ASSESSING INTERNATIONAL JOINT VENTURESIN VIETNAM

by

Lai Xuan Thuy

A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration

Examination Committee: Dr. Fredric William Swierczek (Chairman)Dr. Truong QuangDr. Bettina Buchel

Nationality: VietnamesePrevious Degree: Bachelor of Science (Econ.)

Economic University of Sofia, BulgariaBachelor of EnglishPedagogy University of Hue, Vietnam

Scholarship Donor: The Government of Switzerland

Asian Institute of TechnologySchool of Management

Bangkok, ThailandApril 1999

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ACKNOWLEDGEMENT

The author would like to express his deepest acknowledgement to the research advisor, Dr. Fredric William Swierczek for his intensive supports, valuable suggestions, guidance and encouragement during the time of the study.

Many sincere thanks are also due to Dr. Truong Quang and Dr. Bettina Buchel for their valuable time, comments, and advice. Their constructive suggestions were of great help in successfully completing this study.

The author would like to express his sincere gratefulness to Mr. Nguyen Minh, General Director and Ms. Thu Nga, Director Assistant at HBC, Mr. Anh Hung, General Director, Ms. Marilyn Glorioso, Chief Financial Controller, Ms. Thu Hang, Executive Secretary and Mr. Le Bo, Human Resource Manager at Century Riverside Hotel, Mr. Nguyen Nam, Deputy Director and Ms. Lan Huong, Office Assistant at Luck Vaxi Vietnam, Mr. Christophe Kaczowski, Project Manager at Thyssen Ascenseurs, Mr. Dinh Khanh, Chief of the International Relations Department in the Planning and Investment Service of Thua Thien Hue Province, Ms. Thanh Hai Project Assistants at MASCED, Ms. Minh Chau, Senior Lecturer at HCMC Economic University, and others for their precious information related to the research.

The author would like heartily to dedicate this study to his beloved parents, his wife, Minh Ly and his children, Little Mai and Bao Thai who have always sacrificed to encourage and support him in life.

Lastly but not least the author would like to express his faithful thanks to the Director of SAV Program and the Government of Switzerland for giving him opportunity and financial supports so that he could successfully complete his MBA study.

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ABSTRACT

Based on the information from the questionnaires and direct interviews with managers of the international joint ventures, this paper focussed on assessing the joint ventures performance in Vietnam. The research results indicated that the joint ventures performed rather well in behavioral and learning, satisfactorily in strategic, but rather poorly in economic perspectives. The analysis also found significant differences in partners’ perception on success performance. The five key dimensions in success perceptions of the joint venture managers have found to be Functional efficiency, Competitiveness, Effectiveness and efficiency, Equity, and External customer relations. There are significant correlations between success factors and the operational results as well as between success factors and input, process and output indicators. Important problems and issues in the joint venture relationships have also discovered in the interviews with the managers.

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TABLE OF CONTENTS

CHAPTER TITLE PAGE

Title Page i

Acknowledgement ii

Abstract iii

Table of Contents iv

List of Tables vi

List of Figures vii

Chapter 1. Introduction 1

1.1. Background and Rationale 11.2. Statement of the research problem 21.3. Research objectives 21.4. Scope of the study 31.5. Organization of the report 3

Chapter 2. Literature Review 4

2.3. Joint venture concepts 42.2. Advantages and disadvantages of the joint venture 52.3. Motivation of creating a joint venture 62.4. Basic types of joint ventures 72.5. Problems and Issues of International Joint Ventures 82.6. Measuring success in the Joint venture 12

5.1.1. Problems in measuring success of joint ventures 125.1.2. Theoretical aspects of measuring success in joint ventures 13

Chapter 3. Foreign Direct Investments In Vietnam 15

3.1. Foreign Direct investment 153.2. Important features of FDI in Vietnam in 1998 18

Chapter 4. Research Methodology 20

4.1. Analytical and Conceptual Framework 204.2. Assumption and Concept Explanation 224.3. Method of data collection 234.4. Method of data analysis 23

Chapter 5. Results Of the Survey 24

5.1. The Questionnaires Results 245.1.3. Joint venture objectives 245.1.2. Assessing Joint Venture Performance 265.1.3. Results of Factor analysis 32

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5.1.4. Other issues of discussions 365.2. Interviews Results 38

5.2.1. Problems Resulted From Differing Basic Objectives 385.2.2. Differences in partner size 405.2.3. Ownership and Control of the joint venture 405.2.4. Technology transfer 415.2.5. Brand name 425.2.6. Cultural Problems 425.2.7. Management payment 435.2.8. Problems Related to the Government policies 43

Chapter 6. Conclusion and Recommendations 46

6.1. Conclusion 466.1.1. Joint venture objectives 466.1.2. Joint venture performance 466.1.3. Problems in the joint venture relationships 50

6.2. Recommendations 506.2.1. Recommendations to the joint venture managements 506.2.2. Recommendations to the policy makers 52

6.3. Further research suggestion 52

References 53

Appendix 55

Appendix 1: A case of HBC 55Appendix 2: Major Characteristics of the Respondents 58Appendix 3: List of the International Joint Ventures 59Appendix 4: The Survey Questionnaire 60

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LIST OF TABLES

TABLE TITLE

Table 2.1. Major reasons for joint ventures

Table 2.2. Basic types of joint ventures

Table 2.3. Areas of Problems in the Joint Venture

Table 3.1. Licensing new projects and capital raising in 1997-1998

Table 3.2. General information about FDI projects in 1998

Table 4.1. Framework for assessing joint ventures

Table 5.1. Respondents’ perceptions on the joint venture objectives

Table 5.2. Comparison between Vietnamese and foreign managers

Table 5.3. Overall Performance of the Joint Ventures

Table 5.4. Respondents’ Evaluation of the Joint Venture’s Performance

Table 5.5. Comparison of the respondents’ evaluation on the JV’s performance

Table 5.6. Partners’ Perceptions on the Input, Process, and Output

Table 5.7. Correlation Matrix of Input, Process, and Output

Table 5.8. Results of factor analysis

Table 5.9. Factor Scores: Comparison between Vietnamese and Foreign Partners

Table 5.10. Correlation Matrix of Success Factors and Operational Results

Table 5.11. Regression analysis of Success Factors on Operational Results

Table 5.12. Correlation Matrix of Factors and Input, Process, and Output

Table 5.13. Regression analysis of Factors on Input, Process, and Output

Table 5.14. Respondents’ views on decision-making, communication

Table 5.15. Major areas of the joint venture problems and issues

Table 5.16. Comparison between utility fees for SOEs and non-SOEs*

Table 6.1. Ranking success factors by level of partner’s satisfaction

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LIST OF FIGURES

FIGURE TITLE

Figure 3.1. Trend of Foreign Direct Investment for the period 1988-1998

Figure 3.2. Foreign Direct Investment Structure by Sectors

Figure 4.1. Analytical framework of the research

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Chapter 1

INTRODUCTION

1.1. Background and Rationale

Since 1988, Vietnam has been accelerating in the process of transformation from the centrally-planned as having been for more than forty years to a freer market-oriented economic mechanism and merging with the regional and global economies. The “Doi moi” policy of the Government has actually been effective in pushing the economic development of this planned-to-be-80-million-by-2000 nation. It has created more opportunities and favorable conditions for exploiting the internal and external development factors, encouraging investments of different forms, especially foreign direct investment under various modes, including joint venture as one of the most important cooperative strategies for companies to enter and win this rigorously competitive emerging market.

According to the information of the Ministry of Planning and Investment, in 1998, more than 260 foreign direct investment projects were licensed with a total registered capital of US$4.06 billion. In addition, 133 projects were approved to increase their investment capital with the amount of US$769 million. Therefore, at the end of the year, a total of US$4.83 billion of direct foreign investment capital were registered. The investment of these projects come from 32 countries around the world, leading by Russia with one project of US$1.3 billion and Singapore with 36 projects and US$893.005 million. More than 70 percent of the projects are joint ventures.

Although the renovation policy of the Government has created better environment for investment, a trend of reducing foreign direct investment has been observed during the last recent years. In comparison with 1997, the number of FDI projects licensed and newly registered capital in 1998 was reduced by 21.5 % and 10% respectively. The number of failed joint ventures has been growing, while others have been trying to change the ownership to wholly owned foreign companies. Investors may start to rethink and adjust their strategies to enter the Vietnamese market through joint venture.

On the other part of the landscape, the situation is more optimistic. Many international joint ventures have actually found their position in this difficult market, namely Vinacpecial, Proconco, Mekong Concrete Mix, VN/CN Catering Service, and others (Phong, 1995). Some of the joint ventures are continuing to successfully expand the market share and realize benefits such as Telstra, Long An Mineral Co., Chinfon-Haiphong Co., and so on (MPI Report No. 11 BKK/KCN January 1, 1999), despite the current financial crisis in the region.

In 1998, the Government awarded certificates of merit (CM) to four foreign invested enterprises: Ajinomoto Monosodium Glutamate (Japan), Vedan MSG (Taiwan), CP Vietnam (Thailand) and Proconco Animal Feed (France) for their outstanding achievements in business activities and implementing social programs for the community.

Then, what is actually the situation of the joint ventures in Vietnam? Have the joint ventures been running well? And do they have a future? Many of recent research concentrated on the

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legal, cross-cultural, compatibility, and conflict aspects of the joint ventures to identify factors for more effective foundation and operation of the joint venture.

This study is focusing on assessing the joint venture’s performance with the major objective to help the joint venture partners as well as the potential investors to have an insight into the current situations of the joint ventures in Vietnam and adjust their corporate strategies.

1.2. Statement of the research problem

Knowing how well a joint venture is running is practically important for the managers and participants in the venture to adjust and develop their business strategies. Based on the information from the questionnaires and in-depth interviews with the joint venture managers, this paper is focused on evaluating the performance of the joint ventures in Vietnam.

The major problem of the research is therefore to clarify the current performance of the joint ventures, that is, to answer the question of how well the joint ventures have been performed in Vietnam and what problems they meet in their operations.

1.3. Research objectives

The general objective of the research is to help understand the current performance situation of the joint ventures in Vietnam, their achievements and future position in this newly emerging market. Based on the systems analysis approach, an extensive literature review, and in-depth situational analysis, the research would provide useful information for the current joint venture managers to understand the actual situation of the joint ventures and have necessary strategic adjustments.

The research also helps potential investors to have more objective views on the situations of the international joint ventures in Vietnam, which would be useful for them in preparing and adjusting their entry strategies into the country. For the policy makers, the research would be an important source of information to give them an insight into the current performance of the joint ventures to have necessary policies for supporting the foreign direct investment companies in general and joint ventures in particular to achieve their goals.

Specific objectives of the research can be stated as follows:

1. To develop an analytical framework for evaluating joint ventures;

2. Based on the survey, to evaluate the joint venture performance;

3. To identify the major success factors and how they affect the operational performance of the joint venture; and

4. To make important recommendations for the joint venture managers, potential investors, and policy makers in making necessary adjustments on the strategies and policies.

The author would also make a suggestion of further research in the fields of interest for a deeper and more complete assessment of the joint ventures in the country.

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1.4. Scope of the study

The study was focused only on the joint ventures in the Central part of Vietnam, mainly Thua-Thien-Hue and Danang, the two major economic centers in the region. So it limits the generality of the research findings.

The research did not deal with the issues of partner selection, negotiation, and termination phases of the joint ventures. Instead, the study was focusing only on the joint venture operational performance, based on the interviews and questionnaire data from the managers, currently working in the joint ventures. Therefore, it limits the wholeness of the finding information.

1.5. Organization of the report

The report is divided into six chapters. As principle, the first Chapter is an introduction to the research study. The second Chapter is an extended literature review on the issues of joint venture and joint venture success measuring. Understanding the joint venture and problems related to its assessing would help easier understand the finding information.

In Chapter 3, an overview of the foreign direct investment in Vietnam is made to provide an insight into the situations, in which international joint ventures are operating. Occupying about 70% of FDI projects, the joint ventures have actually played important roles in the economic development of the country. Chapter 4 deals with the issues of the research methodology. Conceptual and analytical frameworks are built to guide the research and support understanding the research results.

Chapter 5 is the research result. It is subdivided into three sections. In the first section, the questionnaire results are discussed to give an overall landscape of the joint venture performance, based on the subjective information from the questionnaires. In the second section, factor analysis was employed to find key success indicators and how they affect operational results of the joint venture. And the last section is the interviews result of selected managers from the joint ventures to address the operational problems related to the joint venture performance.

In Chapter 6, important conclusions about the research finding are made to give an extracted summary on the problems studied. Appropriate recommendations are also made for both policy makers and businessmen interested in the joint venture and its issues. The author also makes suggestions for further research.

Additional issues of decision making, communication, and conflict solving approaches are also discussed in Chapter 6 to make clearer picture of the joint venture situations. Especially, a real case of financial performance in a joint venture was also discussed additionally in the appendix section as an illustration of the findings (see Appendix 1).

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Chapter 2

LITERATURE REVIEW

2.3. Joint Venture Concepts

According to Thorelli, a well-known specialist in International joint ventures issues, in a rapidly changing world environment, firms should build networks “with a vast hierarchy of subordinate, crisscrossing relations” (Thorelli, 1986). An important feature of the global firm’s network is that partners may develop relationships between themselves and collaborate with the market leaders. Alliances thus formed are seen as part of a process of strengthen the firm’s position in an industry and are essential for its survival (Hakansson and Johanson, 1988).

A joint venture is formed when two or more firms form a third entity to carry out a productive economic activity (Harrigan, 1985). A joint venture has also been defined as an equity arrangement between two or more independent firms. This definition includes equity alliances between two firms to organize production and marketing on a regional rather than a country level. Joint ventures have increased in various forms and have become more strategic rather than tactical in nature.

According to Czinkota, Rivoli, and Ronkainen (1989) joint ventures can be defined as “the participation of two or more companies jointly participating in an enterprise in which each party contribute assets, owns the entity to some degree, and shares risks.”

For many developing countries, joint venture is a very important method of technology transfer to acquire and build necessary technological capability for the national industries. One of the most important reasons for forming joint venture companies is to reduce the exposure to risk associated with the development of new products and technologies (Harrison, 1987).

Many researchers have emphasized the importance of the joint venture as an appropriate entry strategy to go abroad. For the purpose of evaluating the international joint venture, the definition of Zeira and Shenkar (1990) is suitable because it encompasses the unique characteristics consistent with most other definitions. According to the authors, an international joint venture is “a separate legal organizational entity representing the partial holdings of two or more parent firms in which the headquarters of at least one is located outside the country of operation of the joint venture”. And this entity “is subject to the joint-control of its parent firms, each of which is economically and legally independent of the others”.

According to Lane and Beamish (1990), a successful joint venture is a stable, healthy, and profitable business relationship based on cooperation and two-way communication that meets the needs of both partners over a long term, mutual condition.

Buchel and other authors (Buchel et al., 1998) argue that joint ventures “are clearly becoming more popular as a form of cooperative arrangement, not only between partners from different countries but also between companies operating in the same business area”. According to the

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authors, joint ventures “are a form of cooperation, which stand between the traditional mechanisms of economic coordination, that is market and hierarchy”.

Researchers have tried to categorize the various kinds of cooperative arrangement between companies. The first important distinction to be made among the different kinds of cooperative arrangement is between contractual arrangements and cooperative arrangements, which involve exchange or contribution of capital, that is equity arrangements. Among the later, a distinction may be made between cooperative arrangements, which lead to the creation of a new entity and arrangements, which involve equity swaps. The extreme form of equity swaps is where the cooperating companies are combined by means of merger and acquisition (Buchel et al., 1998).

Buchel distinguished joint venture and joint venture system. The former denotes the new entity created by the joint venture’s partners, and the later means the whole structure of relationships amongst the partner companies and the new entity. She argued that the relationships amongst the partners are not necessarily all of a cooperative nature. It often happens that the partner organizations cooperate in some areas but are competitors in others. According to the author, an “effective joint venture management is characterized by continuous learning”. At the first level, the important thing is to learn how a joint venture works, what are problems which may arise, and what possibilities exist for organizing, guiding and developing in different areas. At the second level, the aim is to recognize the way in which the joint ventures can be used to enable the partner companies to learn.

