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

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

CASE STUDIES Strengths, Weaknesses, Opportunities, and Threats for Architectural, Engineering, and Construction Firms: Case Study of Vietnam Florence Yean Yng Ling1; Vu Min Chau Pham2; and To Phuong Hoang3 Abstract: After Vietnam became a member of the World Trade Organization, Vietnamese architectural, engineering, and construction ͑A/E/C͒ firms face competition from not only their domestic competitors but also from foreign A/E/C firms As most Vietnamese firms are used to operating under a protected setting, they may face difficulties competing in the globalized environment This study undertakes a strengths, weaknesses, opportunities, and threats ͑SWOT͒ analysis of Vietnamese A/E/C firms, investigates how they respond to opportunities and threats, and recommends how foreign A/E/C firms operating in Vietnam could respond Using semistructured interview questions, face-to-face interviews were conducted with Vietnamese and foreign A/E/C firms The SWOT analysis reveals that Vietnamese A/E/C firms are lagging behind foreign firms in financial capacity, experience in complex projects, knowledge in advanced design and construction technology, and management ability Industry practitioners from outside Vietnam who are contemplating entering the Vietnamese market can leverage on Vietnamese firms’ strengths by forming joint ventures with strong and reputable private Vietnamese firms To improve their competitive advantage, it is recommended that foreign A/E/C firms offer superior products and services and familiarize themselves with local culture and regulations They should be mindful of corruption and set up surveillance systems to curb wasteful spending DOI: 10.1061/͑ASCE͒CO.1943-7862.0000069 CE Database subject headings: Vietnam; International factors; Engineering firms; Construction companies; Agriculture; Economic factors; Case reports Introduction On January 11, 2007, Vietnam became the 150th member country of the World Trade Organization ͑WTO͒ WTO member countries cannot normally discriminate between their trading partners, and imported and locally produced goods and services should be treated equally following the “national treatment” principle of giving others the same treatment as one’s own nationals ͓World Trade Organization ͑WTO͒ 2005͔ As a WTO member, Vietnam must allow WTO member-country’s architectural, engineering, and construction ͑A/E/C͒ firms to operate in its construction industry, albeit in a controlled way Vietnam attracted a record of US$20 billion foreign direct investment ͑FDI͒, rising by 70% over the previous year ͑Blume Associate Professor, Dept of Building, National Univ of Singapore, Architecture Dr., Singapore 117566, Singapore ͑corresponding author͒ E-mail: bdglyy@nus.edu.sg Quantity Surveyor, KPK Quantity Surveyors Pte Ltd., 865 Mountbatten Rd., 07-01, Singapore 437844, Singapore E-mail: mizchou@ yahoo.com.sg Quantity Surveyor, Rider Levett Bucknall Pte Ltd., 150 Beach Rd., 09-01, Singapore 189720, Singapore E-mail: vivian0705@gmail.com Note This manuscript was submitted on July 24, 2008; approved on March 24, 2009; published online on March 26, 2009 Discussion period open until March 1, 2010; separate discussions must be submitted for individual papers This paper is part of the Journal of Construction Engineering and Management, Vol 135, No 10, October 1, 2009 ©ASCE, ISSN 0733-9364/2009/10-1105–1113/$25.00 2007͒ Foreign A/E/C firms are expected to enter Vietnam to develop the facilities which are needed by foreign investors In line with Vietnam’s WTO commitments to open up its construction market to foreign businesses, Vietnamese A/E/C firms now face intense competition from foreign entrants, when hitherto most of them are only used to operating under a protected environment Vietnam’s construction market is attractive to foreign A/E/C firms because spending in the construction sector will grow healthily at 5.5% from 2005 to 2015 ͑Lubien 2008͒ The aim of this study is to investigate the strengths ͑S͒ and weaknesses ͑W͒ of domestic A/E/C firms in Vietnam’s construction industry, the opportunities ͑O͒ and threats ͑T͒ that they face, and how foreign A/E/C firms that operate in Vietnam should respond The specific objectives are to: ͑1͒ undertake a SWOT analysis of Vietnamese A/E/C firms; ͑2͒ investigate how Vietnamese A/E/C firms respond to the opportunities and threats; and ͑3͒ recommend how foreign A/E/C firms operating in Vietnam could respond The first purpose of this study is to let Vietnamese A/E/C firms ponder how their strengths may be leveraged to realize opportunities and how weaknesses which exacerbate threats, may be overcome The second purpose is to inform foreign A/E/C firms that are considering setting up operations in Vietnam on how they can adjust their practices in order to respond to Vietnamese A/E/C firms’ strategies, so that they can be more competitive in Vietnam The findings may be helpful to foreign A/E/C firms competing or cooperating with domestic A/E/C firms in Vietnam The scope of this research is confined to studying domestic A/E/C firms with headquarters in Hanoi or Ho Chi Minh City JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1105 ͑HCMC͒, and foreign A/E/C firms that are operating in these cities These two cities were selected because they are the largest cities in Vietnam, and have a significant presence of foreign firms Therefore, the Vietnamese A/E/C firms there would have the necessary knowledge of and experience in working with foreign firms, and can