Asian Strategies Group


6. Market Entry Strategies

Establishing a Factory in Vietnam

(Key Points, Contents, and "Recommended Opening Strategy" chapter from a 17-page paper)

Key Points

If __________ establishes an operation in Vietnam, it will operate under one of two types of arrangement: a joint venture or a 100% foreign-owned enterprise.

While the government favors joint ventures where the equity is evenly divided, the Vietnamese partner is usually able to come up with only 30%. Joint ventures require a signed contract, a charter, economic and technical feasibility studies, and documentation on the legal and financial status of the parties.

There are six Export Processing Zones, of which two are in Ho Chi Minh city, and more than a dozen Industrial Zones. Zones offer the prospect of accelerated and streamlined approvals, as well as the right to establish local wages by contract.

According to other foreign businesses operating in Vietnam, the legal and regulatory framework is non-transparent and corruption is on the rise. Outside firms must work through a welter of legal concepts drawn from French, Chinese, Russian, and Yugoslav codes.

    • The Ministry of Planning and Investment is responsible for approving applications for joint ventures and 100% foreign-owned companies.
    • The Office of Government represents the Prime Minister and is the primary place to appeal to speed up the approval process.
    • For many industrial sectors, the Ministry of Industry determines the upper limit on the number of manufacturing firms.
    • The Vietnam Chamber of Commerce and Industry serves as the go-between for foreign companies seeking a Vietnamese partner.

Assuming that winning rapid approval of the project and the cooperation of key local as well as national authorities is critical, ___________ should seek brief meetings with:

    • A top official from the Ministry of Planning and Investment;
    • An official from one of the key project-approving ministries;
    • The chair or vice chair of the People's Committee in the relevant location;
    • The relevant department head in the State Council for Project Evaluation; and
    • The General Secretary of the Vietnam Chamber of Commerce and Industry.

Contents Page
Key Points 2
Project Approvals in Vietnam
  • Limited Transparency
  • Levels of Approval
  • Foreign Investments in this Field
4
Investment Vehicles
  • Joint Ventures
  • 100% Foreign-Owned Enterprises
  • Business Cooperative Contracts
  • Special Export Zones and Industrial Zones
5
Attitudes of Key Decision-Makers
  • Foreign Investment Guarantees
  • Evaluation of New Investments
  • Legal and Regulatory Framework
7
Vietnam's Decision-Making Process
  • Limited Capability
  • Consensus-Building: the National Style of
     Decision-Making
  • Key Government Decision-Making Bureaus
9
Foreign Investment in this Industry
  • Production Targets
  • New Projects
  • Capacity Operations
11
Laws and Regulations in this Industry
  • Joint Ventures Encouraged
  • Tariff Schedules
12
Recommended Opening Strategy
  • Introductory Meetings with Senior Officials
  • Objectives and Contents of Introductory Meetings
  • Establishing Contacts
  • Recommended Opening Strategy
  • Introductory Meetings with Senior Officials
14

Assuming that winning rapid approval of the project and the cooperation of key local as well as national authorities is critical, ___________ should seek brief meetings with:

    • a top member of the government from one of the key ministries having project approval authority;
    • the chair or vice chair of the People's Committee in the province or city where the project is to be located (from whom a letter of "in-principle support" should be sought);
    • the head of the department in the State Council for Project Evaluation, who will be responsible for reviewing     and facilitating approval of the project;
    • if the project is to be a joint venture, the General Secretary of the Vietnam Chamber of Commerce and Industry.
    • The General Secretary of the Vietnam Chamber of Commerce and Industry.

Objectives and Content of Introductory Meetings

These meetings should stress not only the desire to start operations quickly, but the extent to which necessary financing has already been achieved and the record of the client, especially with respect to labor treatment and labor relations, in manufacturing elsewhere.

If a joint venture is envisioned, the local partner must be identified and made responsible for monitoring the approval process. ________ should project an image of welcoming frequent feedback from Vietnamese officials at both the local and national levels and make every effort to incorporate their suggestions into the final application. Its representatives should also be prepared to visit Vietnam again while waiting for project approval, and to call on the Vietnamese Ambassador in Washington.