2.2. Advantages and Disadvantages Of the Joint Venture

The reality of global competition today is that few companies possess all of the competitive advantages that would enable them to be successful internationally. For firms in industrial countries, prospects for future growth are increasingly seen as being disproportionately in developing parts of the world, not in more familiar markets in the developed nations. But, for a variety of reasons, doing business in developing countries is viewed as being considerably riskier, to be approached with much more caution. Similarly, developing country markets are becoming much more open to international competition, providing both opportunities and dangers for domestic companies. To meet these challenges, managements are attempting to position their firms to become more competitive. Thus, from the perspectives of both industrial and developing country companies, the evolving global market calls for change from past competitive practices.

Joint ventures have both advantages and disadvantages. They, on the one hand, may increase rivalry while also eliminating competition among the participants of the venture. Joint ventures can enable the participants to unify complementary technical and managerial capabilities to perform projects whose requirements exceed the expertise and resources of any single firm. By facilitating the transfer of know-how and technology, joint ventures also can improve the skills of individual participants and thereby overcome barriers to entry and expansion in specific markets.

Such collaboration may be particularly valuable in permitting firms to realize scale economies for research and development by avoiding duplication of effort and assembling a critical mass of resources and a higher level of investment in inventive activity.

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Joint ventures also enable firms to spread the risk associated with financially ambitious projects. If channeled in this manner, joint ventures can increase output and lower costs and prices. For many companies in the developing countries, joint venture could help obtain also investment capital and knowledge.

However, collaboration among direct rivals may discourage their independent pursuit of promising approaches to enter new markets or develop new products. Such cooperation can lead to direct price fixing or cause spillovers of cost, pricing and design information that reduce the participants' inclination to compete aggressively against each other.

2.3. Motivation Of Creating a Joint Venture

The reasons for alliance of different partner companies may differ from each other. Harrison divided the reasons by which a joint venture is formed into internal, competitive, and strategic goals. These main reasons are summarized in Table 2.1

Table 2.1. Major reasons for joint ventures

Internal reasons: Spreading costs and risks. Safeguarding resources, which can not be obtained via the market. Improving access to financial resources. Benefiting from the economies of scale and advantage of size. Accessing new technologies and customers. Accessing innovative managerial practices. Encouraging entrepreneurial employees.

Competitive goals: Influencing structural evolution of the industry. Pre-empting competitors. Defensively responding to blurring industry boundaries and

globalization. Creating stronger competitive units.

Strategic goals: Creation and exploitation of synergy. Transfer of technologies and skills. Diversification goals.

Source: Adapted from Buchel et al., in International Joint Venture Management, John Wiley & Sons (Asia) Pte., Ltd., 1998, pp. 16.

Other authors emphasize the role of a joint venture as gaining faster and easier access to the local market and the distribution system; improving knowledge of the local economy, politics and culture; gaining access to local human resources, including managers and labors; sharing risks; and having preferential treatment (Swierczek et al.,1995)

While, for the local partners, the motivation may be others. Many developing countries seek foreign investment in order to obtain capital, technology and managerial know-how. For most developing countries, other benefits include an increase in employment and

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productivity levels as well as the efficient utilization of scarce resources such as foreign exchange and imported material inputs.

A joint venture may permit local enterprises to increase its competitive position in the local market by upgrading its product line and obtaining technical assistance from foreign firms. Joint ventures help the local firms gain easier access to technological information particularly from industrially developed countries.

Moreover, through the establishing of the joint venture the local enterprise can bridge the gap between its vast material resources and the technologies from the developed countries. Joint ventures can be viewed as a means by which firms can learn to seek or retain their capabilities of organizing a particular activity while benefiting the superior production technique of a partner (Williamson, 1985).

2.4. Basic Types Of Joint Ventures

Theoretically, there are countless ways of using and constructing joint ventures. Based on the existing literature and applications, which are common in practice, six types of joint venture can be listed as in Table 2.2.

Table 2.2. Basic types of joint ventures

Complementary technology: The partners combine their technologies to diversify their product/market portfolios.

Market technology: Combination of the market knowledge of one partner with the production or product know-how of the other.

Sales joint ventures: The producer and a local partner cooperate in an arrangement, which is a mixture of independent representation and own branch.

Concentration joint ventures: Competing partners cooperate to form larger and more economical units.

Research and development: The aim is to create synergy by making joint use of research facilities and exploiting opportunities to specialize and standardize, combining know-how and sharing risks.

Supply joint ventures: Competitors with similar input need cooperate to safeguard supply, reduces procurement costs or prevent the entry of new competitors.

Source: Buchel et al., International Joint Venture Management, John Wiley & Son (Asia) Pte., Ltd., 1998, pp. 17-18.

In terms of the equity participation by joint venture partners, joint ventures can be classified into equity and non-equity joint ventures (Tomlinson, 1970). In practice, the equity form is more common, which involves a financial investment by the partner companies.

Based on the relative strength of the partners involved in the joint venture’s mission, Lei and Slocum (1991) classify joint ventures as specialization or shared value-adding ventures. Specialization ventures are those, in which each partner brings and contributes a distinctive competency in a particular value-adding activity. While in shared value adding joint venture partners participate and share in the value-adding activity together.

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Joint ventures can also be classified into dominant partner joint ventures, when only one of the partners plays a dominant role in the decision making; shared management joint ventures, where each partner play an active role in decision making; or independent joint ventures, where the joint venture’s general manager enjoys extensive decision making autonomy (Killing, 1983).

A distinction should be made between joint ventures that are limited in scope and number of market participants (i.e., two or three firm joint ventures) and industry-wide, market-wide or network joint ventures. The issues that are likely to arise are very different, and should be handled differently, for each. In addition, it is helpful to distinguish generally between joint venture formation and joint venture operation. Most of the case law and discussion in this area revolve around the operation of the joint venture, rather than whether it would be permissible for the parties to create a joint venture in the first instance. In all instances, the joint venture's rules should be reasonably related to the justification for the venture. The venture should also have appropriate safeguards to avoid spillover effects.

2.5. Problems and Issues of International Joint Ventures

Based on statistical data for a long period of time from 1970 to 1995 of the joint ventures practices in the developing countries, Robert R. Miller and other co-authors made a deep analysis to find out the critical problems, which the international joint ventures have faced. These problems can be divided into two kinds: the problems of the joint venture negotiations and the problems related to the joint venture relationships (see Table 2.3).

According to the authors, the evaluation of the assets each partner brings to the joint venture during the time of their marriage is among the most difficult problems in the negotiation process. It is often not a simple matter to evaluate just what these assets are worth. One side, for example, may be bringing to the JV a going business, but one where no equity shares exists in a secondary market. Another difficult valuation problem that exists in many developing country joint ventures concerns new technology to be supplied, usually by the industrial country partner, and which needs to be evaluated to determine an appropriate licensing fee structure. Or, there is technology already incorporated in a product to be manufactured and sold by the JV. These technologies must be evaluated before becoming the joint venture’s common assets.

Another kind of problems relates to the transparency of the negotiation terms and conditions. The authors argue that getting accurate data upon which to base valuations and other decisions can be very difficult in some countries and with some companies. For example, one side or the other may be a family enterprise in which accounting standards might be quite different from internationally acceptable rules. According to the authors, transparency is a particular problem in joint ventures being established in former command economies where there have been no real markets for outputs, for supplies or for financial instruments. Available accounting information means very little in such circumstances, yet somehow the joint venture partners have to come to some mutually agreeable method of assessing the value of assets each side is contributing.

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Table 2.3. Areas of Problems in the Joint Venture

Problems in Negotiations:1. Valuation2. Transparency3. Conflict Resolution4. Management Responsibility5. Changes in Ownership6. Financial Matters

Problems in Partner Relationships:1. Multinationalities2. Export Rights3. Tax Issues4. Dividend and Investment Policies5. Difference in Partner Size6. Ownership 7. Management8. Cultural Problems9. Market c Changes

Source: Robert R. Miller, Jack D. Glen, Frederick Z., “International Joint Ventures in Developing Countries: Happy Marriages?”.

Conflict resolution is another kind of the joint venture problems. Many joint venture agreements spell out in some detail just how disputes between the partners are to be resolved, an apparent requirement that some parties on the developing country side often find objectionable because they believe it displays a less-than-hopeful attitude toward the new relationship. The authors suggested that agreement provisions may involve, at the extreme, quite precise procedures to be used in dissolving the JV, and they are often the subjects of intense negotiations.

Division of management responsibility is a very important issue in the joint venture as it is closely related to the interests of the partner companies to enter the venture. The question of who is to manage the new enterprise is decidedly not a simple matter to resolve, and it is one not necessarily dependent upon which partner maintains majority control. Agreements can be quite specific both on this issue and on the issue of the joint venture management independence. These issues are sufficiently important to companies that many will wish to insert veto restrictions into the joint venture agreement to assure that actions cannot be taken without explicit approval from one or both partners.

Problems related to changes in ownership are also common in the developing country joint ventures. The authors have found particularly important issues when one partner or the other increasingly setting a question of forming the procedures to be followed in changing the ownership structure as the JV matures. According to the authors, this becomes an important issue because it impinges on a number of other operational matters and is quite simply, recognition of the reality that few joint ventures remain unchangeable over their duration. Although it is probably sensible to handle the matter early on, rather than suddenly confronting the need sometime later without clear guidance, the issue obviously is not one

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that yields to easy solution. Developing country partners especially can be leery of such provisions, because they see them as their potential death warrant when the industrial country partner, for one reason or another, wants to take full control.

After all, dividend policy and other financial matters are found to be controversial issues of the joint venture. Dividend policy goes to the heart of the reasons why companies enter joint ventures, with some companies hoping rapidly to expand and gain market share while others strive to gain a quick cash flow to support other operations or, in the case of closely held companies, possibly for personal reasons. A number of other financial issues come up in negotiations, of course, some of which can be the cause of consternation on one or both sides.

The authors have also found key problems affecting the relationships between the joint venture’s partners. According to them the main reason for problems of this kind was the multinationality of the joint venture. The reality of many joint ventures in developing countries is that they involve more often than not large multinational companies (MNCs) which have under their purview a mix of other joint ventures and wholly owned subsidiaries elsewhere in the world. This contrasts with the developing country firm, which may be quite large by local standards, but not in comparison with its partner. The upshot of such differences is that the business perspectives of the two (or more) companies can vary substantially, and this variability can be at the root of relationship problems later in the joint ventures life.

The first problems of the joint venture relationship relate to the export right. Exporting sometimes represents a fundamental difference between industrial and developing country partners and, again, it is an issue difficult to reconcile satisfactorily. Not infrequently, the industrial country company is a multinational corporation with operations and sales in a variety of countries. Typically, it will not want to allow the joint venture to be free to export products, possibly of inferior quality, into markets that may already be served from other manufacturing points in its system. The MNC looks upon the joint venture as one piece of a complex global web, and it is not likely to allow that single piece to dictate its own policies where other pieces or, indeed, the web itself might be compromised. The rule in such situations is for the MNC to put strict limitations on the rights of the joint venture to export.

The developing country partner, on the other hand, typically has much different ideas. Here the expectation is that as new technology is brought in and the joint venture absorbs product/process technologies, exports might provide a natural market for expansion. Indeed, increased exports might be a primary reason for the developing country side to have entered into a joint venture agreement in the first place.

Taxation is another source of the relationship problems. The authors found that part of the optimization process undertaken by the MNC would cover its worldwide tax burden which, all-else equal, it would wish to minimize. Such a tax minimization strategy can affect dramatically relations with the joint venture, particularly when the joint venture either imports parts and components from the MNC or, as is usual, exports products through the MNC parent. The MNC in these circumstances will be very aware of transfer prices between JV and parent, and it may attempt to manipulate that price to lower its taxes. For example, if taxes are considerably higher in the joint venture’s country of operations than in the MNC’s

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source country, then there will be a temptation for the MNC to raise transfer prices to lower profits in the joint venture

Problems of dividend policy and investment are also found to be in the center of the joint venture argument. The authors discovered that where these policies are not spelled out in the agreement, differences could be very difficult to resolve. The problem is that the MNC may have global investment programs that involve the transfer of funds from one region to another. It might in these circumstances much prefer dividends to reinvestment within the joint venture a position not necessarily compatible with its joint venture partner’s view. The opposite problem occurs as well, where the MNC might be quite content to delay dividends in favor of faster expansion and the local partner demurs.

Another set of problem areas relates to the differing size of the two parties in the joint venture. In relative terms, the local partner is likely to be considerably smaller than the MNC and, according the research finding, this difference can cause difficulties during a joint venture initial, often high growth, years. The local partner may have difficulty coming up with the necessary capital infusions to support the expansion.

One of the important issues of the joint venture relationship is the problem of ownership. The desirability of having the operational management of the joint venture independent of either partner has been a problem arising in negotiating JV agreements. The research found that when the joint venture is not established in a way that would allow for that independence, one could expect those relationship problems would emerge fairly quickly. Often this happens when the industrial country partner desires, for one reason or another, to limit the joint venture’s operations in ways, which would make it roughly equivalent to a wholly owned subsidiary. The authors argued that unless such an arrangement had been agreed to early on, it would cause inevitable problems between the partners later in the joint venture’s life.

Related to ownership problems, but in some ways quite distinctive, are a series of difficulties that can occur in controlling the enterprise. The research found that product line disputes are among the more common of these problems. According to the researchers, these raised generally because the conditions that existed when the JV was formed change and, because of the change, alter the perspectives of one or the other partner

Another common source of disagreement has found to be when dealing with sourcing raw materials, parts or components. In this case, the JV agreement can specify in detail that certain materials are to be sourced from the industrial country partner. Aside from the transfer pricing issues that such sourcing raises, the original conditions that made the sourcing provision in the agreement seem logical can change. Over time and as economic development takes place, local sources may become available which are, possibly, lower in cost and at least as high in quality. These sources obviously would be attractive to the joint venture’s management. But, the MNC’s view could be different, because it might benefit more from retaining the original agreement and continuing to produce the materials for the joint venture.

Partly, the problems are caused by the obvious fact that the two (or more) partners come from much different cultural backgrounds, and individuals may see the same set of circumstances in quite different ways. But, there are other dimensions to this cultural gap that are important as well. Corporations themselves have "cultures" which condition how people

11

view their environment and how they interpret issues. This factor is one of the primary reasons why joint ventures established between industrial partners from the same country and even the same industry often run into trouble.

Finally, joint ventures are exposed to ever-changing panoply of forces that shape and direct outcomes. The changing environment within which the joint venture operates also alters partner relationships in ways which can sometimes cause stresses that are difficult, and at times impossible, to resolve. Summarized below are a few cases that arose repetitively in interviews.

The researchers found that the most common cause of change-related problems is the fact that experience in a joint venture results in learning, and learning can modify how one views the contributions of one’s partner. This seems particularly true for managements with little foreign experience, who might feel uncomfortable about their level of understanding with respect to government relations, labor recruitment and management, or marketing and distribution techniques. Thus, according to the authors, these aspects are a primary source of comparative advantage to the local partner when the joint venture is formed.

However, as learning takes place over the years, this advantage begins to erode, and the MNC side may begin to feel more confident about its abilities to handle these issues. Put slightly differently, the MNC may come to believe that the contributions being offered by the local partner are no longer commensurate with his rewards. At such a time, pressure will begin to mount for a change in the joint venture’s ownership structure to provide more equity to the MNC.

Changing circumstances not anticipated when the JV was formed could also cause problems in the joint venture relationship. While both sides to the agreement might agree that the relevant provisions no longer work properly, making the necessary modifications to the agreement in a going operation can be quite taxing. One side or the other may have made commitments in other parts of their operations that are difficult to alter.

