadequate of housing, hospital, school and security is not guaranteed; (4) poor transportation and communication; (5) black market and smuggling; (6) the complicated procedure of visa or custom; and (7) a poor banking system 5.1.2 Government Policy The tax system, the complicated procedure of JV approval, and the lack of capital contribution of local partners are big problems for JVs The labor hiring procedure, the duration of JV as well as the new amendments on a higher minimum salary determined by Vietnamese government are also the sources of discouragement 5.1.3 The Vietnamese Partners The significant obstacles in JV negotiations are the capital contribution, the lack of understanding of the laws of Vietnamese partners, the language barrier and marketing aspects Regarding human resources for JVs, the important problems are the lack of local capable managers who grasp knowledge on the market economy and management, the loyalty of local personnel as well as the demand for parity of pay between expatriates and local personnel Concerning technology transfer, it is also difficult dealing with the level of sophistication of machinery and equipment, the pricing of technology and the assessment of appropriate technologies to the local conditions In addition, the financing and financial system are also seen to be less-developed to support the JVs’ operations 5.2 Recommendations In an endeavor to make JV become a more attractive and promising form of doing investment in Viet Nam, sufficient solutions would essentially address to the concrete impediments in the above-mentioned aspects Our recommendations, therefore, include certain highlighted contingencies which may have positive impacts on the investors’ choice of JVs It must be noted that further research studies are needed to get more comprehensive and insight understandings of some aspects which were not adequately covered in this study 5.2.1 Investment Environment -39- For doing business, the investment environment is very important Viet Nam has attracted foreign investors since its ‘opened door’ policy However, it still requires much more efforts to improve the environment Firstly, the infrastructure such as water, electricity supply systems, the roads should be upgraded and enlarged in order to ensure having the basic working conditions for operation of JVs It is also necessary to build and upgrade seaports, airports to meet the requirement of export products In addition, it should quickly complete the communication networks in some areas that are still not covered and the information on the telephone, facsimile, telex lines should be kept confidential Moreover, the price for communication should be lower Going together with the infrastructure, the accommodations, hospitals, schools and security should be quickly improved to provide sufficient and convenient facilities for families of expatriates Particularly, the procedures for renting a house should be less complicated; the price of apartment for rent should be adjusted to a competitive level and schools or hospitals for foreigners should be built in the secured areas Secondly, the legal environment should be established to encourage foreign investment For example, an effective property mortgage law should be introduced and the decrees or new laws shall not be applied retroactively In addition, the Vietnamese government should put in place more effective policies to control black market and smuggling because it is very important for JVs with the purpose of selling the products in domestic market Furthermore, the visa and custom procedure should be transparent for foreign investors, and creating the good conditions or climate of welcome to Viet Nam Thirdly, for banking and financial system, the policies on control of inflation and stability of the local currency should be maintained and it should have freely convertible currency In addition, an accounting and auditing system should be introduced in order to make Vietnamese firms transparent for foreign investors Because the existing accounting system is only based on book value which does not represent the true assets and financial performance of a firm Moreover, it should be made accessible for outsiders 5.2.2 The Vietnamese Authorities The Vietnamese government plays an important role in encouraging foreign investment Therefore, the government should have effective policies to encourage JVs The income tax and imported materials tax should be re-considered in order to have appropriate rates to attract foreign investors The tax law should be clear to avoid the differences in application in different locations because this difference may create troubles for the JV companies allocated in may different locations such as companies are hard to control its results of business operation and cause confusion in planning its business strategy The policy on minimum salary should be carefully considered before increasing it because cheap and abundant labor is the most important factor attracting foreign investment and choosing joint venture form In addition, the incentives should be offered more for JVs to attract foreign investors choosing JV form Furthermore, the approval procedures for JV should be transparent, simpler and shorter Bureaucratic always red tape should be eliminated 5.2.3 The Local Partners Local partners are very important for foreign investors in