Managing Partnerships with State-Owned Joint Venture Companies: Experiences from Vietnam

Managing partnerships with state-owned joint venture companies: experiences from Vietnam Spring 2004 ● Volume 15 Issue 1 Business Strategy Review 39

Vietnam has become the latest destination formultinational enterprises seeking to capitalise onthe economic potential of emerging markets. They are attracted by economic growth of overseven per cent and by an educated and motivatedworkforce available at relatively low labour costs.Moreover, the prospect of Vietnam joining the WTO, possibly as early as 2005, generates more potential business.

Yet operating in Vietnam poses specialchallenges, as the institutional transformationtowards a market economy is as yet partial.State-owned enterprises (SOEs) are stilldominant players in the economy, especially instrategic and capital-intensive industries, such astelecoms, electronics, electrical engineering andcement. Therefore, many foreign investors find itnecessary to operate in partnership with local

Vietnam is gearing up to join the Asian Tigers. Business opportunities beckon yetforeign investors often still need to co-operate with local state-owned enterprises togain access to crucial local resources. This creates unusual managementchallenges. Ha Thanh Nguyen and Klaus E Meyer outline some of the key challengesarising in such relationships and offer insight in how to manage them.

Managingpartnerships withstate-owned jointventure companies:experiences fromVietnam

the local partner transfers its existing operationto the newly created entity. In these JVs, thelocal firm continues as a legal entity, yetprimarily as a shell company owning shares inthe JV. As acquisitions are still inhibited by legalconstraints, the JV type II provides anorganisational arrangement that in many waysresembles a partial acquisition.

SOEs, often in form of a joint venture (JV). Yethow can private, profit-oriented businessesmanage a partnership with a state-owned firm ina country that still calls itself a “socialistrepublic”? In this article, we review thechallenges encountered in these capitalist-socialist collaborations and offer somesuggestions for how foreign investors maymanage their JVs.

An enterprise survey undertaken in winter2001/2002 illustrates the pattern of foreigndirect investment (FDI) in Vietnam (Nguyen et al.2004). In a representative sample of 171 foreigninvestment projects, 44 per cent are in the formof JVs. The majority are conventional JVs (“type I”) – a new firm established withcontributions by both partners. However, 11 percent of FDI projects are JVs “type II”, in which

Business Strategy Review Spring 2004 ● Volume 15 Issue 1 Managing partnerships with state-owned joint venture companies: experiences from Vietnam40

How can private, profit-oriented businesses manage apartnership with a state-ownedfirm in a country that still callsitself a ‘socialist republic’?

0%

20%

40%

60%

80%

100%

Europe(18)

France (8) NorthAmerica

(8)

Japan (27) Korea(25)

ASEAN(23)

HongKong (11)

Taiwan(40)

Other (4)

0%

20%

40%

60%

80%

100%

Primary (5) Basicconsumer

(50)

Intermediate(46)

Machinery(17)

Infrastructure(13)

Trade &Tourism (5)

BusinessServices (23)

JV, type II

JV, type I

Acquisition

Greenfield

JV, type II

JV, type I

Acquisition

Greenfield

Figure 1 Entry modes across source countries and sectors

Source: Dataset described in Nguyen et al. (2004).Note:

Number of observations in parentheses, Europe excludes France.

Managers frequently state a preference for fullownership since this facilitates control andconsequently enhances performance of theaffiliate. This, however, does not hold for foreign investors in Vietnam. Respondents to oursurvey were asked to evaluate on a scale from 1to 5 to what extent FDI had fulfilled theirexpectations with respect to productivity,profitability, revenue growth and (unless they are solely exporting) market share. As Figure 2illustrates, JVs type II outperform the othermodes while greenfield investors underperform inall criteria except for productivity. While thisvariation may be influenced by, for example,timing and industry differences, it does illustrate that JVs may do better than whollyowned ventures in the Vietnamese context. Yet how did experienced investors achieve their objectives?

We have investigated the challenges of managing JVs in Vietnam with two case studiesof European investors operating in Vietnam sincethe mid 1990s.