therefore better inform the research Studying only foreign firms that are already operating in Vietnam ensures that they are qualified to provide recommendations to other foreign firms that intend to operate in Vietnam Vietnam’s WTO Commitments Vietnam’s application process to be a member of WTO took a long journey, but it finally came about in early 2007 Her key WTO commitments in services ͑of which A/E/C belongs to͒ are provided in World Trade Organization ͑WTO͒ ͑2006͒ Vietnam must allow foreign enterprises to establish commercial presence in the form of business cooperation contracts, joint venture ͑JV͒ enterprises, and 100% foreign-invested enterprises To give time to domestic firms to adjust, for a period of years from the date of WTO ascension, 100% foreign-invested enterprises may only provide construction services to foreign-invested enterprises in Vietnam ͓World Trade Organization ͑WTO͒ 2006͔ Construction services include architectural services, engineering services, integrated engineering services, urban planning, urban landscape architectural services, and construction work In addition, for construction and related engineering services, after years from the date of ascension, foreign firms would be allowed to set up branch offices, but the chief of the branch has to be a resident in Vietnam For urban planning and urban landscape architectural services, the service must be authenticated by an architect who has a Vietnamese practicing certificate, and who works in a Vietnamese architectural organization Foreign architects working in foreign-invested enterprises must possess professional practicing certificate granted or recognized by the government of Vietnam SWOT Analysis The SWOT analysis is a tool to evaluate the strengths ͑S͒, weaknesses ͑W͒, opportunities ͑O͒ and threats ͑T͒ of enterprises An enterprise’s strengths and weaknesses demonstrate its internal characteristics and are controllable; and its opportunities and threats are determined by external factors on which it has no direct control but can react to its own advantage ͑Pearce 1992͒ A marketing opportunity is an area of need in which a company can perform profitably, while an environmental threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to sales or profit deterioration ͑Kotler and Keller 2006͒ SWOT analysis is a methodology allowing enterprises to understand and plan to use their strengths to exploit opportunities, to recognize and avoid their weaknesses, and to defend against or sidestep any known threats ͑Pearce 1992͒ Dapice ͑2003͒ did a SWOT analysis of Vietnam’s economic sector and found that the economy’s major strengths are moderate Gross Domestic Product ͑GDP͒ growth, industrial growth, and macroeconomic stability The weaknesses are slowing export growth, poor industrial investments, and growing rural-urban income split Vietnam’s economic opportunities include the ability to attract more FDIs The threats faced include over emphasis on directed investment Competitive Advantage and Internationalization Two to three years after Vietnam’s ascension to WTO membership, an influx of foreign A/E/C firms is expected Vietnamese A/E/C firms are likely to face fierce competition To succeed, Vietnamese A/E/C firms need to have effective strategies to achieve competitive advantage Competitive advantage is attained from the firm’s ability to control its internal subsystems, exploit opportunities and lessen or avoid threats from its external environment ͑Male 1991͒ A firm is said to have competitive advantage when it has superiority over its competitors ͑Langford and Male 2001͒ Porter ͑1980͒ proposed three main competitive strategies: differentiation cost leadership, and focus To gain competitive advantage, a firm must either provide comparable buyer value but perform activities more efficiently than its competitors ͑i.e., a low-cost strategy͒, or perform activities in a unique way that creates greater buyer value and commands a premium price ͑i.e., a strategy of differentiation͒ ͑Porter 1999͒ In the generic strategy of focus, the focuser selects a segment in the industry and tailors his strategy to serving it to the exclusion of others Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments Oster ͑1999͒ pointed out that firms could outperform competitors either by having lower costs or by offering a superior product that can be sold at a price premium He also concluded that to form a successful basis for competitive advantage, a product must be important in the market, an improvement over the competition, and defensible against imitation There are many theories to explain internationalization such as location theory ͑Weber 1929͒, international product life cycle theory ͑Posner 1961͒, and internalization theory ͑Hymer 1976͒ Dunning ͑1988͒ postulated the Eclectic Paradigm to explain that firms can internationalize successfully if they have ownership, locational, and internalization advantages To this, Low and Jiang ͑2004͒ added the specialty advantage Seymour ͑1987͒ argued that international contractors face a complex situation in which success is only partially dependent on price competition, and other factors which differentiate a contractor’s product from that of competitors are more crucial Male ͑1991͒ stated that competitive strategy in international construction is achieved through a combination of firm- and country-specific advantages to achieve differentiation Gap in Knowledge While SWOT analyses have been performed on some sectors in Vietnam, the SWOT of Vietnamese A/E/C firms in the construction industry have hitherto not been well studied