To assure accurate and equivalent Vietnamese and English translations of the enterprise charter and contract, the client should provide for an independent authority on translation to review all documents prepared.

Establishing Contacts

_______ may be in a position to make its own contacts in the ministries and organizations described in the report. Alternatively, introductions and meetings can be arranged by Asian Strategies Group. Group associates have resided in Hanoi, have sponsored internships for Vietnamese officials visiting the United States, and have established personal relationships with officials and members of their families. Associates have direct access and good personal relationships with officials in the following places:

• Office of the Prime Minister

• Ministry of Planning and Investment

• Ministry of Finance

• Ministry of Foreign Affairs

• Vietnam Chamber of Commerce and Industry

• American and Vietnamese embassies


Report for___________ Corporation

Joint Venture Negotiations and Strategy

(Excepets from a 24-page paper)

Contents Page
Key Points 2
Current Situation 3
Essential Elements of Equity Joint Ventures 4
Do's and Don'ts in Joint Venture Negotiation 7
Experiences of Other Western Companies 11
Overview of Environmental Protection Rules 14
Chinese Negotiating Style 18
Chinese and American Negotiating Styles Compared 21

Key Points

General

Focus initially on developing good personal relations with senior members of the Chinese negotiating teams.

Prepare for delays. The Chinese are patient and deliberate in their approach, and their bureaucracy moves very slowly, building consensus as it advances.

Joint venture negotiations are complex. Before starting, become familiar with the main points and seek advice as needed, including engaging council with experience in China.

Engage a good interpreter and keep the same interpreter involved. Do not rely on the Chinese side's interpreter during serious negotiations.

Proceed carefully when the Chinese begin to discuss general principles and mutual interests. These are sometimes throw-aways to Americans, but they are important to Chinese.

Address environmental issues early. Joint ventures in any sector of the chemical industry receive close scrutiny from Chinese environmental authorities.

Study the differences between Chinese and American negotiating styles. This will help avoid surprises and misunderstandings.

Specific

The Chinese want _________'s technology and capital. They must increase fertilizer production and cannot do it without foreign help. That is _________'s main lever.

The Chinese have little to put into a joint venture except physical plant, labor, and market access. They will tend to overvalue all three. That is their main lever.

China's fertilizer industry is a major polluter. Gain leverage by stressing _________'s strong environmental record. Invite Chinese engineers to visit _________'s plants.

Allow at least one year to move from contact, through letter of intent, feasibility study, and project proposal. Allow another year for approvals and construction.

Determine which local, provincial, and national officials _________ needs to know, and develop a plan for cultivating them over time. Include invitations to the U.S.

Chinese and American Negotiating Styles Compared

Comparing negotiating styles inevitably leads to stereotyping. In the columns below, we do not mean to suggest that all or even any Chinese or Americans act precisely in the fashion described. But we are confident that the descriptions represent tendencies and patterns which have been observed over and over again in meetings between Chinese and Americans. The descriptions describe how Chinese think American act and how Americans think Chinese act.

  Chinese Patterns American Patterns
Contact restrained, polite, tense open, informal, effusive
Atmosphere attentive, consistent, thoughtful relaxed, flexible, casual
Negotiating Team representative, consistent, fixed changing, well organized
Principles fixed, determined significance down played, flexible
Details casual, flexible, careless legalistic, careful, concerned
Time patient, slow moving hasty, aggressive, driving
Agreement mutual interests, principles fine print, contracts, details
Renegotiations ongoing process, appeal to ties reluctant, hesitant, cautious


Analysis of a South Korean

Joint Venture Candidate

(Key Findings and Summary Evaluation of a 20-page paper)

Key Findings

Almost all our sources confirmed that the firm is well regarded for three principal reasons: it meets its commitments on time, it has a strong financial foundation, and it gives prompt attention to customer needs.

Principal Owner A, now semi-retired, is a self-made man who rose from rural roots in central Korea. By American standards, he is very traditional in his outlook, and with respect to family attitudes, he is typically Korean--family comes first, as evidenced by the distribution of ownership among his sons and son-in-law.