2.6. Measuring Success in the Joint Venture

5.1.1. Problems in measuring success of joint ventures

According to Baird, Lyles, and Reger (1993), there exist three factors, which make it difficult to judge the success of joint ventures. The first obstacle is the cooperative context of the joint venture. A cooperative venture involves different levels and different partners, which often have different interests, different technological capability, and different management styles and practices. The assessment is therefore must take into account the interests of various partners, the changes in the relationship and behavior between the partner companies, as well as the learning effects to the joint venture and each partner of it.

The second obstacle is derived from the fact that the objectives for the joint venture are often not defined clearly enough, and where it is the case, it will obviously difficult to decide whether they have been met or not.

The third obstacle is that many joint ventures face especially high levels of uncertainty with regards to technologies, products or markets. This further reduces the meaning and validity

12

of short term, quantitative indices of success and puts obstacles in the ways of a traditional success measurement based on the stable company performance.

5.1.2. Theoretical aspects of measuring success in joint ventures

There are different approaches to assessing the success or failure of an organization. Each approach has its advantages and disadvantages. Geringer and Hebert (1991) examine joint venture performance by objective and subjective measurements. Subjective performance measures each parent’s satisfaction with the joint venture’s overall performance, while objective performance is measured in three ways: survival, stability, and duration of the joint venture.

Daft (1992) describes three major approaches to measure success based on results, processes or the ability of an organization to acquire certain scarce resources.

The result-oriented success measurement is based on output dimension that is related to the goals of the transformation process. The success of a joint venture is measured in terms of whether, or how far, certain objectives are met. The most important of these are usually profitability, growth, and market share, but other aims are also significant, for example quality objectives, number of new products, research findings, stability, and satisfaction.

Process-oriented success measurement is based not on specified output goals, but on an evaluation of the company’s internal transformation processes. The output and process dimensions are usually closely related. Effective and efficient transformation processes often enable a company to be successful in terms of results.

Resource-oriented measurement is based on the company’s ability to obtain scarce resources from the environment. This approach is used primarily when output is difficult to define and evaluate. Research institutions and universities, for example, often consider the level of technological equipment or the number of well-known and respected scientists and professors as their success criteria.

Picking out individual levels or viewpoints when trying to form a complete picture of the success of a cooperation, however, is not adequate. On the other hand, it is neither feasible nor meaningful to work systematically through all possible levels and viewpoints. Buchel and others (1998) employ a multidimensional approach for measuring success of joint ventures, which is practicable in the routine context of the ventures. According to the authors, the assessment should be both easy to use and able to cover different levels, stages, interests and contexts of the joint venture.

The international joint ventures should be adjusted not only on the short-term objectives, but also the long-term perspectives. The traditional methods of evaluating the success of cooperative ventures are all based on economic, strategic or behavioral perspectives (Probst et al., 1994). Buchel and others emphasizing the role of joint ventures as institutional learning tools suggest that learning perspective is also needed to be assessed (Buchel et al., 1998).

The economic approaches are in principle output-oriented with the purpose of deciding whether the cooperative venture is increasing the value of the partner companies. The economic approach to success judgments is based on the theory of financial and capital markets and involves examining variables such as free cash flows, returns on investment, net

13

yearly profit, and increase in the shareholder’s value. Typical criterion for evaluating a joint venture includes decrease in unit costs through better use of production capacity or increase in turnover as a result of a sales cooperation in a growing market.

From the strategic point of view, the important criteria for the joint venture’s success are company size, product-market combinations, market share, competitive position, advantages based on research results and a strong position on the distribution and procurement markets. A further criterion is the extent to which the cooperation yields synergies between the partners or between the joint venture and one of the partners. The strategic approach places more emphasis on core competencies and on strategic focus, which each company has adopted, or wants to develop. Like the economic perspective, the strategic perspective is also primarily based on the output criteria. But it is different from the economic perspective from the strategic point of view that considers the output in the longer time rather than in the short-term period. Typical criteria of the strategic perspective are the safeguarding of particular resources, assess to new kind of technology, or increasing the company’s competitive strength by using the special know-how of a partner.

Joint ventures are also expected to improve the relationship between partners. The behavioral perspective emphasizes the behavior of the participants in their cooperative relationship. In this point of view, the essential indicators include the development of a separate culture and identity, the ability to deal with conflicts and continued survival versus premature dissolution of the joint venture. Building the joint venture’s culture to increase trust, commitment and sensemaking of the partners is very important for them so that they can make use of the full synergy for the purpose of the joint venture. The behavioral perspective is, therefore, is emphasizing the processes within the joint venture system, rather than the output criteria.

Generally, it can be said that the traditional approaches allow us to make relatively comprehensive assessments of the success or failure of cooperative ventures. However, they omit an aspect in which both company managers and business theoreticians are now paying an increasing attention (Probst and Buchel, 1994). This is the concept of learning. Building a learning organization that allows the company to consistently reviews its own weaknesses and strengths and its prevailing patterns of activity, whether it acquires “implicit knowledge”, and whether it increases its ability to learn, is very important for it to achieve the corporate mission. The learning view of success and failure combines a result-oriented approach with a process approach. It takes into account on the one hand the acquisition of knowledge and the attainment of learning goals, and on the other, the learning processes which support these ends (Buchel et al., 1998).

14

Chapter 3

FOREIGN DIRECT INVESTMENTS IN VIETNAM

3.1. Foreign Direct Investment

During the period from 1988 to 1998 foreign investors promised to invest $37 billion in Vietnam, of which about $14 billion have actually been implemented. The growth of FDI into the country was very high at the first half of the period after a legal framework for foreign investment was put into practice since 1987, especially when the U.S. embargo was lifted in 1994, with an average rate of about 45-50 percent per year.

Figure 3.1. Trend of Foreign Direct Investment for the period 1988-1998Source: Vietnam's Statistics Yearbook 1997MPI Report No. 11BKH/KCN Jan. 2, 1999

In the last several years, however, there has been observed a trend of a considerable reduction of the foreign direct investment into the country (see Figure 3.1). In 1998, about 260 foreign direct investment projects were licensed with a total registered capital of US$4.06 billion. In addition, 133 projects were approved to increase their operating capital with the amount of US$769 million. Therefore, at the end of the year, a total of US$4.83 billion of direct foreign investment capital were registered. The growth rates of FDI flows for 1997 and 1998 were negative with minus 33% and minus 13.9% respectively. For the entire period, the average number of projects licensed is 223.5 per year, with an average growth rate of 21.5%. Every year, $3.4 billion FDI was promised to be invested in Vietnam, with an average growth rate of 29.2%.

So far, more than 700 companies from over 60 countries have been undertaking foreign direct investment projects in Vietnam, leading by Singapore, Taiwan, Hong Kong, Japan,

15

and South Korea. The investment from these countries account for about more than half of the total number of the projects (56.4%) and 60% of the total capital registered.

FDI from Japan, the USA, Western Europe, and South Korea tend to increase rapidly and it is forecasted that these countries become leading investors in Vietnam in coming years, which reflects the positive results of the Government policy in diversifying the relations and cooperation with all countries in the world.

From these FDI investments, Industry, Oil & Gas, and Construction sectors accounted for 56.3% number of projects and 46.6% investment capital; Hotel, Office Space Business, Transport and Communication, and Postal Service - 9.8% number of projects and 13.6% invested capital; Agriculture, Forestry, and Aquaculture - 15.4% number of projects and 5.2% capital investment. In general, FDI projects have been concentrated in highly profitable sectors of the economy, such as Hotel & Tourism and Services, especially in Export-Processing Zones. Although Agriculture is a sector, which has a high need of FDI, but in fact, the capital invested there is very small, mainly food processing, shrimp plantation, reforestation, forage, and sugar cane production projects.

Figure 3.2. Foreign Direct Investment Structure by Sectors (in percentage).Source: VIR, VET, and MPI Annual Report, 1999.

The implementation of the FDI projects was also a problem, needed to be discussed. For the period 1988-1998, more than 80 per cent of the projects have been implemented, but only one third of the registered capital actually realized.

16

With the exception of Oil and Gas sector, which has the implemented capital exceeded the registered amount, and Financial and Bank sector, which have implemented most of the capital registered, other sectors have only implemented less than half of the capital originally licensed. The worst situation has been with Agriculture and Fishery, where only about half of the projects and 11-13 % of the capital has been implemented.

Table 3.1. Licensing new projects and capital raising in 1997-1998

Unit 1998 1997 98/97(%)

I. New projects

Number of projects

Capital

Of which:

Licensed by MPI:

Number of projects

Capital

Licensed by local People’s Committees:

Number of projects

Capital

Licensed by the management of IZ:

Number of projects

Capital

Licensed by the management of EPZ:

Number of projects

Capital

II. Capital raise

Number of projects

Capital

Total

Project

$U.S. million

Project

$U.S. million

Project

$U.S. million

Project

$U.S. million

Project

$U.S. million

Project

$U.S. million

$U.S. million

260

4058.6

86

3537.8

120

254.6

48

221.6

6

44.6

133

769

4827.6

331

4514.0

229

3998.9

59

144.5

42

259.3

15

64.4

143

1095

5609.0

78.5

89.9

37.6

88.5

203.4

176.2

114.3

85.5

40.0

69.3

93.0

70.0

86.1

Source: MPI Report No. 11BKH/KCN Jan. 2, 1999

At the end of 1997, the Government signed an ordinance to give the Hanoi and HCM City Authorities the power to license foreign invested projects up-to $30 million tripled the $10 million limit set in June 1997. The Government has also recently empowered the local People’s Committees and Management Boards of the Export & Processing Zones and

17

Industrial Zones to license FDI projects, especially the small and medium ones. This is a significant effort of the Vietnamese Government in encouraging FDI into the country.

In 1998, the local People’s Committees gave licenses for 120 FDI projects, increased 203% in comparison with the number of projects they licensed in 1997. This reflects the decentralization in the FDI licensing of the government. The more detail information about the foreign direct investment in 1997 and 1998 is shown in Table 3.1.

3.2. Important features of FDI in Vietnam in 1998

In 1998, foreign direct investments in Vietnam have some important changes in terms of structure, location, and investors.

The investment structure has considerably been changed to meet the requirements of the industrialization and modernization process of the country. From the newly licensed project in 1998, one hundred and ninety three were in the manufacturing sectors, accounted for 74.5%, with a capital of $2.828 billion, accounted for 71% of the total FDI in the year.

The investment location has also been improved. Number of projects in rural and remote areas has considerably increased. Thirty-five projects with total capital of $102 million were invested in agriculture and fishery in the year. These projects are mainly food processing, production of seeds for export, flower, tea, forage, and shrimp production. This is important for creating more jobs, developing and exploiting natural resources in rural Vietnam.

Due to the financial crisis in the region, FDI from the ASEAN countries have sharply reduced. In 1998, these countries have 47 projects with total registered capital of $925 million, accounted for 22.8%, of which, Singaporean companies promised to invest $893 million, while all others countries invest less than $32 million.

Other countries in the region, less suffered by the financial crisis have maintained their investments in Vietnam. In 1998, Taiwan has 67 investment projects in Vietnam with $253 million, the same level of 1997 and Hong Kong has 23 projects with $225.3 million, 91.14% compared with the level of 1997. The direct investment from the European countries to Vietnam has strongly increased in 1998. These countries have received investment licenses for 66 projects of $2.1 billion in the year, accounted for more than half of the total FDI in the country.

The total revenue of the FDI projects in 1998 was about $3 billion, 27.7% increased in comparison with 1997. These projects contributed $320 million to the government budget through tax obligations, an 1.6% increase compared with 1997 (The Government considerably reduced the price of land licensing and regulated tax priorities for FDI projects in the year).

The export from these projects, excluding the oil sector, was about $2 billion, 11.7% increase compared with 1997 and accounted for more than 20% of the total export value of the economy in the year. In 1998, the foreign invested projects imported $2.656 billion, which was only 91.9% of the 1997 level. This on the one hand, reduced the export deficit in the year, on the other hand, may slow the investment implementation progress in 1999. Foreign invested projects accounted for about 23.5 per cent of the national industrial value compared with 20.6 per cent in 1997 and 21.4 per cent in 1996.

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Table 3.2. General information about FDI projects in 1998

Newly licensed projects

Capital-raised projects

Capital implementation

Revenue

Export value

Import value

Employees

Prematurely terminated

Tax contribution the government budget

Changing ownership from JV to foreign wholly-owned

Changing ownership from JV to Vietnam wholly-owned

260 projects

133 projects

1,900 $U.S. million (58.2% of 1997)

3,000$U.S. million

1,965$U.S. million

2,655$U.S. million

269,500

95 projects, $2,432 million (compared with 80 projects and $339 million in 1997) 320$U.S. million

8 projects, $124 million

6 projects, $21 million

Source: MPI Report No. 11BKH/KCN Jan. 2, 1999; VIR and VET.

Seventy-seven projects completed their construction phase and started manufacturing in the year, including important projects, such as Morning Star Cement ($346 million), Vinaflour, LG-Vina, Machino, Inoue-Vietnam, and so on. These projects absorbed additional 35,000 labors and considerably relieved the unemployment problems in the country.

Exports in the first two months of the 1999 combined were worth US$1.4 billion, 14.6% of the year's plan and up 0.4% over a year ago. Exports by foreign-invested firms accounted for US$290 million (excluding crude oil), down 8.5%, while export turnover by domestic firms reached US$1.17 billion, up 2.9%. (Vietnam Economic Times, March 2, 1999)

In 1998, eight and seven international joint ventures were converted into Vietnamese wholly owned and foreign wholly owned (or nearly wholly owned) companies respectively (see Table 3.2).

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Chapter 4

RESEARCH METHODOLOGY

4.1. Analytical and Conceptual Framework

In order to make an assessment of the joint ventures certain theoretical concepts must be clarified, such as performance measurements as well as problems related to assessing a joint venture. The conceptual and analytical framework is illustrated in Figure 2.1.

JOINT VENTURE

Figure 4.1. Analytical framework of the research

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Vietnamese partners

MotivesStrategies

Contributions

Foreign partners

MotivesStrategies

Contributions

JV Performance

Operational performance

Strategic position change

Behavioral change

Knowledge change

Local partner satisfaction

(Dissatisfaction)

Foreign partner satisfaction

(Dissatisfaction)

RECOMMENDATIONS FOR IMPROVEMENT

NEGOTIATION

PERFORMANCE

EVALUATION

CONTINUOUS

IMPROVEMENT

Table 4.1. Framework for assessing joint ventures

Aspects Constructs MeasureOperational performance Efficiency and

effectivenessProductivity (o)Cost control (o)ROI (o)Cash flow (o)

Competitive position change

Competitiveness

Marketability

External customer relations

Competitive position (o)Company size (i)Innovative strength (p)Reputation (p)Technology (i)Resource safeguarding (p)Market adaptability (p)Relative price (o)Relative quality (i)Market share (o)Sales growth (o)Customer base (i)Customer satisfaction (o)Cooperation (p)Relationship with suppliers (p)Access to finance resources (i)Relationship with authorities (p)

Behavioral change Equity

Functional efficiency

Complementarity (i)Harmony (i)Profit sharing (i)Honorability (i)Trust (o)Commitment (i)Fair wage (i)Clear responsibility (i)Transparent staffing (i)Transparent compensation (i)Effective communication (p)Work well together (p)Good relationship (i)Work satisfaction (o)Learning (i)Synergism (p)

Knowledge change Learning Management know-how (o)Market know-how (o)Technological know-how (o)

Note: i, p, o stand for input, process, and output indicators.

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For assessing the joint venture, a framework was made so that the measurements must reflect all of dimensions and aspects of the joint venture success performance. The assumed dimensions and respective measurements are shown in Table 4.1.

4.2. Assumption and Concept Explanation

It is assumed that success perceptions of the managers would belong to seven main dimensions as follows:

Efficiency and Effectiveness: This factor represents effective use of the joint venture resources and their efficiency, such as the venture’s labor force, capital investment, expenditures, and so on. Effectiveness measures the results, while efficiency involves both results and resources used to get the results. In this study Efficiency and Effectiveness were used to measure successful operational performance of the joint ventures.