Dapice ͑2003͒ undertook a SWOT analysis of Vietnam’s economy in general However, his study is a broad brush approach, and did not cover Vietnamese A/E/C firms Long et al ͑2004͒ investigated the problems faced in large construction projects in Vietnam, and found that these are incompetent designers and contractors, poor estimation and change management, social and technological issues, site related issues, and improper techniques and tools Their study did not cover the opportunities and threats to A/E/C firms in Vietnam 1106 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 Table Background of Interviewees Working in Vietnamese A/E/C Firms Interviewee ͑code͒ A1 A2 A3 A4 A5 P1 P2 P3 Q1 Q2 Q3 Q4 C1 C2 C3 C4 C5 C6 C7 C8 S1 S2 S3 S4 S5 Designation Main business Types of projects Managing Director Deputy Manager Design Deputy Manager Project Manager Architect Project Manager Deputy Manager Managing Director Sales and Marketing Manager Deputy Manager General Director Managing Director Accounts Manager Deputy Manager Deputy Manager Managing Director Engineer Managing Director Manager Senior Engineer Deputy Manager Sales Manager Senior Engineer Accounts Manager Managing Director Architect Architect Architect Architect Architect PM consultancy PM consultancy PM consultancy Cost engineer Cost engineer Cost engineer Cost engineer Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Residential and infrastructure Residential, commercial, infrastructure, hotel, and factory Residential, commercial, infrastructure, hotel, and factory Residential, infrastructure, and factory Residential Infrastructure Residential, commercial, infrastructure, hotel, and factory Residential, commercial, office, and factory Residential, commercial, infrastructure, and office Residential, commercial, office, and factory Residential and hotel Residential, commercial, infrastructure, and office Factory Residential Infrastructure and factory Residential Residential and hotel Residential, commercial, infrastructure, hotel, and factory Residential Infrastructure Residential and commercial Residential Residential and hotel Residential and factory Residential, commercial, hotel, and sports hall Luu et al ͑2008͒ proposed a framework that integrates balanced scorecard and SWOT matrix to evaluate the strategic performance of large contractors in Vietnam The study focused on one large construction firm, AnGiang Construction Company, and hence the findings are not generalizable Past studies on Vietnam did not investigate strategies used to overcome competitive pressures after Vietnam’s WTO entry They also did not identify what strategies Vietnamese A/E/C firms could adopt to counter foreign A/E/C firms’ “invasion” into Vietnam In the fieldwork, SWOT analysis of domestic A/E/C firms operating in Vietnam’s construction industry was carried out Vietnamese A/E/C firms’ competitive strategies and how foreign firms should respond are also investigated Research Method Research may be quantitative or qualitative in nature This research adopted a primarily qualitative method because understanding a phenomenon from the point of view of the participants and its particular social and institutional context may be lost when textual data are quantified ͑Kaplan and Maxwell 1994͒ The data collection instruments were two specially designed questionnaires which comprised mostly open ended questions to analyze Vietnamese A/E/C firms’ SWOT, foreign firms’ actions and recommendations, and other related questions Open ended questions allowed interviewees to have greater freedom in sharing their experience and knowledge Data collection for qualitative research includes interviews, participant observation, and archival research ͑Myers and Avison 2002͒ This study adopted the face-to-face interview technique because probing questions were involved, respondents were required to provide in-depth answers and particularly interesting aspects of the responses could be delved into The advantage of adopting the method is that interviewers are able to establish a relationship with the interviewees, allowing them to answer questions more easily The other advantages of using such a method include a higher participation rate since interviewees only need to give verbal comments rather than fill up a questionnaire with long answers Moreover, clarifications can be made during the interviews Participant observation was precluded due to interviewees’ concern about confidential information of firms being divulged Archival research was carried out to inspect nonconfidential company reports Fifty Vietnamese and another 50 foreign A/E/C firms operating in Vietnam were randomly selected from Vietnam’s Department of Planning and Investment’s list of registered firms, Vietnam Yellow Pages, and Vietnam branch of the European Union Chamber of Commerce The purpose of interviewing Vietnamese A/E/C firms was to collect data to fulfill Objective and Objective Interviews with foreign A/E/C firms were to obtain data relating to objective Telephone calls were made and follow-up emails were sent to the selected firms, requesting for interviews When an agreement for interview was secured, face-to-face interviews were conducted in the interviewees’ offices in Vietnam Characteristics of the Sample The 25 domestic and 12 foreign A/E/C firms operating in Vietnam’s construction industry agreed to be interviewed after much persuasion and follow-up telephone calls Among the 12 foreign JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1107 Table Characteristics of Respondents and Their Firms ͑Vietnamese Firms͒ Description Nr % Firm