Carlsberg has been operating in Vietnam since1993 through two JVs, Hue Brewery in Hue andSouth East Asian Breweries (SEAB) in Hanoi.SEAB, the focus of our case study, brews beerunder the local brand Halida as well as theinternational Carlsberg brand. Carlsberg initially


Figure 1 illustrates the pattern of entry modesacross industries and countries of origin. Greenfieldentries are common for export-oriented projects inmanufacturing industries and especially projectsestablished more recently in the southern part ofVietnam. JVs are particularly common amonginvestors from Europe and from the moredeveloped Asian economies, while Taiwaneseinvestors prefer greenfield. JVs are more popular inthe primary and service industries then inmanufacturing. Type II JVs are most common forinvestors originating in Europe other than France,and in the primary sector and infrastructure wherelocal firms control access to crucial resources.

Cheers: Cold beer from the canning line

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2

3

4Productivity

Profitability

Revenue Growth

Market Share

Greenfield

JV I

JV II

Figure 2 Entry modes across source countries and sectors

Source: Dataset described in Nguyen et al. (2004).

Note: Number of observations in parentheses, Europe excludes France.

invested in partnership with the local state-owned company Viet Ha and Danish investmentfund IFU but bought out the stake of theinvestment fund in 2003. The joint venture wasstructured in a traditional way with the localpartner contributing a local brand anddistribution network, while Carlsberg contributedmodern technology and marketing know-howalong with the international brand.

ABB established a JV in 1996 with HanoiTransformer Manufacturing Factory near Hanoi,taking 65 per cent of the equity. ABBTransformers Vietnam manufactures transformers,most of which are sold to operating companies inthe electricity sector, which are state-owned firms.The local partner transferred its resources andoperations to the newly created JV. The case thusillustrates how a foreign investor can use a JV typeII to attain control over an existing operation inways that resemble a partial acquisition, yet havingto restructure the firms without full equity control.Table 1 provides an overview of these two cases.

Our analysis identifies three key issues crucialfor the performance of joint ventures.First, in building a business relation with anSOE, the first essential issues are partnerselection, building the relationship and thedesign of the JV. Second, governance of the JVhas to integrate diverging interests and means ofcontrol, while accommodating governmentalinfluence on the business. Third, the upgradingof local operations and sharing of knowledge

often turns out to be more challenging than manyinvestors initially expect.

Challenges of co-operation withstate-owned firms

Why form a JV with a state entity?Foreign investors may consider a JV with a SOEfor three reasons. First, in many industries apartnership with a local SOE is required to obtaingovernmental approval and a business licence.


The upgrading oflocal operations and sharing ofknowledge oftenturns out to be morechallenging thanmany investorsinitially expect

Note: a = Initially 25 per cent was held by Danish investment fund

IFU; yet this stake was acquired by Carlsberg in 2003.

Industry Beverages: brewing Electrical engineering:

transformers

ABB

Sweden / Switzerland

1996

Joint venture

Initial: 65 %

2003: 100 %

1998: 470

2001: 260

Carlsberg Breweries

Denmark

1993

Joint venture

Initial: 35 % a

2003: 60 %

1995: 342

2003: 292

Foreign parent

Country of origin

Year of entry

Mode of entry

Foreign

ownership

Employment

South East Asian

Breweries

ABB Transformer

Table 1 Two Case Studies


However, the number of industries where localequity stakes are mandatory is declining; andmost export-oriented businesses can operatewithout local partners. Second, local SOEs maycontrol resources that would be essential for the operation of the business, and which canonly be accessed through a JV. This includes,notably, land-use rights, as foreign investors arenot permitted to own real estate and many SOEs hold property rights to land. Third, a JVmay be voluntary in the sense that both full andshared ownership are feasible but thecontributions of a local partner are expected tooutweigh its costs.

State-owned firms have long dominated theVietnamese economy, and they showedconsiderable growth in the early phases oftransition, in contrast to other transitioneconomies. Although the state share in industrialoutput has declined in recent years, their outputis still higher than in 1987 (say van Arkadie andMallon). Privatisation has so far been verylimited. Similar to China and in contrast toEastern Europe, Vietnam has notionally retainedthe commitment to socialist ideals. For example,the term “privatisation” is avoided andVietnamese authorities talk of “equitisation” toretain consistency with official ideology.

Although there has been considerable progress inthe thorny area of economic restructuring, thelaw still restricts which SOEs can be equitised.Several industries are still not open toprivatisation, including heavy industry such asmining, mechanical engineering and utilities, butalso the tobacco and pharmaceutical sectors. Insome other industries, the state is to retaincontrolling ownership of equitised enterprises,including sugar refining, milk processing, edibleoils and printing.