Competitiveness: This factor was assumed to measure the company’s success in building its competitive position and brand reputation, as well as its capability to expand the market, production capacity, and innovative strength. Developing resource bases was also considered as improving the competitiveness of the joint venture.

Marketability: Marketability measures the joint venture marketing capabilities, such as comparatively low price, high quality, market share, and sales growth. Marketability is close to competitiveness and both of these two factors reflect competitive position change of the company.

External Customer Relations: This factor constructed to measure the joint venture success in developing customer base and quality of customer service. Developing relationship with other companies and suppliers, as well as with the local authorities are also considered as activities of this kind. External Customer Relations also reflects the competitive strength of the joint ventures.

Equity: The terminology of Equity in the Webster’s Dictionary expresses “fairness or justice in dealing with persons”. Therefore it can be used to measure the relationships and behaviors between partners in the joint venture, such as harmony, honorability, trust, and commitment. Good relationships and behaviors between participants can help successful performance and enhance satisfaction, therefore can be considered as success factors.

Functional Efficiency: The terminology was used in the research study to express the efficiency and effectiveness of the relationships between partners. Effective relationships lead to higher work satisfaction, create favorable environment for learning, and encourage exploitation of the synergy. Equity and Functional Efficiency reflect behavioral change in the joint venture.

Learning: Learning was assumed as a factor, which measures the joint venture success in improving the participant knowledge including technological, managerial, and market know-how. This factor reflects the knowledge change in the joint venture.

Some other particular concepts also need additional explanation. “Overall Performance” was used for measuring the level of partners’ satisfaction on the joint venture performance in general, computed as an weighted average score of all success indicators.

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“Operational performance results”: The terminology was used to express output indicators of Cash flow, ROI, Sales growth, and Market share.

“Input”, “Process”, and “Output” express the resource-oriented, process-oriented, and result-oriented indicators respectively (see page 13).

4.3. Method of Data Collection

Secondary information was collected from various sources, including Vietnam Yearbooks, Reports of the Ministry of Planning and Investment, Newspapers, previous research studies.

Primary information was collected from the two main sources: questionnaires and direct interviews with the joint ventures managers.

The questionnaires were made basing on a pretest survey. Firstly, open questions were given to the managers of the joint ventures to collect as much as possible aspects and criteria, which were considered to be measurements of a joint venture’s success. These concepts after serious adjustment processes were classified into groups, which were assumed to be the major dimensions of the managers’ perceptions on the joint venture success (see Table 4.1). Then, based on these concepts, grading questions were prepared for gathering the managers’ evaluation on the issues of interest.

A set of 40 questions finally was drawn out for gathering the managers’ evaluation on the joint ventures’ performance. Other questions were used for additional information, necessary for the analysis (see Appendix 4).

Ninety questionnaires were sent to managers in 15 selected joint ventures in the two provinces: Thua Thien Hue and Danang. Fifty-seven questionnaires were successfully returned with a response rate of 63 percent. Four of these questionnaires were omitted for lacking of too many items. Finally, 53 questionnaires were used for the analysis. Out of these 53 questionnaires, 22 are from foreign and 31 from Vietnamese managers with a ratio of 1/1.4. All of the respondents are managers and involved in decision-making responsibilities at a certain managerial hierarchy in the joint venture. About one tenth of the respondents were playing chief executive function and more than one third were managers at the department level. About 65 percent of the respondents had been working in the current joint ventures for two to four years. The more detail characteristics of the respondents are shown in the Appendix 2.

4.4. Method of Data Analysis

The data was processed and analyzed by using SPSS. Descriptive statistics was used for identifying level of successful performance of the joint venture and problems in its relationships. Comparison method was employed to clarify the differences in success perception between the Vietnamese and foreign managers. Factor analysis was performed to test whether the findings fit the research assumptions. Furthermore, based on the factor analysis correlation and regression analysis were played to identify the relations between key success indicators and major operational results of the joint ventures.

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Chapter 5

RESULTS OF THE SURVEY

5.1. The Questionnaires Results

5.1.3. Joint venture objectives

The joint venture is different from other forms of business organizations in that its objectives must reflect the objectives of the venture’s partner companies. So, if one wants to know how a joint venture is running, one must firstly look at the objectives it pursues, and then see to what extent they meet them. Because the joint venture managers are mainly selected from the participants, they often bring to the joint venture different strategies of their companies. The more complex the parent companies’ objectives, the more difficult the joint venture management in forming their common goals. Therefore, analyzing the objectives of the joint venture can help anticipate the potential conflicts of the alliance, that may strongly affect the decision making and performance of the venture itself.

Table 5.1. Respondents’ perceptions on the joint venture objectives

Variables Mean Std. Deviation

Access to new market 3.92 0.58

Obtain capital 3.74 0.56

Cooperative synergy 3.74 0.74

Exchange Knowledge 3.45 0.54

Acquire technology 3.42 0.82

Share risks 3.34 0.76

To export 3.34 0.59

Substitute import 3.30 0.68

Transfer technology 3.26 0.86

Resource safeguarding 3.25 0.65

Take advantage 2.83 0.73

The data in Table 5.1 shows that managers quite highly emphasize the joint venture role as a tool for entering new markets, obtaining capital, and exploiting synergy of the partner companies. Export to a third country is also an important concern of the joint venture. Due to the lower production prices in the host country, companies enter into the joint venture with the local companies to produce products and then sell them in foreign markets. The data indicates that the joint ventures are emphasizing the short-term and midterm rather than long-term objectives.

There were significant differences in people’s views on the joint venture objectives. Foreign managers evaluated market access and risk sharing higher than the local managers did. Many of the foreign managers, even with extensive international experience often see developing

24

country market as inherently more risky than operation elsewhere in the world. But these perceived risks, of course, would be offset by prospects for higher long-term returns. Foreigners also stronger concern the opportunity of taking advantages offered by the government as its economic development policy, for example tax incentives, and transfer of technology.

The contradictions in objectives of the joint venture’s partners may be important potential conflicts and create difficulties for the managers in forming and achieving the common goals of the venture.

The first potential conflict may be created in the company’s technology transfer policy. Foreign partners emphasizing technology transfer through the joint venture may include in the negotiation or at least convince the local partners to equip the joint venture with technologies from their companies. The local partners, otherwise, may think that buying technology from a third party is better because this can avoid their technological dependence on the foreign partners.

Other conflict source may come from the differences in the participants’ views on export and import substitution motives. Local partners may think that joint venture can help them go abroad through exporting. Unfortunately, they often meet export barriers set by the foreign partners, who in many cases can ban their joint venture to export to their currently served markets due to various reasons, such as quality standards, and cannibalization effects.

Table 5.2. Comparison between Vietnamese and foreign managers

Variables Vietnamese Foreigner Sig.

Mean S.D Mean S.D

Share risks 3.13 0.83 3.67 0.48 0.01**

Take advantages 2.44 0.50 3.43 0.60 0.00***

Acquire new technology 3.63 0.75 3.10 0.83 0.02**

Transfer technology 3.00 0.72 3.67 0.91 0.00***

Assess new market 3.72 0.52 4.24 0.54 0.00***

Export 3.55 0.51 3.05 0.59 0.00***

Substituting import 3.23 0.63 3.40 0.75 0.40

Raw material safeguarding 3.22 0.61 3.29 0.72 0.20

Obtain capital 3.81 0.59 3.62 0.56 0.22

Knowledge exchange 3.44 0.55 3.48 0.60 0.80

Synergy 3.63 0.56 3.90 0.94 0.18

Note: ***, **, * Significant at the 0.01, 0.05, 0.1 level.

Moreover, foreign partners often see a joint venture as a new market entry strategy. Due to the lack of country familiarity, a foreign company often meets difficulties in entering a new market, where local customers have little or never known about it. For a foreign company, who needs to deepen its understanding of local conditions, a joint venture provides one way

25

to shorten what could be a lengthy and potentially expensive process. This also encourages them in building their brand reputation in the local market, rather than exporting.

Conflicts can also be created in the field of marketing. Foreign partners, encouraged by the market entry motivation may want to spend a large amount of money on advertising at the first stages of the joint venture to get the market popularity. On the other side, the local partners may feel that such expenditures were not necessarily so high. This conflict may be very serious in the practice of joint ventures in Vietnam, such as the case of P&G (Truong Quang, 1998).

5.1.2. Assessing Joint Venture Performance

Assessing a joint venture are theoretically and practically difficult issues because its success can be seen and evaluated from very different perspectives, as noted in the previous sections.

The data in Table 5.3 shows that managers are moderately satisfied with the joint venture overall performance. However, there is a significant difference between the Vietnamese and foreign managers in their success evaluation. Foreign partners evaluated the joint venture performance higher than the local partners did. One of the reasons for this differentiation may be derived from the differing expectation of the joint venture partners. Some Vietnamese partners, as noted, when entering the alliance devoted most of their assets to the venture, may have higher commitment and expectation in it. They often consider the joint venture’s success as their own. For them the joint venture is their future. On the other side, many foreign partners may consider a joint venture just as a tool for implementing some of their particular strategies.

The assessment of the overall performance of the joint ventures, however, may also be affected by the managers’ views on success. Some may be interested more in short-term goals, while others may look for longer-term interests.

Table 5.3. Overall Performance of the Joint Ventures

Overall sample Vietnamese Foreigner Sig.

Mean S.D Mean S.D Mean S.D

3.26 0.33 3.12 0.29 3.46 0.28 0.000

The evaluation of the joint venture performance should therefore be more detailed by looking at the individual success indicators. By this way, the assessment could give an insight into specific areas of the joint venture activities. Table 5.4 describes the respondents’ evaluation of the joint venture performance on the individual indicators. The data shows that the joint venture’s partners ranked Relative quality and Profit sharing the highest, but Access to financial resources and Innovative strength the lowest.

Table 5.4. Respondents’ Evaluation of the Joint Venture’s Performance

26

Dimensions Measures Mean scores (standard deviation in

the parentheses)Efficiency and effectiveness

ProductivityCost controlROICash flow

3.73 (0.63)2.74 (0.84)2.67 (0.55)2.89 (0.80)

Competitiveness Competitive positionCompany sizeInnovative strengthReputationTechnology Resource safeguarding

2.96 (0.83)3.42 (0.60)2.43 (0.65)3.30 (0.91)3.08 (0.73)3.34 (0.62)

Marketability Market adaptabilityRelative priceRelative qualityMarket shareSales growth

3.25 (0.48)3.43 (0.67)4.25 (0.56)3.35 (0.60)3.30 (0.67)

External customer relations

Customer baseCustomer satisfactionCooperationRelationship with suppliersAccess to finance resourcesRelationship with authorities

3.47 (0.78)3.43 (0.87)3.32 (0.73)3.26 (0.76)2.64 (0.74)3.32 (0.67)

Equity ComplementarityHarmonyProfit sharingHonorabilityTrustCommitmentFair wageClear responsibilityTransparent staffingTransparent compensation

3.15 (0.53)3.45 (0.67)4.06 (0.79)3.57 (0.59)3.30 (0.75)3.36 (0.71)3.36 (0.86)3.91 (0.69)3.43 (0.87)3.92 (0.87)

Functional efficiency

Effective communicationWork well togetherGood relationshipWork satisfactionLearningSynergism

3.36 (0.55)3.34 (0.65)3.68 (0.58)3.36 (0.74)3.42 (0.64)3.02 (0.50)

Learning Management know-howMarket know-howTechnological know-how

3.45 (0.47)3.74 (0.86)3.34 (0.54)

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The economic results of the joint ventures were generally assessed to be unsatisfactory. Although sales is evaluated to be above satisfactory level, net profit and especially return on investment are far below the expectation. The low level of benefit and return on investment indicates that the joint ventures have poor financial performance. Other indicators are ranked in between satisfactory and good performance levels.

There are significant differences among managers in evaluating company size, market share, customer satisfaction, and customer base. Surprisingly, the local managers were not satisfied with their joint ventures in building customer base and customer service, while the foreign counterparts moderately evaluated these factors.

Building forward and backward relationships as well as cooperation with other local companies is extremely important for the joint ventures to get necessary supports for their business activities. In general, managers highly agree upon these issues.

The respondents did not much satisfy with the innovative strength, which is a very important factor influencing the successful performance of an enterprise in a dynamic and competitive market like Vietnam. The low level of satisfaction of the managers to this factor reflects the weakness of the ventures in R&D activities.

Financing is also a problem of the joint ventures. On the one hand, the ventures could not raise their funds by self-financing, because in many cases, only foreign partners could do that, but not the Vietnamese partners (even when first participating in the joint venture, the Vietnamese partners often contribute only lands and buildings). On the other hand, there has not been an effective banking system, especially a stock market to create a free flow of short-term and long-term capital in Vietnam yet. Managers often complain that the banks usually allow only short-term or midterm loans, which could not meet the business requirements.

Exploiting the cooperative synergy of the partners is an important factor for a successful joint venture, by creating its competitive advantages over other companies. The results show that managers are around satisfactory on this issue. Making use of the cooperative synergy of the participants depends much on the understanding between them and their willingness to cooperate in loyal and long-term basics.

Building good relationships with the local authorities is also strategically important for a company in a country, where many things are based on custom like Vietnam. These relationships may help companies to obtain necessary information, related to the social and economic development plans of the government, legal and political changes, and sometime the relationships may facilitate the company in dealing with local companies and government agencies. The high score of this variable indicates that joint ventures have been successful in building and maintaining good relationships with the local authorities.

Behavioral factors are very important in forming the working and other relationships between partners in the joint venture. Good relationships would create favorable working environment and help people achieve their common goals.

As noted, a joint venture should be seen not only in short-term, but also in long-term perspectives. There for, developing long-lasting relationships in it is extremely important for the joint venture to achieve its objectives. Better relationships result in higher level of trust, understanding, and commitment of the participants, which finally leads to better performance and higher satisfaction.

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Table 5.5. Comparison of the respondents’ evaluation on the JV’s performance

Dimensions Indicators Vietnamese Foreigner Sig.Efficiency and effectiveness

ProductivityCost controlROICash flow

3.76 (0.68)2.66 (0.63)2.57 (0.57)3.19 (0.64)

3.69 (0.56)2.86 (0.85)2.81 (0.51)2.90 (0.70)

0.350.400.120.90

Competitiveness

Competitive positionCompany sizeInnovative strengthReputationTechnology Resource safeguarding

2.81 (0.78)3.15 (0.81)2.09 (0.53)3.16 (0.85)3.03 (0.78)3.34 (0.60)

3.19 (0.87)3.67 (0.67)2.95 (0.74)3.52 (0.98)3.14 (0.65)3.33 (0.66)

0.110.01**0.00***0.150.590.95

Marketability Market adaptabilityRelative priceRelative qualityMarket shareSales growth

3.13 (0.42)3.47 (0.61)4.30 (0.75)3.17 (0.60)3.19 (0.64)

3.43 (0.51)3.25 (0.79)4.17 (0.59)3.60 (0.50)3.48 (0.68)

0.02**0.190.300.01**0.12

External customer relations

Customer baseCustomer satisfactionCooperationRelationship with suppliersAccess to finance resourcesRelationship with authorities

3.28 (0.85)3.30 (0.83)3.31 (0.82)3.31 (0.69)2.66 (0.75)3.22 (0.75)

3.76 (0.62)3.61 (0.92)3.33 (0.56)3.19 (0.97)2.62 (0.74)3.48 90.51)

0.03**0.240.920.570.860.18

Equity ComplementarityHarmonyProfit sharingHonorabilityTrustCommitmentFair wageClear responsibilityTransparent staffingTransparent compensation

3.00 (0.44)3.09 (0.53)3.97 (0.69)3.56 (0.57)3.16 (0.61)3.09 (0.64)3.19 (0.54)3.75 (0.72)3.22 (0.61)3.94 (0.84)

3.38 (0.59)4.00 (0.45)4.19 (0.93)3.62 (0.50)3.52 (0.60)3.76 (0.62)3.76 (1.00)4.14 (0.57)3.76 (1.09)3.87 (0.90)

0.01**0.00***0.330.550.08*0.00***0.00***0.04**0.02**0.90

Functional efficiency

Effective communicationWork well togetherGood relationshipWork satisfactionLearningSynergism

3.38 (0.75)3.19 (0.69)3.66 (0.70)2.84 (0.57)3.37 (0.51)2.94 (0.56)

3.33 (0.48)3.57 (0.51)3.71 (0.76)3.43 (0.60)3.48 (0.65)1.14 (0.36)

0.820.03**0.820.00***0.250.14

Learning Management know-howMarket know-howTechnological know-how

3.65 (0.70)3.25 (0.56)3.44 (0.85)

3.17 (0.90)4.15 (0.47)3.25 (0.78)

0.01**0.00***0.17

Note: *, **, *** Significant at .1, .05, .01 level.