Ownership Public Private Public-private 10 28% 40% 32% Workforce Up to 50 people 51–100 people 101–200 people Ͼ200 people 12 5 48% 12% 20% 20% Revenue ͑USD͒ Յ600 K 601 K–3 M Ͼ3 M Unknown 10 28% 40% 20% 12% Discipline A and E PM Cost engineering Construction 13 20% 12% 16% 52% Designation Upper management Middle management Professionals 13 28% 52% 20% Worked with foreigners Yes No Work experience Յ5 years 6–10 years Ͼ10 years 14 11 12 56% 44% 24% 28% 48% A/E/C firms, five of them reported that they were more involved as real estate development, because prior to Vietnam’s WTO membership, their A/E/C operations were restricted The interviews were conducted in Vietnam between May and October 2007 Each interview lasted between 30 and 90 The characteristics of respondents and their firms are given in Tables 1–3 The interviewees working in domestic firms were from consultancy firms ͑48%͒ and construction firms ͑52%͒, while half of those working in foreign firms were consultants They had been involved in different types of projects with a strong focus on residential buildings ͑local firms͒ and commercial and industrial projects ͑foreign firms͒ The project delivery system was generally the traditional design-bid-build method The majority of the interviewees were mid- and upper management, with more than years of experience in the construction industry More than half of the locals had worked with foreigners Local interviewees’ firms had headquarters mainly in HCMC ͑72%͒ and Hanoi ͑15%͒ As for foreigners, half of them worked in French Table Characteristics of Respondents and Their Firms ͑Foreign Firms͒ Description Nr % Firm ownership Private: wholly owned foreign firm Private: foreign-Vietnamese joint venture 6 50 50 Firm’s country of origin France Hong Kong SAR Singapore U.S 50 25 17 Workforce Up to 200 people 201–400 people Ͼ400 people 3 25 25 50 Revenue ͑USD͒ Up to $50 million $51–$100 million Ͼ$100 million 25 17 58 Discipline A and E PM Cost engineering Construction Real estate 1 25 8 17 42 Designation Upper management Middle management 58 42 12 100 Work experience ͑Industry͒ 6–10 years Ͼ10 years 6 50 50 Work experience ͑Vietnam͒ Յ5 years 6–10 years Ͼ10 years 50 42 Worked with Vietnamese Yes companies which had entered Vietnam as wholly owned foreign firms or formed JVs with Vietnamese firms Results of SWOT Analysis SWOT analysis of domestic A/E/C firms was undertaken and the results summarized in Table The purpose of the SWOT analysis was to help enterprises to understand and plan to use their strengths to exploit opportunities, to recognize and avoid their weaknesses, and to defend against or sidestep any known threats ͑Pearce 1992͒ Unless otherwise stated, the results presented reflected that of the majority 1108 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 Table Summary of Vietnamese A/E/C Firms’ SWOT Internal External Favorable Strengths • Familiarity with local cultures and industry practices • Labor advantages Unfavorable Weaknesses • Lack of knowledge in advanced design and construction technology • Lack of experience in complex projects • Lack of project management ability Opportunities Vietnam’s WTO membership: • Increase sales volume • Acquire knowledge in advanced design and construction technology • Export service to overseas Threats • Construction market share reduced • Foreign firms’ competitive advantages over domestic firms Strengths of Vietnamese A/E/C Firms Familiarity with Local Market As the domestic firms had been practicing in Vietnam’s construction industry, they are very familiar with the operations of the local market, local cultures, and industry practices such as regulatory submissions and approvals Most of the interviewees remarked that unfamiliarity with local market is one of the main barriers preventing foreign firms from venturing into Vietnam For foreign firms, it is recommended that they should study and understand local regulations and culture before they venture into Vietnam Plentiful and Low Cost Labor The interviewees shared that Vietnam’s large population base is a potential source of low-cost labor The labor force grows by more than 0.5 million people every year, 69% of the population are between the ages of 15 and 64, and the median age is only 26.9 years old ͓Central Intelligence Agency ͑CIA͒ 2008͔ The Central Intelligence Agency ͑CIA͒ ͑2008͒ further reported that GDP per capita is US$2,600 and 15% of the population live below the poverty line Thus, the 46 million people in the labor force provide a large pool of low-cost manpower for the construction industry Weaknesses of Vietnamese Firms Lack of Knowledge in Advanced Design and Construction Technology The interviewees shared that Vietnamese practitioners lack knowledge and capability in advanced design and construction technology The practitioners not have knowledge in the more sophisticated and technology-oriented services Their design knowledge may also be out dated Long et al ͑2004͒ also found a lack of capable consultants and domestic contractors for handling large projects in Vietnam The interviewees shared that the low-cost labor advantage has led to a low degree of mechanization and heavy reliance on unskilled workers This has led to low construction productivity Obsolete technology and equipment can be found in a typical domestic construction firm ͑Luu et al 2008͒ It is recommended that local construction practitioners take steps to acquire new knowledge and practices by upgrading themselves Foreign firms entering Vietnam should be aware of this weakness If they are partnering with Vietnamese firms, they should not