choosing JVs The more foreign investors find good local partners, the more JVs will be established Therefore, to help foreign -40- investors in selection of partners, Vietnamese companies should be active in introducing the business opportunities for JVs This could be done by placing advertisements on newspapers, magazines, internet or via the investment consultants In negotiation, Vietnamese partners should nominate the Vietnamese members who have ability to negotiate with the foreign partners These members must have thorough knowledge of finance, marketing, and laws, particularly the law on foreign direct investment in Viet Nam To meet the requirement of foreign investors about human resources for JVs, Vietnamese companies should develop plans to re-train the existing employees as well as the new employees, both on full-time training or on-the-job training for JV purposes and Vietnamese employees should be encouraged to learn English In the transfer of technology for JVs, Vietnamese partners should nominate Vietnamese members who are professional in technology transfer to negotiate and help foreign investors in solving the problems of technology transfer deal to Vietnamese government regulations and the joint venture requirements Beside creating favorable conditions for foreign partners in choosing JVs, Vietnamese partners should the independent check for the information about foreign partners because it is very necessary for a successful JV The check can be done by asking for a service of overseas Vietnamese in foreign countries, hiring foreign consultants or banks to the check 5.2.4 The Foreign Investors Foreign investors should study carefully the laws before doing business in Viet Nam and gain access to Vietnamese companies through an intermediary, either local or international For successful JVs, foreign investors should know how to be patient In addition, foreign investors should choose a project manager who understands the Vietnamese economy characteristics and business environment Beside professional competence, she/he needs to have such qualities adaptability, cultural awareness, communication and knowledge on Vietnamese culture Moreover, foreign investors should not take advantage of the Vietnamese side, since it is not good for long time business The business relationship should be equal trust-based, especially on issue of profit sharing Success comes to JVs which achieve a productive collaboration between partners Therefore, foreign partners are advised to adapt those positive values and practices of Vietnamese partners Foreign investors should have trust in the Vietnamese partners, because they can help to run and handle all local works and matters In decision-making, foreigners should keep in mind that they should take a very important role in making strategic decisions, but the implementation should be delegated to Vietnamese managers, who are critical in making JVs operate well The biggest problems in managing Vietnamese staff is to develop a sense of loyalty and trust among them Establishing people’s trust is very important Trust cannot be bought but must be earned through working and showing care in daily activities The labor contract also serves as the legal basis for solving the labor problems and for creating employees beliefs The labor contract is a useful tool to both sides because it is the basic guarantee of fairness In addition, foreign managers should organize training programs for Vietnamese managers and employees, especially overseas training By doing this, they can improve the quality of managers and employees as well as create good relations and secure loyalty Keeping good labor relations with both Vietnamese workers and managers is another important issue for foreign managers in the JVs in Viet Nam It is noteworthy that in Vietnamese society, out-of-work relationship plays a significant role in creating a team spirit at work One approach of doing that is to attend the parties devoting to death days of the -41- ancestors For Vietnamese, these days are more important than birthday or wedding anniversaries On these occasions, Vietnamese people invite friends and co-workers to celebrate So foreign managers are expected to take a part if being invited Sharing difficulties with employees in their working or in family life are equally important to keep good relations Another approach is to exchange gifts before New Year holiday (lunar calendar), Full Moon holiday or National holiday Furthermore, foreign investors should learn some special vocabulary in Vietnamese to create the friendship and the awareness that the foreign managers are interested in the Vietnamese employees -42- References Afriyie, K (1988), Factor Choice Characteristics and Industrial Impact of Joint Ventures: Lessons From a Developing Countries, The Columbia Journal of World Business, pp.51-62 Alen, T.W (1973), Direct Investment of US Enterprises in South-East 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data... due to missing page of the questionnaire, blank questionnaire for any reasons Consequently, we finally had 37 usable questionnaires for analysis The list of respondent companies is shown in Appendix... in chapters Chapter is the introduction It includes the rationale, problem statement, objective, research methodology, scope and limitations, and organization of the study Chapter is literature