Maintaining harmony between partners extremely important for any alliance to exist and develop. It is a premise for a joint venture to build a long time cooperation between partner companies. The data shows that the local managers are around satisfactory on harmony,

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while foreigners evaluate it higher. This means the foreign partners feel easier than the local partners in getting a general agreement in the joint venture do.

Sharing profits is an extremely important issue in the joint venture, because it closely relates to the interests of the partners to go into a strategic alliance. The data indicates no problems related to this issue. The fairness in sharing business results reflects a comparatively well built-up negotiation and re-negotiation mechanism in the ventures.

One of very important factors for a joint venture success is the complementarity of the partner companies. Every participant must have some core competence to contribute to the joint venture. Local managers are often strong in the domestic market backgrounds, understanding employees, customers, suppliers, local reputation, and distribution networks. In some cases, they may also better in understanding the legal environment and dealing with governmental agencies. On the other hand, foreigners are normally good in international market domains, management skills, and international relationships. In some cases, foreign specialists are needed due to the technical requirements, especially when the joint venture obtains advanced technologies.

The data shows a moderate rate of complementarity between the participants. Complementarity reflects the level of compatibility between the two partners, which is a very important factor for long lasting relationships of the venture.

There were significant differences in the respondents’ evaluation on the issues of the joint venture relationships. In general, foreign partners graded higher than the local partners.

The Vietnamese graded work satisfaction and salary fairness much lower than the foreigners. This indicates that the local managers are not very satisfied with the current compensation policy of the joint venture. Low work satisfaction can reduce the employee loyalty rate and increase the possibility of quitting jobs.

The data indicates no significant difference in the respondents’ view on learning and communication. The moderate grades of these components indicate that there are no important barriers that can limit communication and learning in the joint ventures. Building an organizational culture, in which everyone can freely communicate with each other and share their ideas, is very important for a joint venture to be successful. The effective interaction between employees from different partner companies is an ideal environment for organizational learning.

Dividing success indicators into input, process, and output measures can help assessing the joint ventures as based on the situational approach. To do that, mean scores for these measures were computed, and then paired T-test was performed to make the comparison between the Vietnamese and foreign partners on their success perception.

Table 5.6 shows the descriptive characteristics of these indicators. The data indicates that partners are significantly different in assessing the joint venture performance. Foreign partners rated significantly higher than the local partners. Generally, the input indicators are comparatively higher than the process and output indicators. This implies that the joint ventures are better performed in the long-term than midterm and short-term perspectives.

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Table 5.6. Partners’ Perceptions on the Input, Process, and Output

Indicators Overall sample Vietnamese Foreigners Sig.Input 3.47 (0.35) 3.31 (0.26) 3.72 (0.32) 0.000

Process 3.16 (0.39) 3.03 (0.38) 3.36 (0.33) 0.003

Output 3.09 (0.37) 3.06 (0.35) 3.36 (0.32) 0.003

Correlation analysis was employed to see how success indicators are correlated to one another. The data indicates quite strong correlation between the input, process, and output indicators, especially between the process and output measures (see Table 5.7). This is an evidence of a normal functioning of the joint venture in general.

Table 5.7. Correlation Matrix of Input, Process, and Output

Success factors Input Process Output

Input

Process

Output

1.000

0.584**

0.703**

0.584**

1.000

0.721**

0.703**

0.721**

1.000

Note: *. ** Correlation is significant at the 0.01, 0.05 level (2-tailed).

The strong correlation between input and output indicates that long-term efforts of the joint venture can turn into its short-term success and vice versa, while the strong correlation between process and output indicators reflects close relationships, sometimes overlaps of these two kinds of success indicators.

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5.1.3. Results of Factor Analysis

It is assumed that the managers’ evaluation of the joint venture success was based on the joint venture objectives and certain perceived success criteria. This makes the evaluation very subjective. Moreover, the evaluation of a joint venture success, as noted, is extremely difficult as it is involved many aspects and perspectives.

The complexity of the evaluation is increased as the number of indicators increased. Some managers may never be interested in certain aspects of the joint ventures. This can reduce the reliability of their evaluation on these aspects. Therefore, factor analysis should be performed to identify significant dimensions of their perception on success measurements.

Varimax rotation method was performed on the initial factor solution, adapting the standard cut-off (Eigen value >1) for deciding on the number of factors (dimensions). Five factors were finally extracted. These factors accounted for 75.1 percent of the variance. In general, the factors were found to be fitted to the dimensions assumed in the conceptual framework.

Table 5.8. Results of factor analysis

Factor names Variables Loadings Reliability Cronbach

Factor 1: Functional efficiency

SynergismWork well togetherGood relationshipWork satisfaction

0.730.600.690.66

0.67

Factor 2:Competitiveness

Competitive positionReputationCompany sizeMarket shareSales growth

0.820.820.690.750.67

0.81

Factor 3:Efficiency and effectiveness

ProductivityCash flowCost controlROI

0.880.780.730.68

0.86

Factor 4:Equity

Fair wageComplementarityCommitmentProfit sharingHonorabilityHarmony

0.910.730.720.630.710.65

0.76

Factor 5:External customer relations

Customer baseCustomer satisfactionRelationship with suppliers

0.840.840.68

0.78

Two constructs of “ Competitiveness” and “Marketability” as predicted were merged into one factor. This factor can be called again “Competitiveness” because it can cover the meanings of the variables in the group. The predicted dimension “Learning” was cut-off from

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the factors together with 18 other variables, which had either factor loading lower than 0.65, or the Measure of Sample Adequacy (MSA) lower than 0.5 in the Anti-image Correlation matrix. The final result is shown in Table 5.8.

The first conclusion can be made from the factor analysis is that for the most part, the factor analysis results were consistent with the assumptions made in the conceptual framework, especially regarding how the specific items in the questionnaire might be related to the underlying constructs. This positively supports the analytical framework and data collection methods, chosen for the assessing the joint ventures in the study.

From the results of the factor analysis, factor scores can be computed by assigning unit weights to the individual standardized factor scores of each factor. The results are shown in Table 5.9. The data indicates significant differences between the local and foreign partners in their evaluation on Functional Efficiency, Competitiveness, Equity, and External Customer Relation. There is however no significant difference in the partners’ view on Efficiency and Effectiveness.

Table 5.9. Factor Scores: Comparison between Vietnamese and Foreign Partners

Factors Overall sample

Vietnamese Foreigners Sig.

Factor 1: Functional efficiency 3.20(0.51)

3.05(0.52)

3.42(0.37)

0.012

Factor 2: Competitiveness 3.31(0.62)

3.13(0.59)

3.57(0.56)

0.008

Factor 3: Efficiency and effectiveness 2.87(0.60)

2.79(0.68)

2.96(0.48)

0.572

Factor 4: Equity 3.45(0.50)

3.35(0.38)

3.60(0.50)

0.075

Factor 5: External customer relations

3.48(0.60)

3.31(0.64)

3.72(0.50)

0.009

Based on the results of the factor analysis, Bivariate Correlation was performed to see how success factors correlated to those measurements, which are considered as the joint venture’s operational results, such as sales, cash flow, ROI, and market share. The result of the correlation analysis is shown in Table 5.10.

The data indicates many significant correlations between these variables. Sales Growth has high correlation with Market Share, Competitive Position and the brand Reputation, while did not indicated significant relationship with Cost Control or Equity or Functional Efficiency variables.

Both Cash Flow and ROI have high correlation with Productivity, Cost Control, and with themselves. Market Share correlates strongly with Sales growth, moderately with Competitive Position and Reputation, but weakly with Customer Relation and Functional Efficiency variables.

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Table 5.10. Correlation Matrix of Success Factors and Operational Results

Sales growth Cash flow ROI Market share

Sales 1.000 0.424** 0.882**Net profit 0.424** 1.000 0.617** 0.329*Return on Investment 0.617** 1.000Size 0.491** 0.592**Market share 0.882** 0.329* 1.000Customer satisfaction 0.317*Customer baseCompetitive position 0.569** 0.342* 0.282* 0.444**Reputation 0.512** 0.539** 0.432**Cost control 0.599** 0.512**Productivity 0.604** 0.662**Relationship with suppliers 0.482** 0.407**SynergyHarmony 0.300*Profit sharing 0.304* 0.291* 0.350* 0.289*Complimentary 0.411**Work together 0.420**Honorable partner 0.340* 0.380*Good relationship 0.414**Note: *. ** Correlation is significant at the 0.01, 0.05 level (2-tailed).

Furthermore, Regression Analysis was employed to see how the five success factors affect the joint venture’s operational performance. The comparatively high values of the Coefficient of determination (R2) in most of the cases indicate high explanation power of the regressions, meaning that these factors significantly affect the operational performance of the joint venture. Overall Performance is moderately correlated to Competitiveness, Efficiency & Effectiveness, and Equity, but not significantly correlate to Functional Efficiency and External Customer Relations. Equity and Competitiveness strongly correlate to all of the “operational results” indicators, especially Sales Growth and Market Share (see Table 5.11).

Table 5.11 Regression analysis of Success Factors on Operational Results

Success factors Sales growth Cash flow ROI Market shareConstant 3.333 2.841 2.783 3.292F1: Functional Efficiency 0.256*** 0.146** 0.139*F2: Competitiveness 0.602*** 0.288*** 0.112* 0.547***F3: Efficiency & Effectiveness 0.092* 0.616*** 0.405***F4: Equity 0.222*** 0.102* 0.186** 0.282***F5: External Customer Relation 0.113* 0.123*F-value 36.6 44.1 14.7 38.2R2 0.80 0.83 0.62 0.81R2 adjusted for df. 0.78 0.81 0.57 0.77Note: *p<.05; **p<.01; ***p<.000

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Correlation analysis on the success factors and Input, Process, and Output was also performed to see how these indicators are correlated to one another. The results in Table 5.12 show that the input indicators have significant correlations with Functional Efficiency, Equity, and Customer Relation, but not with Competitiveness and Efficiency & Effectiveness.

Table 5.12. Correlation Matrix of Success Factors and Input, Process, and Output

Success factors Input Process Output

F1: Functional Efficiency

F2: Competitiveness

F3: Efficiency & Effectiveness

F4: Equity

F5: External Customer Relation

0.461**

0.662**

0.321*

0.559**

0.446**

0.386**

0.321*

0.627**

0.519**

0.308*

Note: *. ** Correlation is significant at the 0.01, 0.05 level (2-tailed).

On the contrary, the process indicators are significantly correlated to Competitiveness and Efficiency, but not to Equity and Customer relation. Output is significantly correlated to most of the factors, except Customer relation. This is reasonable, because input indicators are often considered as long-term success factors, while Competitiveness and Efficiency & Effectiveness are closer related to the Process and Output measures.

The result of the regression analysis in Table 5.13 indicates that most success factors significantly affect the input, process, and output indicators. However, the levels of influence are different. “Input” is stronger influenced by Equity and Functional efficiency; while “Process” is stronger influenced by Functional efficiency and Competitiveness; but “output” by Competitiveness and Efficiency & Effectiveness.

Table 5.13. Regression analysis of Success Factors on Input, Process, and Output

Success factors Input Process Output

ConstantF1: Functional EfficiencyF2: CompetitivenessF3: Efficiency & EffectivenessF4: EquityF5: External Customer RelationF-valueR2

R2 adjusted for df.

3.480.154***0.089**0.094***0.243***0.112***44.350.830.81

3.160.228***0.185***0.150***

0.093**20.650.690.66

3.090.113***0.233***0.197***0.113***0.094**78.950.890.88

Note: *p<.05; **p<.01; ***p<.000

Based on the results of the regression analysis some important implications may be made. Weak impacts of the External Customer relation on the process and output indicators, again is an evidence of not-very-high effectiveness of the customer service of the joint ventures.

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The effectiveness of the relationships between partners in the joint ventures (Functional efficiency) play important roles for improving process indicators. While building the competitiveness would be considerably meaningful for the joint ventures to enhance the output criteria.

5.1.4. Other issues of discussions

The major objective of the study in this section is to find out what management approaches are appropriate for managing joint ventures in Vietnam and how participants communicate with each other and solve operational conflicts created in the joint venture relationships. These components are very important in forming the organizational distinctive culture, which can facilitate the joint venture operation and ensure its success.

Table 5.14. Respondents’ views on decision-making, communication, and conflict solving approaches. (Standard deviation in the parentheses)

Overall sample Vietnamese Foreigners Sig.Autocratic 2.79 (0.86) 2.97 (0.86) 2.52 (0.81) 0.07*Collective 2.64 (0.65) 2.59 (0.67) 2.71 (0.64) 0.52Consultative 4.21 (0.82) 4.31 (0.78) 4.05 (0.86) 0.25Consensus 3.02 (0.80) 3.00 (0.80) 3.05 (0.80) 0.83Meeting 3.13 (0.59) 3.13 (0.66) 3.14 (0.48) 0.92Memo 3.00 (0.44) 2.88 (0.42) 3.19 (0.40) 0.01**Telephone 3.49 (0.70) 3.44 (0.80) 3.57 (0.51) 0.50Email 2.89 (0.85) 2.78 (0.83) 3.05 (0.86) 0.27Direct contact 3.53 (0.61) 3.31 (0.64) 3.86 (0.36) 0.00***Language 3.11 (0.75) 3.19 (0.82) 3.00 (0.63) 0.38Cultural difference 3.36 (0.74) 3.41 (0.76) 3.29 (0.72) 0.56Thinking approach 2.89 (0.75) 3.09 (0.73) 2.57 (0.68) 0.01**Management style 3.42 (0.60) 3.44 (0.62) 3.38 (0.59) 0.74Knowledge level 2.66 (0.71) 2.69 (0.82) 2.62 (0.50) 0.73Persuade 3.21 (0.84) 3.19 (0.86) 3.24 (0.83) 0.83Collaborate 3.91 (0.84) 3.84 (0.95) 4.00 (0.63) 0.51Compromise 3.64 (0.68) 3.59 (0.67) 3.71 (0.72) 0.53Common objectives 3.15 (0.66) 3.19 (0.82) 3.10 (0.30) 0.62Wait 1.58 (0.50) 1.75 (0.44) 1.33 (0.48) 0.00***Note: *, **, *** Significant at .1, .05, .01 level.

Decision-making approach of the managers may not directly affect the performance results of the joint ventures. But, in a certain level, it reflects the organizational culture in the joint venture. Autocratic is the character of a manager that makes decisions by himself, without considering other people’s ideas. This type of management concentrates power in one person, the leader. The data indicates that this character is not appropriate for managing joint ventures. In the other extreme, the decision-making approach based on collective (participation) discussion and voting is also not preferable. Most of the respondents, both local and foreign, agreed that consultative decision-making approach is mostly fitted for the joint ventures. However, to get consensus of all people is not easy and necessary.

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By evaluating the problems related to communication we can understand the weaknesses of or efforts made by the joint venture management in building an organizational communication system, in which the partners can communicate with each other, share their ideas, and exchange knowledge. There are many barriers that can limit the effectiveness of communication in an organization, namely the differences in language, culture, thinking way, management style, and educational levels of the participants.