expect too much from their local partners If they enter as project developers, they should be mindful that Vietnamese A/E/C firms may not be able to meet the high design standards that Western countries are used to Lack of Experience in Complex Projects According to the interviewees, a catch-22 situation exists because domestic firms lacked advanced design knowledge They are not awarded complex projects, and therefore lacked the experience This makes them incompetent to handle future complex projects Interviewee A2 commented that: The design for complex national-level projects is often carried out by foreign firms For example, the My Dinh National Stadium was designed by a Chinese firm It is because Vietnamese firms are not experienced when compared to foreigners We especially lack experience in sophisticated projects such as bridge or underground infrastructure This confirms the findings of Luu et al ͑2008͒ finding that labor-intensive construction is mostly given to domestic firms while complex plant and infrastructure construction, which needs high technology, are undertaken by foreigners Lack of Project Management Ability The interviewees opined that strong project management capability is a key requirement in construction projects, especially in projects that have foreign capital which are also generally more complex The majority of them reported that there is a shortage of project managers who have experience handling large-scale projects in both domestic and international markets They shared that the pool of project management talent is small High occurrence of project delays and cost overruns are the norm in Vietnam ͑Long et al 2004͒ P1 reported that: We want to recruit more skillful project managers We have actively looked for them by placing advertisements or through recruitment drives But the applicants are not up to our expectation Our company is still short in staff who have enough skills to handle our current as well as newly won projects As such, most of our staff are overworked It is recommended that effective project management at corporate, process, project, and activity levels should be introduced to professionals to enhance construction industry performance in Vietnam ͑Long et al 2004͒ More continuing professional development courses could be offered P2 said that: JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1109 Construction industry practitioners should attend training courses in project management It is not only beneficial to the individual but also to his firm I strongly encourage my staff to attend these classes and we pay their course fees Lack of Strong Financial Capacity Strong financial capacity is important as it enables firms to have smooth project cash flow and reflects the firms’ capability to handle large projects The interviewees shared that Vietnamese A/E/C firms not have strong financial capacity This weakness causes local A/E/C firms to lose out when competing with foreign players Luu et al ͑2008͒ also found that the problem is compounded by public owners delaying payments for completed works due to bureaucracy in government departments Opportunities Available to Vietnamese Firms Increase Sales Volume The rapid growth of Vietnam’s construction industry offers domestic firms many opportunities to increase their sales volume, said all the interviewees They also pointed out that FDIs in Vietnam’s infrastructure lead to more construction projects for local A/E/C firms C1 commented that: Although FDI projects are won by foreign contractors, they always need our participation in these projects as subcontractors They also seek other local construction firms because the locals understand the Vietnamese construction law and regulations better and know the cheap source of labor and material supply Acquire and Update Knowledge Vietnam’s WTO membership leads to influx of foreign A/E/C firms Domestic firms have the opportunity to learn advanced design and construction technology from foreign firms The learning opportunities come from cooperating with foreign partners or working as their subcontractors Updating their knowledge and learning advanced design and construction technology increase local firms’ competitiveness in Vietnam and overseas The interviewees pointed out that local firms also learn from foreign firms new management skills such as how to provide superior customer service There is thus opportunity for domestic firms to learn and change their mindsets, improve their service standards, and management effectiveness Export Service Overseas Vietnam’s WTO membership also provides opportunities for Vietnamese firms to export their services to other countries The local interviewees shared that they are excited about the prospect of exporting They admitted that Vietnam’s ability to export construction and consultancy services is currently limited However, it has exported building materials and labor to Brunei, Ireland, Japan, Korea, Libya, and the Middle East ͑Vinaconex Corporation 2008͒ Threats that Vietnamese Firms Face Reduced Market Share In Vietnam’s construction market, small firms make up 74% of registered companies, but only contribute 11% to construction Table Comparison of Vietnamese and Foreign Firms Rank Description Meana t Significance Financial capacity 4.68 17.27 0.000 Experience in the complex projects 4.52 12.47 0.000 Design techniques 4.32 9.85 0.000 Management ability 4.19 9.45 0.000 Construction technology 4.00 6.82 0.000 a 5-point Likert scale: = Vietnamese firms are significantly stronger; = Vietnamese and foreign firms have equal strength; and = foreign firms