Owner A's plan is to split the firm into several pieces so that his sons and son-in-law will each have majority ownership of individual pieces. His second eldest son, Owner B, will own the core business. If the firm concludes a joint venture with the client, Owner C, Owner A's son-in-law, will represent him in the joint venture.

The firm currently has several agreements with foreign companies, and some of these agreements are expected to mature into joint ventures. As far as our sources could learn, the firm has had no difficulties with foreign partners, but its experience with most of them is limited.

More than in any other Asian country, Korean business is conducted on the basis of long-standing, carefully nurtured relationships. Trust and contacts are extremely important. This firm fits that pattern. It is a family business known for loyalty to its customers and suppliers, and it values relationships and trust highly.

The firm is at least number three in one manufacturing sector and number one in another. Currently, it is trying to diversify, in part because the business is fiercely competitive. These diversification plans may explain its interest in the client.

In terms of Korean business norms, our sources say that the firm is no better and no worse than others. We found no reports of foreign companies accusing or suing it for patent or license infringements. On the other hand, it is common practice in Korea to copy foreign technology without paying royalties, and it is likely that this firm has engaged in this practice, although we could obtain no proof.

Summary Evaluation

General Reputation of the Company
In the Business Community Above Average
With Suppliers Above Average
With Customers Above Average
In Government Circles NA
 
Reputation of Key Executives
Owner Above Average
Owner B Above Average
Owner C Average
Owner D Average
Owner E NA
Owner F NA
 
Business Practices of the Company
Ability to Deal with Foreigners Average
Adherence to Korean Business Norms Average
Management Style Average
Corporate Culture Average
Employment Status NA
 
Financial Situation
Strategic Direction Average
Ownership Average
Credit Worthiness Above Average
 
Experience with Foreign Partners
Approvals Average
Intellectual Property Protection Below Average
Contract Compliance Above Average


Analysis of a Japanese Firm:

A Good Company Facing Hard Times

(Key Findings and Summary Evaluation from a 14-page paper)

Key Findings

Ÿ After being founded in 1948, the firm expanded steadily over four decades and shared in the prosperity of Japan's economic boom. When the domestic downturn began in the early 1990s, however, this family-controlled company began to face declining sales and balance sheet losses.

Ÿ To cope with the unfavorable situation, it instituted company streamlining, initiated land sales to help repay loans and finance operations, accelerated development of new products, and began exploring cooperative ventures and export possibilities.

Ÿ The firm's traditional domestic business is not expected to return to its former level because many Japanese manufacturers to whom it supplied its products have transferred production sites overseas. But it is anticipated that the banking institutions which have been associated with the firm for many years will continue their financial support. The firm has been a reliable customer and its repayment capabilities (secured principally by fixed assets) are deemed sufficient.

Ÿ From an early age, _______, the current CEO, was groomed by his father to succeed him. ________ became CEO in 1989 at age 36. He was faced almost immediately with problems created by Japan's economic downturn, plus having to deal with repayment of large loans associated with the construction of the firm's new factory . ________ has responded effectively to these challenges and is well regarded by his company colleagues and business associates.

Ÿ Under ________'s leadership, the firm may be expected to continue strong efforts to develop new products and expand overseas sales to fend off company stagnation. In view of this, it is likely to be highly positive about cooperative ventures and to be responsive to the requirements of a prospective partner.

Comparative Evaluation

General Reputation
For competence Good
For integrity Good
 
Strategic direction
Management skill Good
Financial strength Average
 
Corporate style
Compared with Japanese norms Good
Flexibility Good
Reliability Good
Innovation Good
 
Influence and contacts
In business circles Good
In financial circles Good
In political circles Average
In the bureaucracy Average

Comment

The overall evaluation at this juncture is only average, principally because of the firm's subpar profit-and-loss situation and because domestic sales prospects are not bright. The firm's influence and contacts at the local and prefectural levels are good, but it is not known to be influential at the central government level.

< Back



© 2001 – 2007 Asian Strategies Group