The data of the survey indicates that there is no serious problem related to the educational level and thinking approach of the partners. However, cultural differences and especially management style seem to be important barriers limiting the effective communication in the joint venture. The respondents are in-between on the problem of language.

The way of solving conflicts between partners in the joint venture reflects the company’s culture. Therefore, building an effective conflict solving mechanism, so that both sides can feel comfortable after taking decisions, is very important for a long-last relationship and fruitful cooperation between participants. The data indicates no significant difference between joint venture partners’ views on evaluating the conflict solving approach. The win-win approach was assessed to be the best way of solving conflicts. Whenever a conflict arises, participants sit together and look for a solution that would benefit both sides. This approach requires transparently open-minded and co-understanding relationships between the participants. Compromise is an important conflict-solving strategy, especially when dealing with short-time objectives and a friendly atmosphere is needed. The respondents did not support the “silence” approach or “do nothing” and wait until the problem is solved itself. This approach may be dangerous and can lead to bigger conflicts later in the joint venture life.

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5.2. Interviews Results

In this section we will make an in depth study of the joint venture relationships, based on direct interviews with the joint venture managers. The purposes of this section are to identify important problems related to the joint venture operations. For the purpose, 10 managers from three joint ventures were selected for the interview. Of these people, two were currently Executive General Directors, others were Department managers, serving in accounting, production, personnel, and marketing departments. Problems that arise in the joint venture operations, according to the interview results can be divided into eight groups as shown in Table 5.15 bellow.

Table 5.15. Major areas of the joint venture problems and issues

Problems related to the Government policiesOwnership & Control of the joint venture

Differences in partner’s sizeDiffering basic objectives

Management paymentTechnology transferCultural problems

Brand name

The joint venture relationships cover a wide range of operational areas of the venture and reflect how partners are coming up with a mutual satisfactory agreement and joining together in operations.

The reality of many joint ventures in developing countries is that they often involve large multinational companies (MNCs) which have under their purview a mix of other joint ventures and wholly-owned subsidiaries elsewhere in the world. On the contrary, the local companies, which may be quite large by local standards, are not in comparison with their partners. In the cases of HBC and Luck Vaxy in this survey, for example, the Vietnamese partners were just as big as small subsidiaries of their foreign partners. The Beer Factory of Hue when joined with Tuborg International A/S, more than 90% of its assets have been contributed to the joint venture, almost every thing, from a gatekeeper to a company’s bus. Only the brand name of Huda and some other Copyrights have been contributed in the form of licensing. The upshot of such differences is that the business perspectives of the two companies can vary substantially, and this variability can be at the root of relationship problems later in the joint venture life.

5.2.1. Problems Resulted From Differing Basic Objectives

The first source of difficulty may be derived from the differing basic objectives of the two types of companies. MNCs hope to operate through the joint venture in a way that will be optimal over their entire global network, not just within the local market, which are the usual

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Joint Venture Issues

interests of their local partner. There are a number of issues where such differences impinge and over which disagreements can easily arise.

As noted in the previous sections, joint venture partners are very different from each other in the basic objectives. Foreign partners emphasize technology transfer as an important motivation of joining with the local firms. The local partners, otherwise, think that buying technology from a third party is often better, because it does not make them dependent on the foreign partner, and the “competitive market is always better than the monopoly one”, as noted the General Director of HBC. According to him, the major purpose of the joint venture was not technology transfer, because “technology is available and can be bought everywhere in the world nowadays”.

Other problem source can come from the differences in the joint venture partners’ views on export and import substitution motives. Local partners often expect that as new technology is brought in and product/process technologies are absorbed by the joint venture, exports may provide a natural market for expansion. Indeed, increased exports might be a primary reason for the local partner to have entered into a joint venture agreement in the first place. Unfortunately, however, they often meet export barriers set by the foreign partner. The foreign partners often look upon the joint venture as one piece of a complex global web, and it is not likely to allow this single piece to dictate their own policies. Many MNCs ban their joint ventures to export into their currently served markets due to various reasons, including the quality standards and cannibalization effects.

In 1996 HBC management decided to launch a new product for the high end user market segments, Tuborg, which was a very popular brand in the international beer market. In 1995, the share of this new product in the total revenue of the company was about 13% and the management believed that it could increase to 50% in near future. The strategic objective of the company to launch this beer was to compete with Heineken, having currently been the beer number one in Vietnam.

But unfortunately, the result was so negative, Tuborg on the one hand could not win Heineken, which has very successfully built its brand reputation and customer loyalty in Vietnam for a long time, on the other hand, created a cannibalization effect, which resulted in a considerable reduction in Huda sales. Facing this situation, the company immediately adjusted its strategy to maintain Tuborg production in a limited amount. Presently, Tuborg represents only about 1% of the company’s total beer production.

The local managers complained that one of the reasons for the failure of the joint venture’s new beer brand – Tuborg in Vietnam was that it was not allowed by Tuborg International A/S to be exported. This new beer brand produced in Vietnam to serve the high end user market segments, but according to the local managers, it was too expensive for the majority of the Vietnamese.

In 1996 the local managers of HBC proposed to export Huda to the USA. But they again met strong resistance from the foreign partner side. A local manager from the joint venture said that they argued all the time when discussing the export rights. After “continuous and sometimes rigorous struggles”, as the General Director of HBC expressed with a big smile in his face, they come to an agreement to allow the joint venture to export its products. Nowadays, Huda is exported to some countries in the world, such as the USA, Italy, Portugal, and France. According to the Director of HBC, the export of Huda, although

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accounted for only about 5% of the company’s beer production, strongly increased the brand reputation in the domestic market.

Other conflict of this kind may be derived from the fact that foreign partners motivated from the major objective to get access to the new market often want to spend more in advertisement in the first stages of the joint venture. This may be the right strategy, because since the joint venture new products are not similar in the domestic market, advertising would be effective way for communicating with the customers. The local partners however may think that too much spending on advertisement at the early stages of the joint venture is not necessary. Many of them convince that improving the quality and technological capability is better way in building customer base and loyalty.

5.2.2. Differences in partner size

Another set of problem areas relates to the differing size of the two parties in the joint venture. In relative terms, the local partner is likely to be considerably smaller than the foreign partner is and, according to foreign managers, this difference can cause difficulties during a joint venture initial, often high growth, years. The local partner may have difficulty coming up with the necessary capital infusions to support the expansion.

In the case of HBC, for example, the joint venture had a high need of capital investment to increase the production capacity. In 1998 due to high demand of Huda, the joint venture decided to double the capacity to 500 thousand hectoliters per year. For the purpose, the joint venture needed to increase its capital considerably. This capital increase did not create any difficulty to Tuborg International, but for the local partner it was really something worthy of thinking.

The situation was even worse in the case of Luck Vaxi. Due to the needs of investment capital for improving the technological conditions of the production line, but the local partner could not afford it. This forced the two sides to change the ownership share.

Size differences also seem to have operational implications that can cause problems. First, the joint venture might be seen as much more important in the overall activities of the smaller, local partner; this company proportionately has more assets tied up in the joint venture than does the MNC. Local managers expressed the feeling that the foreign partner just didn’t seem to give enough attention to the joint venture, and the joint venture appeared to become lost in the much larger scheme of MNC global activities. Second, and related to the first, is the dissatisfaction that occurs when MNC partners assign managers to the joint venture for relatively short periods of time. The other side of that issue, of course, comes from the MNC management, which typically complains about the difficulty of finding executives who are willing to spend long periods of time abroad. For these executives, the joint venture might not be seen as a logical way to achieve career goals (Robert R. Miller, 1996). This strongly supports the research findings in the previous section, that foreign managers have lower commitment than the local partners.

5.2.3. Ownership and Control of the joint venture

Control is a problematic issue in the joint venture. Normally the ownership share of the participants decides their management power. There exists, however, a very specific way of controlling a joint venture found in the survey: the joint venture is managed by a third party, which is hired by the joint venture. That was the case of Century Riverside Hotel (CRH), a

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50/50 joint venture between Hue Tourist Company, a state-owned enterprise and Crowndale International, Ltd., Hong Kong.

According to the agreement between the joint venture partners and Century Corporation, this company gave the joint venture the right to use its name and logo under a licensing contract. Century also sent a staff of its managers to the joint venture to take over the management tasks. Contributions of Century to the joint venture were expected to be the well-built international brand reputation, managerial know-how, and especially the Century’s worldwide customer network. To compensate the management service, the joint venture paid Century fees and licensing royalty. All of the Century’s activities related to the joint venture management were audited by an international auditing company, and reported to the joint venture board of management.

Thus, the Century Riverside Hotel was found in such a distinctive form of international joint venture. The presence of Century in the joint venture, however, “had created many problems”, as the current General Director (GD) of CRH, who was a Vietnamese, complained. The annual expenditure for maintaining the management functions of Century was accounted for more than 2% of the company’s total revenue, 10% of earnings before tax, and 2% of marketing costs. According to him, hiring Century to manage the joint venture was not effective.

Another problem was that the local partner had a feeling that they had lost their control on the joint venture activities, including those related to the political and social issues. As noted above, the Vietnamese partner was a SOE, therefore, beside the business function, they had to fulfil the social and political obligations, such as maintaining the Union and political Party activities in the enterprise. The GD of CRH said that under the management of Century, these activities were very difficult, which lead to decrease of the morale of the employees and increase conflicts between them and the management.

Moreover, the management mechanism at CRH would naturally made the joint venture a “purely equity” form. The two sides only contributed capital funds, but almost not involved in the management (all of the management staff was Century-based with an exception of the Vice-General Director, who was selected from the local partner). According to the interviewee, this had actually reduced the commitment of the two partners of the joint venture. And more importantly, he complained, the contributions of Century had not been as expected. Most of the guests of the Hotel had been recorded to be situational and only a very few come from the Century Customer Service Network.

This management mechanism had existed from 1993 to June 1996, when the joint venture partners decided to terminate the contract with Century, but still continue licensing its name and logo. From June 1996, the two sides have been rotationally changed to control the venture in major positions on a mandate of 4 years.

5.2.4. Technology transfer

Technology-related problem sometimes comes up when the joint venture management believes that the MNC is not providing the joint venture with the latest or most appropriate technologies. The MNC, of course, may have excellent reasons from its own perspectives for restricting technical information, particularly information involving what are seen to be the core technologies of the MNC (Robert R. Miller, 1996).

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The case of Luck Vaxi was a typical illustration of the joint venture technology-related problems. The joint venture was incorporated in 1991 and embarked on the phase of factory building since then. In 1993, major equipment started to be shipped to Vietnam for installation. The project progress, however, had taken a long period of time. The factory could not be completed until 1997. At the opening day, unfortunately, the production line showed various malfunctions, and could not start production.

The local partner blamed the foreigners and called an international audit organization for checking the problems and finding the responsibilities. The foreign partner convinced that the problems were purely technique-related. According to the interviewees, part of the equipment was damaged because of being kept in the company’s store for a too long period of time, since 1993. Moreover, by the time of the negotiation, the demand for cement of medium quality, produced under the stand-oven technology in Vietnam was high. But the market had changed. The stand-oven technology, which was installed in the joint venture, had become obsolete. The joint venture must spend additional investment for improving the production lines. By these reasons, the company could not operate until June 1997.

The problems, although solved, have considerably hurt the relationships between the two partners, especially the trust, and may create problems later in the joint venture life.

5.2.5. Brand name

Brand name was also a controversial issue that may create conflicts between partners in the joint venture. The first problem relates to the joint venture name, which in many cases in the survey is a combination of the foreign company name, which may be well-known in the international business, and a local name, often not related to the local partner’s name. At the beginning stages of the joint venture, the foreign partner may think that their contribution to the venture was bigger than that from the local partner in terms of the brand name. But, this may actually be offset later as the brand reputation increased in the local market. On the other side, the local partners often think that the advertising expenditures may benefit the foreign side more because they link to its name.

In the case of CRH, the company’s name absolutely did not relate to Hue Tourist Co. and Crowndale International Ltd.. Many people, even the author of this article before his visit to the Hotel for the interview, could easily misunderstand that CRH was a joint venture between Century and some Vietnamese SOE. In another case, the problem was even more severe. That was the case of Shell-Dynamo Vietnam, a joint venture between Shell-Dynamo and SaigonPetro Co., which was not included in the interviews. The local partner wanted to build a distinctive brand name for the joint venture. According to a Vietnamese manager in the joint venture, by building the joint venture’s own name it would help increase the independence of the venture from its parents.

Problems can also happen in using and advertising product names, often licensed from the joint venture’s parents. This may create conflicts between partners in making marketing decisions.

5.2.6. Cultural Problems

Cultural differences are really inevitable problems in the joint venture. Partly, the problems are caused by the obvious fact that the two (or more) partners come from many different cultural backgrounds, and individuals may see the same set of circumstances in quite

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different ways. Some foreign managers in the interview said that sometimes they could not get to the common point. From the local manager side, foreigners were often characterized as “too straightforward” or “narrow-minded”, not willing to understand the real situations, especially when dealing with complicated issues, which according to the local managers, need some “arts” and “flexibility”. On the other hand, foreigner managers complained that Vietnamese are very slow in decision making, some even often look at the traditional calendar and wait until an “appropriate day” for the solution.

One common complaint relates to what the foreign managers see as deeply embedded corruption in the business environment, presumably accepted by their partners. In the foreigners’ view, such corruption may be unacceptable for a number of reasons. It leads to inefficiencies, which, in turn, can affect competitiveness. Thus, what do the foreign partners see as corruption, may be viewed by the local partners as normal business practice, can be a source of considerable contention in the joint venture.

Vietnamese often try to avoid conflicts and “losing face”. The Vietnamese self-esteem is very high. A foreign manager in the interview suggested that if one wants to be a good counterpart of the local people, one should be “patient” and “understanding” them, a good strategy should be “compromise”. One should trust them and “let’s see what they do”.

5.2.7. Management payment

Pay for the joint venture’s managers is also a complex issue. The local managers often complained that they did the same thing as their foreign counterparts, but received only a fourth or a fifth of their compensation. The situation is more complicated when the joint venture ownership structure was 50/50, in which the two sides had the equal decision making power. In such situations, the foreign partners often let the local partner dominate the management, and maintain a limited number of foreign managers in the joint venture.

5.2.8. Problems Related to the Government policies

Business environment directly affects operations of the joint ventures. In this section the author did not discuss all problems related to the business environment of the joint ventures. Instead, the research focussed only on those problems, which directly influenced operations of the ventures, including difficulties created by the government regulations and policies.

The frequent complaints of the joint venture managers were related to the government regulations on salaries, fees, and prices, which directly affected the business of companies in general and joint ventures in particular. The Decision of the Government on November 26, 1998 to continue the implementation of the regulation on minimum wage (in U.S. dollars) for the Vietnamese employees working in the FDI enterprises has really created difficulties for them, especially in the situations of the current financial crisis in the region. The minimum wage regulation can significantly increase the production costs and reduces the competitiveness of goods produced in Vietnam.

The policy of the local government in differentiating utility fees for the FDI enterprises was also unfavorable for companies in managing production costs. According to the interviewees, the utility costs set by the government were too high. Especially, the differentiation between fees for the FDI and fees for the SOEs could create an unfair competition between them. The differences of major utility fees applied for the SOEs and non-SOEs are shown in Table 5.16.

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Table 5.16. Comparison between utility fees for SOEs and non-SOEs*

Commodity Fees for SOEs Fees for non-SOEs

Electricity 500 VND/kWh 2500 VND/kWh

Water 2000VND/m3 5000VND/m3

Telephone 68,000VND/month/telephone 60 USD/month/telephone

Source: Direct interviews * The direct exchange rate was 13,90 VND/USD.

The interviewees also expressed their concern about the Document 862/TLD on July 14, 1998 of the Vietnamese Workers Federation, which requires the FDI enterprises extract 2% of the compensation fund for the Union fees, part of which must be submitted to the Central Union. According to them these fees have considerably increased the operation costs and created difficulties for companies.

Interviewees also expressed their concerns about the chaos of the market competition. According to them, the government should have a necessary policy to regulate the competition between companies in the market. Too high pressure of competition may increase costs and reduce benefit margins of companies.