are significantly stronger output, with medium and large firms contributing 89% of the total revenue ͑Vietnam Government 2007͒ The interviewees lamented that market share will inevitably become smaller after many new foreign firms are allowed to operate in the construction market This definitely poses a threat to domestic firms as their market share would be reduced Competitive Advantages of Foreign Entrants Local interviewees were asked to rate the perceived strengths of Vietnamese as compared to foreign A/E/C firms on a 5-point Likert scale, where = Vietnamese firms are significantly stronger; = Vietnamese and foreign firms have equal strength; = foreign firms are significantly stronger The test values and significant levels were set at ͑equal strength͒ and 0.05, respectively Table shows that mean values were all above 3.0, and on a 5-point scale, this means that the local interviewees felt that foreign firms are stronger than Vietnamese firms With p = 0.00, this further indicates that the results are significant It can thus be concluded that local interviewees perceived that foreign firms are stronger than Vietnamese firms in all the five areas: financial capacity, experience in complex projects, design techniques, management ability, and construction technology The findings confirm the study of Cheah et al ͑2007͒ which found that domestic firms in developing countries have to confront the rivalry of foreign firms, which largely possess stronger financial and technological capabilities Discussion 1: Vietnamese Firms’ Strategies The local interviewees were asked how they would respond to the threat of foreign competition and the competitive strategies that they would adopt The results are shown in Table The top three strategies identified by local interviewees are to restructure their organizations, invest in research and development ͑R&D͒, and provide better service Most of the interviewees would not reduce their profit margins nor rely on the government to help them compete against foreign Table Vietnamese Firms’ Response to Threats Rank Strategy Frequency % Restructure organization Invest in R&D Provide higher quality service Explore overseas markets Form joint-ventures Rely on government Reduce profit margin 24 23 22 19 16 96 92 88 76 64 16 12 1110 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 firms The interviewees said that it will take too long for the government to act For example, interviewee P3 said that “the government’s plan to adjust, amend, supplement, and implement a better legal system is proceeding at a glacial pace.” Organizational restructuring is critical to state-owned companies because they lack competitiveness as compared to privateowned companies The interviewees believed that reorganizing their firms would make them more competitive and better able to attract managerial talent and skilled labor Interviewee C1 conveyed that a company needs to have a resourceful pool of talent in order to dominate the construction market It is also important to transform the traditional seniority-based personnel management system into a new flexible human resource management system in order to survive the market competition Luu et al ͑2008͒ also confirmed the importance of reorganizing company structures and paying attention to human resources Among the firms, stateowned ones are those in dire need of reorganization Interviewee Q1 remarked that: Since we are a stated-owned company, it is difficult for us to make any changes to our company structure and the way we want to business Every time we have an internal problem, we cannot make our own decision Instead, we wait for the government’s decision So, it takes a long time for us to solve just a minor problem The only way to make us more competitive is to restructure into a private corporation Investing in R&D is the second most frequently cited strategy that Vietnamese firms would adopt Vietnamese A/E/C firms indicated that they would invest in R&D in order to have design and construction innovations They shared that they would send their staff for training to improve their ability to innovate, and change their mindset in doing business Providing better service, by delivering high product and service quality and offering superior services to clients, is the third most frequently cited strategy The finding suggests that Vietnam’s construction industry has hitherto neglected to remain competitive in a fast-changing environment ͑Luu et al 2008͒ Thus, competition will force firms to sharpen their competitive edge in order to survive Discussion 2: Recommendations to Foreign Firms This section reports the recommendations given by interviewees working for Vietnamese and foreign firms to foreign A/E/C firms that are entering Vietnam Foreign firms reported that it is difficult to deal and comply with Vietnam’s legal system and complex regulations Some foreign interviewees faced serious difficulties due to complicated and burdensome regulatory procedures The interviewees shared that government approvals take a long time to be obtained Vietnam is known to have complex legal and institutional framework ͑Long et al 2004͒ A foreign designer remarked that: We always face problems in getting government approvals for our projects Apart from the lengthy process, the officials in charge are not helpful Instead of telling us all their requirements at one go, they will highlight one or two requirements When we resubmit the updated documents, they will tell us the documents are still inadequate, and new requirements would be stipulated The foreign contractor who was interviewed