According to the interviewees, the current income tax for foreign employees was not appropriate. The taxable initial level was too low (5 million VND), while the tax rate was too high (50% versus 28-40% in other countries in the region). This considerably created disadvantages for companies in hiring high-skill experts and managers in the world.

For the Vietnamese working in the FDI enterprises, the current income tax rate was too high (the highest rate was 60%, plus additional 30% for the income above 8 million VND). The interviewees said that this high income tax did not encourage the FDI enterprise use the Vietnamese employees in high level positions. Because, for the same position, with the same education level, and the same after tax income, the enterprise must pay more for a Vietnamese than a foreigner.

Lastly, but not least, is the problem related to the Government Regulation No. 58/CP on Labor Use, by which the foreign invested companies have limited power on issuing labor contracts with foreign employees. The joint venture management also complained about the low quality of the labors, employed through the local Labor Service Centers, they want to be more free and proactive in solving the employment issues.

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Summary of the Chapter:

So far a comparatively clear picture of the joint venture success performance and quantitative relationships between success factors, as well as key problems and issues affecting the joint venture’s performance was drawn out.

Although the financial performance was quite under expectation, the overall performance was found to be somehow satisfactory. The strong correlation between long-term and short-term success indicators is an evidence of a normal functioning of the joint ventures in general. Input indicators were rated higher than the process and output indicators, which means potentials for future success were available, and an optimistic view on the joint venture future should be supported.

Significant correlation between success factors and individual indicators as well as the input, process, and output measures suggest that important efforts should be made in certain areas for improving the joint venture operations.

The results from the direct interviews with the joint venture managers in most cases supported the quantitative findings in the research, and overcoming of these key problems would significantly improve the joint venture performance.

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Chapter 6

CONCLUSION AND RECOMMENDATION

6.1. Conclusion

The world economy has currently been in the globalization process. Business environment has dramatically been changing to become more competitive, more unpredictable, more risky, and more challenging. This has forced firms to be more strategic in struggling for survival, benefit, and growth. In such a vibrant business environment, joint venture has become one of the effective cooperative strategies to help firms approach their corporate goals.

On the one hand, a joint venture is important for an industrial country firm because it helps easier, cheaper, and quicker access to new markets; facilitate technology transfer; exchange knowledge; exploit cooperative synergy; and share risks. On the other hand, a joint venture is important for a developing country firm because it enables the firm to develop its market position. Therefore, a successful joint venture makes “the strong” stronger, “the weak” more competitive, and both of them can win by entering the alliance.

When going into a joint venture, every side brings to it basic expectations, pursues distinctive strategies, and makes certain contributions relevant to their expectations. The level of satisfaction of the participants is therefore can be used as measure for the venture’s success.

Based on the results of the survey, the following conclusions can be made to give an overall landscape of the joint ventures’ objectives, their performance, and major problems they face in operations.

6.1.1. Joint venture objectives

The emphasize of the role of a joint venture as a tool for market access reflects a short-term approach of the joint venture partners in making their alliance. Once the market is getting familiar and the joint venture products attractive to the local customers, the commitment of the participants may be reduced.

There are significant differences in the joint venture partners’ views on the basic objectives of the joint ventures. Vietnamese partners higher emphasize export and acquiring new technology motivations, while foreign partners consider sharing risks, market access, technology transfer, and taking the advantages offered by the Government more importantly.

These differing basic objectives can create potential conflicts in the joint venture relationship later during the joint venture life, such as conflicts in formulating and implementing technology transfer and export policies and marketing strategies. Differing basic objectives can also influence commitment of the involved parties and trust between them.

6.1.2. Joint venture performance

Judging how well a joint venture is performed is theoretically and practically difficult, because success can be viewed from various perspectives, at different levels, and depended on expectation of the participants. A good assessment of the joint venture performance must

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therefore practical (easy for application) on the one hand, and valuable (giving reliable information for managerial purposes).

The evaluation process in this research consists of the two main steps. Firstly, simple descriptive statistics was employed to identify the satisfaction levels of the partners on different success indicators. After that, factor analysis was performed to classify these indicators in major constructs (dimensions) and eliminate those that are not significantly correlated to others, or have low reliability due to the sample bias. Additional discussion and direct interviews were also made to support the analysis results and identify the major problems in the joint venture relationship that can influence the venture’s performance.

The satisfaction levels of the joint venture partners on different criteria are summarized in Table 6.1. Top five indicators having highest mean scores are Relative quality, Profit sharing, Transparent compensation, Clear responsibility, and Market know-how. Only one of these is “output”-related, others are all “input” indicators.

Relatively high quality of products and services is one of the most important advantages of the joint ventures over the local companies. Many joint ventures have actually been successful in building their reputation through high quality of products and services in Vietnam.

Developing a management system, in which profits can fairly distributed to the venture’s partners, compensation policy is transparent and understood throughout the venture, responsibility is clearly identified and rationally given to managers of all hierarchy levels is very important for a successful joint venture.

Bottom five indicators having the lowest scores are Cash flows, Cost control, ROI, Access to financial resources, and Innovative strength. This indicates that the joint ventures are not very well performed in terms of the financial results. The dissatisfaction of the managers on the innovative strength, which is a very important factor influencing the successful performance of an enterprise in a dynamic and competitive market like Vietnam reflects the weakness of the ventures in R&D activities.

Both foreigners and Vietnamese have similar assessment about the economic results of the joint ventures. Although sales is evaluated to be above satisfactory level, net profit and especially return on investment are far below the expectation. The low level of benefit and return on investment indicates that the joint ventures have poor financial performance.

There are significant differences in the managers’ evaluation on the joint venture’s performance. Local managers are not satisfied with their joint ventures in building customer base and customer service, while the foreign counterparts moderately evaluate these factors. Although both Vietnamese and foreign partners were not satisfied with the innovative capabilities, foreigners are comparatively more optimistic and graded this indicator higher than the Vietnamese.

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Table 6.1. Ranking success factors by level of partner’s satisfaction

Grade Indicators Input Process OutputHigher Satisfaction

4.25 Relative quality IProfit sharing ITransparent compensation IClear responsibility IMarket know-how OProductivity PGood relationship IHonorability ICustomer base IHarmony IManagement know-how ORelative price OCustomer satisfaction OTransparent staffing ICompany size ILearning ICommitment IFair wage IEffective communication P

3.36 Work satisfaction OMarket share OResource safeguarding PWork well together PTechnological know-how OCooperation PRelationship with authorities PReputation PSales growth OTrust ORelationship with suppliers OMarket adaptability PComplimentarity ITechnology ISynergism PCompetitive position OCash flow OCost control P Lower

satisfa-ction

ROI OAccess to finance resources I

2.43 Innovative strength P

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There were significant differences in the respondents’ evaluation on the issues of the joint venture relationships. In general, foreign partners graded higher than the local partners. The Vietnamese graded work satisfaction and fair salary much lower than the foreigners did. This indicates that the local managers are not very satisfied with the current compensation policy of the joint venture. Low work satisfaction can reduce the employee loyalty rate and increase the possibility of quitting jobs.

The data indicates no significant difference in the respondents’ view on learning and communication. The moderate grades of these components indicate that there are no important barriers that can limit communication and learning in the joint ventures. Building an organizational culture, in which everyone can freely communicate with each other and share their ideas, is very important for a joint venture to be successful. The effective interaction between employees from different partner companies is an ideal environment for organizational learning.

Based on the results of the factor analysis some conclusions can be made. The partners perceptions on the joint venture performance are, in general, fitted to the theoretical framework of the research. According to the analysis, success indicators can be classified into 5 groups, namely Functional Efficiency, Competitiveness, Efficiency and Effectiveness, Equity, and External Customer Relationship. These five factors explained more than 70 percent of the variance.

Functional Efficiency and Equity have factor scores of 3.2 and 3.45 respectively, which indicates that the joint ventures have satisfactorily built up organizational culture for themselves. This moderate level, however is far from the expectation to have “very good” performance. There are significant differences between the joint venture partners in evaluating these “behavioral” indicators. The Vietnamese partners have lower scores on these factors, which means they are less satisfied with the joint venture relationships than the foreign partners.

Similarly, moderate factor score values of Competitiveness and External Customer Relations implies that the joint ventures are satisfactory in developing their customer base, building customers service networks and relationships with suppliers, expanding the market, and improving their reputation and competitive position.

With a factor score lower than the “satisfactory” level, Efficiency and Effectiveness represent comparative “weaknesses” of the joint ventures. This may be one of the “bottle necks” in the joint venture system. The conclusion about that, however, needs further research and studies.

Correlation analysis shows that there exist significant correlation between success indicators and the main operational performance results of the joint ventures. Competitive Position has significant correlation with all of these “output” indicators, especially Sales growth and Market share. Reputation has strong correlation with Sales growth, while Cost control and Productivity closely correlated to Net profit and ROI. Other factors significantly correlated with at least one or two of these “output”, except Customer base and Synergy, which have no significant correlation with any of them.

The weak correlation between Customer base and the output indicators reflects low effectiveness of the joint ventures in developing their customer base. This may be resulted from wrong market segmentation or inappropriate marketing strategies. Similarly, lacking of

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willingness and cooperation of the two (or more) joint venture partners in exploiting their synergies may significantly reduce the joint venture roles as a cooperative strategy of firms in reducing operational costs.

The results of the regression analysis indicate that “output” indicators are significantly affected by success factors. Competitiveness most strongly affects Sales growth and Market share, while Efficiency & Effectiveness – Cash flow and ROI. Equity moderately affects all of these “output”, while Functional Efficiency and Customer relation have no significant influence on Market share. This again indicates low effectiveness of external customer relations of the joint ventures.

The analysis also found strong correlation between input, process, and output indicators, which is an evidence of a normal functioning of the joint venture in general. Significant impacts of success factors on the input, process, and output indicators suggest that there are important potentials available for improving the joint venture performance.

6.1.3. Problems in the joint venture relationships

The results of the direct interviews with the joint venture managers strongly support the quantitative findings in the study. Differing basic objectives may result in conflicts between partners in technology transfer, export rights, and formulating and implementing marketing strategies.

Difference in partner’s size and management mechanism could create difficulties in reinvestment policies, affect control power and commitment of the participants. Technology transfer is also a problematic issue that can unnecessarily cause conflicts between partners, hurt trust, and damage partner’s credibility, which can lead to harmful impacts on their relationships during the venture’s life.

The problems related to how a joint venture should be named are also not less controversial. Using a name, which is related to only one of the partners (which assumed to be well known world-wide) can create a feeling of “unfairness” and may lead to conflicts later in the joint venture brand management. Moreover, the lack of a distinctive name for the joint venture can create difficulties in building identity and personality of the joint venture brand.

6.2. Recommendations

So far, a general picture of the joint ventures performance and key problems they face in operations has been comparatively clarified. Based on these findings, relevant recommendations can be made.

6.2.1. Recommendations to the joint venture managements

In order to overcome problems related to the differing basic objectives, partners should learn to understand each other. Close collaboration based on a long-lasting basic is very important for the participants to understand each other and deal with conflicts of this kind. Sometimes, the difference in basic objectives may lead to serious conflicts, then compromise would be the best way to solve problems. Compromise, however as noted, should be used as a “situational” strategy. This “win-loss” conflict solving approach can constitute potential problems and reduce the partner’s satisfaction.

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For relieving problems related to the differences in size and compatibility of the joint venture partners, sufficient provisions should be made in the joint venture negotiation phase. For example, partners should be agreed on issues of changing ownership, reinvestment, and capital raising. These provisions are however difficult to be implemented, as many things would be changed at time. The comparatively independence of the joint venture from its parents can also reduce threats of “harassing” from a “bigger” partner.

Problems and conflicts related to technology transfer may be reduced when participants use “win-win” approach, based on a long-lasting relation basis. This approach requires partners to respect the common goals set at the joint venture establishment. No party should try to make use the joint venture to pursue its unstated strategies. Sufficient and clear agreement provisions also need to be made setting out an operational framework for technology use in the joint venture to solve problems of technology transfer.

Building the joint venture distinctive identity, brand name, and logo may be an effective way in overcoming problems of brand name. The joint venture name should combine strengths of both partners, and be reserved as an independent company name. Building the joint venture’s own brand names can also help encouraging R&D activities and innovative strength of the venture.

Developing the organizational culture, distinctive for the joint venture is very important in creating favorable working environment in the joint venture, which allows employees to communicate freely with one another, helps them overcome psychological barriers of belonging to different parents. The organization culture would make employees closer to each other, able to share responsibilities, and work in a team basis. This is apparently a very important condition for developing the joint venture relationships and ensuring its successful performance.

As noted, the weak correlation between Customer relation and operational performance may reflect low effectiveness of customer services. In order to improve customer service, total quality management methods should be employed. Building Total Customer Satisfaction Teams, creating switching costs, and managing customer complaints are important tools in maintaining customer base and customer loyalty.

Exploiting cooperative synergy are important ways in increasing effectiveness of the joint venture through cost and time saving. Frequent visits of the participants to each other could help them understand more about themselves and discover opportunities for cooperation. The most important condition for exploiting cooperative synergies is that, partners must have strong trust and the joint venture relationship should be based on a long-term basis.

Enhancing reputation and brand image of “import quality, domestic price” of the joint venture products is an important branding strategy for improving competitiveness of the joint venture. One of very important ways for the joint ventures to build their competitive advantages over domestic or foreign wholly owned companies is effective use of the integrated resources of the partners through extensive resource exchange programs.

Lastly, building good relationships with the local authorities is also strategically important for a company in a country, where many things are based on custom like Vietnam. These relationships may help companies obtain necessary information, related to the social and economic development plans of the government, legal and political changes, and sometime

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the relationships may facilitate the company in dealing with local companies and government agencies.

6.2.2. Recommendations to the policy makers

As noted, joint venture is important for a developing country like Vietnam to enhance the general technological capabilities of the national industries. By entering a joint venture with a developed country company, the local firm step-by-step improves its managerial and technological know-how, builds up its competitive position and is able to struggle for survival, benefits, and growth.

In order to help the joint ventures successfully perform, the Government must consider joint venture as the strategy for the national technological development. It must create a unique business environment favorable for the international joint ventures of all types to develop.

First of all, there should be absolutely no discrimination between the SOEs and international joint ventures in all fields of their activities. The equality between the SOEs and the international joint ventures would help them able to make use of the alliance advantages and overcome the gap difficulties to build up their competitive position in the domestic market. Such equality can be reflected in the government policies of equal price, equal fees, and equal tax between the SOEs and non-SOEs.

In order to encourage the joint ventures in employing local managers in important positions, the Government should increase the taxable threshold and lower the income tax for Vietnamese working in foreign invested companies, at least to the levels applied in other countries in the region.

The Government could also facilitate the joint ventures by applying attractive policies, such as tax exemption and economic incentives to aid them overcome difficulties in operations. Changing the point of view of seeing a foreign invested company as a “capitalist” to an important “force”, which can contribute to the development of the national economy, would play a significant role in creating a nourishing environment for foreign invested companies in general and joint ventures in particular.

Finally, a stable and effective legal system is necessary for companies in general and joint ventures in particular to operate. On the one hand, the Government encourages the joint ventures with effective policies, on the other hand the Government eliminates its interventions and gives the joint ventures independence to solve their own problems.

6.3. Further Research Suggestion

As noted, weak correlation between Customer Relations and success factors could be an evidence of ineffectiveness of customer service and marketing activities. Traditional marketing approaches and distribution networks, obtained from local partners may not be necessarily efficient. The market economies, however, depend on various factors. Further research is therefore necessary to discover key problems (the bottlenecks) in the marketing approach of the joint ventures for more effectively functioning of the joint venture systems.

As the failure rates of the international joint ventures increased, a research on identifying key factors affecting failure/success rates should also be carried out in an international scale.

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29. Tomlinson, J.W. (1970), “The Joint Venture Process in International Business”, Cambridge, Massachusetts, MIT Press.

30. Ministry of Planning and Investment Annual Report No. 11BKH/KCN Jan. 2, 1999.

31. Department of Planning and Investment of Thua-Thien Hue Province Report on Foreign Direct Invested Projects in 1998.

32. Vietnam Yearbook, Statistics Publishing House, 1997.

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APPENDIX

Appendix 1: A case of HBC

Assessing the Financial Situations and Performance of the Joint Venture

Tuborg International A/S was first established on May 13, 1873 in Copenhagen in the name of Tuborg Factories Ltd.. Ever since the Brewery was founded, its purpose has been to create a truly international beer. Today, Tuborg is one of the most widely sold beer brands on a global scale. At present, Tuborg beer is being consumed in around 120 countries and produced in some 20 countries, including Germany, Italy, Portugal, Turkey, Malaysia, Croatia, Poland, Israel, Malaysia, Nepal, Malawi, and Vietnam. More than half of the beer production is sold and consumed outside Denmark.

HBC is a joint venture, established in April 1994 between the Beer Factory of Hue, Tuborg International A/S, and the Industrialization Fund for Developing Countries. The joint venture was formed according to the investment license No 835/GP of SCCI for the purpose of producing beer and other drinking products in the project life of 30 years. After four years of operation, the joint venture has confirmed its competitive position in the market and become one of the profitable enterprises, despite of the current financial crisis in the region. Major characteristics of the joint venture are shown in Table A1.1.

Table A1.1 Major characteristics of HBCCompany name Hue Brewery Company

Field of business BeerOwnership:

Vietnamese partnerForeign partner

50%50%

Data of registration 1994Data of operation 1995Registered capital $24.4m

Duration of the joint venture 30 yearsNumber of employees 222

Served market Domestic & exportManagement of the joint venture Rotationally changed

The data indicates a continuous increase of the company’s sales with an average rate of more than 20 percent per year. At the end of 1998, a new production line was installed and the production in 1999 is expected to increase importantly. According to the General Director of HBC, the production would be around 50 million liters of beer by the year of 2000 and more thereafter.

The presence of HBC in Hue has played an important role for the economic development of the city. In 1998, tax contribution of HBC accounted for about 150 billion VND, Which was 47% of the local government’s budget in the year.

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Table A1.2 Analysis of the income statements for the period 1995-1998

Indicator Amount in thousand U.S.$ Growth (%)1995 1996 1997 1998 1996 1997 1998

Total Sales 11,072 16,417 20,114 24,741 148.3 122.5 123.1Special Consumption Tax

4,976 7,588 9,325 11,470 152.5 122.7 123.5

Copyright 101 158 158 173 156.0 100.4 109.0Price Reduction/Discount

0 0 256 294 - - 115.0

Net Sales 5,995 8,672 10,375 12,804 144.7 119.6 123.4Fixed Costs 1,852 2,000 2,010 2,465 108.0 100.5 122.7Variable Costs 3,360 4,296 4,945 6,005 127.9 115.1 121.4EBITA 783 2,376 3,421 4,334 303.6 144.0 126.7Amortization 1,223 2,162 2,187 2,233 176.8 101.2 102.1Other Earnings 0 -243 -289 -263 - - -EBIT -440 -29 945 1,838 - - 194.6Income Tax 0 0 138 258 - - 186.4Net Benefit -440 -29 806 1,580 - - 196.0

Source: Company’s Annual Reports

Earnings of HBC come from the two major sources: production and financial activities. During the surveyed period, financial activities realized negative results due to changes in exchange rates, which were not favorable for the company. From 1997, two years after the establishment of the joint venture, HBC started getting positive benefit. The growth rate of net benefit was comparatively high in 1998.

Table A1.3 Analysis of the cash flow

Indicators Amount in thousand U.S.$ Growth (%)1995 1996 1997 1998 1996 1997 1998

Cash In 11,072 16,174 19,825 24,478 146.1 122.6 123.5Cash Out 10,289 14,042 16,832 20,665 136.5 119.9 122.8Cash Flow 783 2,133 2,993 3,813 272.5 140.3 127.4

Source: Company’s Annual Reports

These consolidated data however may be much modified by the accounting practice of the company. For example, the methods of amortization may influence the levels of net benefits for the accounting period. This shortcoming can be overcome by using cash flow as an indicator of the financial performance. This indicator however is not accurate in comparing companies of different industries, especially those that are different in the level of technological equipment. The more technology-intensive the enterprise, the higher possibility of it to have higher level of cash flow. For HBC, cash-in growth was higher than that of cash-out in the surveyed period, which resulted in positive growth of cash flow. This is a signal of good financial effectiveness of the joint venture.

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Table A1.4 Analysis of the balance sheets for the period 1995-1998

Indicators Amount in thousand U.S.$ Growth (%)1995 1996 1997 1998 1996 1997 1998

Current Assets 3,518 4,850 7,328 8,624 137.9 151.1 117.7Cash 769 2,164 4,705 5,783 281.3 217.4 122.9Receivables 840 881 886 1,033 104.9 100.5 116.6Inventories 1,908 1,805 1,737 1,807 94.6 96.2 104.0Fixed assets 17,705 15,707 13,561 16,727 88.7 86.3 123.3Liabilities 5,055 4,363 3,912 5,179 86.3 89.7 132.4Current Liabilities 1,105 948 1,839 1,650 85.8 193.9 89.7Long-term Debts 3,951 3,415 2,074 3,529 86.4 60.7 170.2Owner's Equity 16,167 16,194 16,977 20,172 100.2 104.8 118.8Total Assets 21,223 20,557 20,889 25,351 96.9 101.6 121.4

Source: Company’s Annual Reports

A very important indicator for the financial performance of an enterprise is the shareholder’s value, which reflects the core financial goal of any company. The increase of the owner’s equity in the case of HBC was resulted mainly from the contributions of the partners as well as the dividend policy of the venture to re-capitalize the earnings. Positive growth of the owner’s equity is also a sign of a good business in HBC.

For evaluate the financial situations and the payment power of the company, the indicators such as debt, current, quick, and cash ratios can be used. Debt ratio reflects the extent of debt, which the company is liable to pay. Current ratio indicates the capability of the company to pay debts using current assets, which include cash, securities, inventories, receivables, and other short-term financial values. Quick ratio is based only on those financial instruments that can be very quickly mobilized, such as cash and marketable securities. While cash ratio measures the capability of the company to pay debts based only on cash.

The low debt ratios in the surveyed period indicate that the company has mainly used its money for investment. Low level of debt ratios is a good sign of a strong financial power and low risk of bankruptcy of the company, especially in the conditions of the current financial crisis in the region.

The current, quick, and cash ratios were very high which indicate that the company was in a very good position to pay liabilities. This guarantees safety for the company in its business. The too high level of these indicators, however, may reduce the effectiveness of using the company’s funds. Too much cash kept in the company accounts may increase the opportunity costs of capital and reduce the fund efficiency.

Sales to total assets ratio can be used for evaluating the effectiveness of the company’s assets. In the surveyed period, the level of sales has increased with higher rate than the total assets. This resulted in increased of this ratio, which indicates a good effectiveness of the company in using the investment capital for expanding the production and markets. Sales on total assets, however, do not reflect the company’s efforts in controlling costs. High level of sales may not necessarily result in high profitability of the business. If the operating costs increase with a higher rate than sales, a negative growth of net benefit can be unavoidable. Benefit margin is, therefore, an appropriate measurement of the company’s success in managing costs. During the period 1995-1998, sales increased with higher rates than costs.

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This resulted in a high growth of benefit. The data indicated that HBC was good in controlling costs and increasing the production effectiveness.

Table A1.5 Ratio analysis

Indicator Ratios Growth (%)1995 1996 1997 1998 1996 1997 1998

Debt Ratio 0.24 0.21 0.19 0.20 89.1 88.2 109.1Current Ratio 3.18 5.12 3.99 5.23 160.7 77.9 131.1Quick Ratio 1.46 3.21 3.04 4.13 220.4 94.7 135.9Cash Ratio 0.70 2.28 2.56 3.50 327.7 112.1 137.0Sales to Total Assets 0.52 0.79 0.95 0.97 150.8 120.6 101.7Net Profit Margin - - 0.08 0.12 - - 158.8Return on Total Assets - - 0.04 0.06 - - 161.5Return on Equity - - 0.05 0.08 - - 165.0

Other indicators for evaluating the assets effectiveness are return on total assets and return on equity. These two indicators were not very high as indicated in Table A1.5, the growth rates of these indicators were very high, which is a good signal for a better future of the company.

Appendix 2: Major Characteristics of the Respondents

TitlePresident, General DirectorVice-president/DirectorDivision ManagerDepartment ManagerAssistant ManagerOtherFunctionGeneral ManagementProduction/Engineering Sales/MarketingFinance/ AccountingPurchasing/MaintenanceHuman Resource OtherExperience6 months – 2 4 months2 years – 4 years5 years – 10 years

Number5672339

757134710

93410

Percentage9.411.313.243.45.715.0

13.29.413.224.57.513.218.8

17.064.218.9

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Appendix 3: List of the International Joint Ventures

in Thua Thien Hue and Danang Provinces.

Name Foreign partner Business fields Initial capital

Date/Year of foundation

Non Nuoc Danang Ltd. Australia Wooden 800 21/9/90Biopharmtech Russia Medicine 1,276 30/3/93Danang Container Ltd. Italy Container 20,000 3/9/92Indochina Beach Hotel Hong Kong Hotel 35,000 20/7/96An Phu Co.,Ltd. Taiwan Agriculture 310 9/1/93VIJACHIP Japan Pulp 3,866 1993Hai Van Thiess Australia Construction

material4,045 8/11/96

Inter Food & Beverage Japan Food & beverage

285 31/12/93

Textile Mills Ltd. Luxembourg Textile 6,490 31/5/94Tourane Hotel Ltd. Hong Kong Hotel Service 22,415 4/7/94Inter Tourism Complex Taiwan Hotel 32,000 13/9/94R.J. Reynolds Danang Tobacco Ltd.

Hong Kong Cigarettes 21,447 24/1/95

Danataxi Canada Taxi 1,000 11/4/95Indochina Hotel Danang

Malaysia Hotel 11,000 4/7/95

Vietenergo Yugoslavia Construction 1,580 13/2/96Viacoa DakimCo. Switzerland Metal 3,238 9/5/96Index Danang Co., Ltd. Thailand Consulting 320 17/4/96Shandong-Danang Vegetable Oil Co., Ltd.

China Food processing

4,100 12/7/97

Guangxi-Danang Construction Co-Ltd.

China Construction 3,000 10/12/97

Vietnam-France Service

France Consulting 35 4/5/91

Coca-Cola Soft Drinks Singapore Soft drinks 25,000 19/1/98PSCO1 China Agrochemical 1,200 31/12/98Hue Brewery Co., Ltd. Denmark Beer 23,400 6/4/94Luck Vaxi Co., Ltd. Hong Kong Cement 68,000 25/2/92Century Riverside Hotel

Hong Kong Hotel 7,600 4/5/91

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Appendix 4: The Survey Questionnaire

Questionnaire

Dear Sir/Madam,

I am Lai Xuan Thuy, MBA student of the School of Management at Asian Institute of Technology, Bangkok, Thailand. I am conducting a research on assessing the joint ventures in Vietnam. I would be highly obliged if you could help me in my research study by filling out this questionnaire.

Thank you very much for giving me your valuable time and efforts.

Sincerely Yours,Lai Xuan ThuySOM, AIT, Bangkok

General information of your joint venture

1. Name of the joint venture:2. Name of the partners of the joint venture and their ownership

Partner companies Nationality Ownership (%)1.2.3.

3. Year of establishment:4. Duration:5. Total investment:5. Business fields:

Measurement of the joint venture’s performance

7. What was the main objective of the joint venture?

Not important Very important7.1. To share risks7.2. To take advantages offered by government7.3. To acquire new technology7.4. To transfer technology7.5. To access new market7.6. To export7.7. To substitute imports7.8. To safeguard the raw material resources7.9. To obtain investment capital7.10.To exchange knowledge7.11.To make use of cooperation synergy

11111111111

2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5

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8. How would you assess the joint venture’s performance on the following criteria?

Very poor Very good8.1. Sales growth8.2. Cash flow8.3. ROI8.4. Company size8.5. Market share8.6. Customer satisfaction8.7. Customer base development8.8. Competitive position8.9. Technology development8.10.Brand reputation8.11.Innovative strength8.12.Relative quality8.13.Cost control8.14.Labor productivity8.15.Resource safeguarding8.16.Relationship with suppliers8.17.Access to financial resources8.18.Relative price8.19.Exploiting synergy between the joint

venture’s partners8.20.Cooperation with other local companies8.21.Relationship with the local authorities

111111111111111111

111

222222222222222222

222

333333333333333333

333

444444444444444444

444

555555555555555555

555

9. How do you assess your knowledge improvement since working for the joint venture?

Very poor Very good

9.1. Technological know-how improvement9.2. Managerial know-how improvement9.3. Market know-how improvement

111

222

333

444

555

10. How do you assess the working relationships between the partners in the joint venture?Strongly disagree Strongly agree

10.1. There exist a harmony between the partners in the joint venture

10.2. Profit sharing among the partners is fair10.3. No one has tried to take advantage of the

joint venture10.4. We are complimentary to each other10.5. We work very well with each other10.6. Our partners are very honorable10.7. Our relationship is very good10.8. We strongly trust each other10.9. Our partners have very high commitment

11

1111111

22

2222222

33

3333333

44

4444444

55

5555555

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10.10. Wage/salary policy is fair10.11. There has been high work satisfaction10.12. Communication between us is easy and

effective10.13. Conditions for learning from each other are

very good 10.14. The responsibilities were clear for all

partners10.15. There is a transparency in the JV with

regard to staffing and career development.10.16. There is a transparency in the JV with

regard to the payment system.

11

1

11

1

1

22

2

22

2

2

33

3

33

3

3

44

4

44

4

4

55

5

55

5

5

11. How would you rate the importance of the management approaches in decision making process as factors for the joint venture’s success?

Not important Very important11.1.The manager himself makes decision11.2.The decision is made collectively11.3.The manager considers other people’s idea in

making decisions11.4.The decisions are made by getting general

consensus

11

1

1

22

2

2

33

3

3

44

4

4

55

5

5

12. What do you think is the best form of communication in your joint venture?

Not important Very important12.1.Meeting12.2.Memo12.3.Telephone12.4.Email12.5.Direct personal contact

11111

22222

33333

44 444

555 55

13. What do you rate the seriousness of the problems related to communication in the joint venture?

Not important Very important13.1.Languages13.2.Cultural differences13.3.Difference in thinking approach13.4.Management styles13.5.Difference in education and knowledge

11111

22222

33333

44 444

5555 5

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14. How would you evaluate the following conflict solving approach in the joint venture? Not important Very important14.1.Try to persuade the partners14.2.Together look for new solutions14.3.Compromise14.4.Concentrate on the internal objectives of the joint venture14.5.Hang on and wait until the problem solves itself.

1 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 5

Respondents Information

15. What is your title?1. President/ General Manager/ CEO/ Managing Director2. Vice president/ Executive vice President3. Division Manager4. Department Manager5. Associate/ Assistant Division/ Department Manager6. Supervisor7. Professional/ Specialist/ Technician8. Other

16. What is your job function?1. General Manager2. Production, Manufacturing, Industrial Engineering3. Sales, Marketing4. Finance, Accounting5. Research and Development6. Purchasing, Stores, Maintenance7. Management Information, Statistics, Data Processing8. Quality Control9. Human Resource Management

17. How long have you been on your present position?6 months - 2 years 2) 2 years - 4 years 3) 5 years - 10 years 4) > 10 years

18. How long have you been with this joint venture?6 months - 2 years 2) 2 years - 4 years 3) 5 years - 10 years 4) > 10 years

19. What is the highest level of education?1. Secondary School 2. Technical or Vocational 3. Diploma4. University Education 5. Master degree 6. Doctoral degree

20. Present Nationality:

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