said that: Vietnam’s construction regulations are very complicated Some of them contradict each other This sometimes makes even local practitioners very confused, not to mention foreigners like us Foreign interviewees recommended that all employees ͑foreign and local͒ should attend continuing professional development courses to update themselves on Vietnam’s policies, laws and regulations Given these problems, all interviewees recommended that foreign firms form JVs with private Vietnamese firms when they venture into Vietnam The local partner should be in charge of making statutory applications, getting project approvals and permits Foreign firms should focus on the design and technical aspects Studies have shown that developing countries see international JVs as one of the best instruments for meeting the competing interests of national development and preventing foreign investors from dominating the economy ͑Sornarajah 1992͒ The advantage of JVs to Vietnamese firms is that they can have fast access to up-to-date technology through their JV partners ͑Yoshino and Rangan 1995͒ While Vietnamese A/E/C firms are eager to form international JVs, it is also necessary to find out if this would benefit foreign firms entering Vietnam Ling et al ͑2005͒ found that forming nonequity project JVs between foreign and domestic A/E/C firms bring about project success The advantages of JVs to foreign firms are better adaptation to the local environment and easy access to licenses, human resources, and other expertise through the local partners ͑Xu et al 2005͒ One foreign consultant who was interviewed recommended that foreign firms should form JVs with reputable and strong local partners In addition, they should form strategic partnerships with key contractors and suppliers to ensure competitive rates Joint venturing is thus a win-win situation for both foreign and Vietnamese A/E/C firms Vietnamese A/E/C firms benefit by learning from foreign firms that have advanced design and construction technology and superior management practices Foreign firms benefit from JVs because with a local partner, they can overcome their non familiarity with the new market, and penetrate the market directly without being encumbered by the problem of licensing ͑Badger and Mulligan 1995͒ Vietnamese A/E/C firms can assist them in understanding and complying with the complex planning and building approval process Interviewees working in Vietnamese firms were asked the criteria they used to select foreign partners The results are shown in Table The top three most frequently used criteria are foreign partners who possess: advanced knowledge in design and construction technology, strong financial capacity, and experience in international projects The need for up-to-date knowledge has always been the focus of domestic firms in partnering since it helps to upgrade their knowledge, skills and technology These are the areas Vietnamese firms lacked in as well ͑see section on Weaknesses͒ It is recommended that foreign A/E/C firms focus on niche services and position themselves to offer services in complex and specialized projects The need to have specialty advantages confirms findings of Low and Jiang ͑2004͒ on firms having specialized fields in internationalization efforts The second selection criterion is foreign firms with strong financial capacity Luu et al ͑2008͒ found that competitiveness in Vietnam is greatly influenced by the capability of capital supply, and it is imperative for construction firms to have financial capacity High financial capacity allows work to proceed smoothly JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1111 Table Vietnamese A/E/C Firms’ Criteria for Selecting Foreign Partners Interviewees’ main business Possess knowledge in advanced design and construction technology Strong financial capacity Possess experience in international projects Good corporate reputation Architects PMs Cost engineers Contractors Total 13 25 3 13 23 13 22 3 15 without being over reliant on payment from clients, and allows firms to manage bigger-scaled projects It is recommended that foreign firms should have sufficient cash reserves for working capital before embarking on internationalization However, a foreign interviewee cautioned that foreign firms should structure deals that minimize cash outlay If possible, income should be priced in U.S dollars ͑USD͒ or Euro, and not in Dong, so that the impact of any Dong devaluation can be contained easily The third most important selection criterion is foreign firms’ experience in international projects As Vietnamese construction companies are not involved in many international projects, collaborating with a foreign company with such experience will enable them to learn from their partners This relates to their thirst for updated knowledge Having international experience also assures Vietnamese partners that the foreign firm has experience in cross-cultural encounters, which must be properly managed to achieve a successful collaboration ͑Ling et al 2007͒ Foreign interviewees stressed the importance of expatriate staff to learn Vietnamese culture The implication for foreign A/E/C firms is that to make themselves desirable JV partners, they must have prior experience in international projects, and not use Vietnam as a test bed for their internationalization efforts It is recommended that foreign firms evaluate themselves against the selection criteria listed in Table 7, and if necessary acquire the necessary experience, expertise and capital to make themselves more likely to be selected by Vietnamese A/E/C firms for their ventures in Vietnam This study does not recommend that foreign firms JV with state owned companies The interviewees shared that these firms lacked competitiveness and are inefficient Moreover, they need to undergo reorganization first ͑see Table 6͒ However, since the central government and provincial authorities are major customers for large projects ͑Luu et al 2008͒, foreign firms should maintain good relationships and connections with higher local government officials and local power sources in order to win more projects The interviewees shared that bribery and corruption are present in the construction industry Vietnam scored 2.6 out of 10 ͑0 = high level and 10= low level of perceived corruption͒ on perceived public sector corruption, placing it 123rd among 180 countries ͑Transparency International 2007͒ An example of public sector corruption is that millions of dollars of foreign aid earmarked for construction projects were misappropriated by corrupt Transport Ministry officials ͑Asia Times Online 2006͒ Long et al ͑2004͒ also found fraudulent practices and kickbacks exist in Vietnam’s construction industry It is recommended that foreign firms be mindful of corruption and set up surveillance systems to curb wasteful spending Foreign interviewees recommended that foreigners should undertake commercially viable private projects rather than government projects as there is less corruption in these projects They should develop contingency plans to deal with corruption and bribery Conclusions With the Vietnam’s construction industry opening to foreign firms, it is crucial for Vietnamese firms to understand their own strengths and weaknesses in competing with new foreign entrants, and recognize the opportunities and threats associated with its competitive environment The research method adopted was based on questionnaire survey Participants in this research were randomly selected local and foreign A/E/C firms operating in Vietnam In-depth interviews were carried out with 25 and 12 construction industry practitioners working in local and foreign A/E/C firms, respectively Their rich working experience gave insights into the current position on local and foreign A/E/C firms after Vietnam’s entry into the WTO This research contributed to knowledge by uncovering the SWOT for Vietnamese A/E/C firms The main strengths are familiarity with local cultures and industry practices and labor advantages The weaknesses include lack of strong financial capacity and project management ability Opportunities for Vietnamese A/E/C firms include higher construction volume, learning and acquiring advanced design and construction technology from foreigners Threats include reduced market share and having to compete with foreign firms that are stronger The study reveals that foreign firms are perceived to be stronger than Vietnamese firms in terms of financial capacity, design and construction technology, project management ability, and experience in complex projects In the new competitive environment, it is found that the Vietnamese firms would want to restructure their organizations, invest in R&D and form JVs with foreign firms They are particularly keen on cooperating with foreign firms that possess unique strengths which local ones are lacking of, which are advanced design and construction technology and strong financial capacity To respond to Vietnamese firms’ actions, it is recommended that foreign A/E/C firms that are planning to enter Vietnam form JVs with strong and reputable local private firms and focus on working in commercially viable private sector projects that are likely to have less corruption taking place The qualities needed to be a desirable JV partner to locals are found in Table Foreign A/E/C firms should be vigilant against corruption, waste, and substandard quality output Surveillance systems should be in place to manage these Foreign firms should offer niche products and services and be involved in complex and specialized projects which locals not have the design and technological capability Income should be priced in a stable currency ͑USD or Euro͒ to minimize problems if the local currency is devalued Foreign A/E/C firms should familiarize themselves with the local environment and train locals engaged in the projects in project management The practical findings serve as a guide to Vietnamese firms and 1112 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 boost their awareness of new challenges in their environment and allow them to be better prepared The findings are also useful to foreign firms As shown from the study, the factors that Vietnamese firms consider when they are seeking for potential foreign partners are clearly identified These are valuable to foreign firms who are considering venturing into Vietnam’s construction industry One limitation of this study is the small sample size Therefore, the findings might not truly represent the real situation of Vietnam’s construction industry or the perceptions of all A/E/C firms Another limitation is that with constant development of the Vietnamese construction industry, the competitive strategies to be adopted by domestic 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Therefore, the Vietnamese A/E/C firms there would have the necessary knowledge of and experience in working with foreign firms, and can therefore better inform the research Studying only foreign... is one of the main barriers preventing foreign firms from venturing into Vietnam For foreign firms, it is recommended that they should study and understand local regulations and culture before