Acquisitions of state-owned firms have beenpermitted since 1997 but foreign ownership hasbeen limited to 30 per cent of equity, and withcomplex conditions attached. The rules weresomewhat relaxed in 2001, allowing localcompanies in most industries to sell equity toforeign investors without case-by-casegovernmental approval. However, despite thisliberalisation of the investment regime, fullacquisitions of SOEs are rarely feasible, suchthat partnerships generally take the form of JV ornon-equity collaboration.

Private entrepreneurship has been permitted inVietnam since the onset of doi moi policy in1986, but only in recent years has governmentpolicy encouraged the establishment and growth of new private businesses. However,Vietnam has not yet created a level playing fieldbetween state-owned and private sectors, asformal and informal institutions governing

business in Vietnam subtly favour SOEs overtheir private competitors.

Effectively, foreign investors until recently had toco-operate with SOEs to access resources suchas real estate and export licences and to obtainlegitimacy with local authorities. So far, fewprivate firms are strong enough to become anattractive partner for a foreign investor.

How are SOEs different? State-owned firms, especially those in centrallyplanned economies, have a different role insociety and economy than private firms in acompetitive market economy. In consequence,they are not only governed by other principles buttheir organisational structure and culture reflectsthe different objectives and ideologies. InVietnam, most SOEs are under the administration

Vietnam has not yetcreated a levelplaying field betweenstate-owned andprivate sectors

of a particular line ministry or local governmentand they are thus perceived as agents of theirsuperior authority. Moreover, SOEs in Vietnamare also characterised by strong politicalpatronage from the respective authority, perhapseven more so than SOEs in other formersocialist economies.

SOEs tend to be exposed to conflicting interests,including those of the state in general, theirsuperior authority, the management and theemployees. They thus have to manage acomplicated web of relations to maintain theirposition. This leads them to pursue not onlyprofits but a broader set of objectives that reflectthe interests of the stakeholders. As a result, only40 per cent of state-owned firms are reported tooperate profitably, while 29 percent haveprolonged losses and 31 per cent break even(von Arkadie and Mallon 2003: 142).

The governance structure impacts directly on thebusiness strategies and practices of the firm. Forexample, many SOEs have a high degree ofhorizontal and vertical integration and lowstrategic flexibility to react to changing businessopportunities. Their human resourcemanagement is typically based on long-termemployment relations.

Both foreign investors of our case researchpartnered with such a state-owned firm. Carlsberg’spartner, Viet Has was (and still is) a diversifiedgroup of enterprises producing a range of foodproducts, including baker’s yeast, soy sauce,frozen meat, instant noodles, soft drinks andbeer in an operation called Halimex. It employedmainly conventional labour-intensive productionprocesses with technologies that were belowinternational standards. However, Halimex had

since 1990 operated a turnkey brewing facilityinstalled by Danbrew, an affiliate of Carlsberg.

ABB partnered with Hanoi TransformerManufacturing Factory, which operated underthe General Corporation of Electrical Equipmentand Techniques and thus the Ministry ofIndustry. It was one of five major distributiontransformer manufacturers, holding about 50 percent of Vietnam’s distribution transformermarket. The factory also manufactured a varietyof other products.

The challenges of forming and operating a JVwith an SOE in Vietnam somewhat resemblethe challenges experienced by foreign investorsacquiring SOEs in Eastern Europe (Antal-Mokos1998, Meyer 2002). Figure 3 summarises someof the structural differences between a typicalSOE in Vietnam and a typical affiliate of aprivate multinational enterprise operating in amarket economy. These structural differencesinfluence both the partner selection, discussedin the next section, and the organisationalchange processes, discussed later.


Figure 3 Challenges of operational transformation

State-owned firm in central plan regime

Rent seeking, satisfying not only financial but also

social/political targets

Hierarchical relationship with the ministries, no clear

decision makers, frequent interference.

Diversified conglomerate, centralised decision

processes, functional organisational structure

Plan implementation based, technological perfection

of quantitative target with given means

Affiliate of a multinational enterprise

Profit making, financial efficiency

Corporate board with separation of strategic and

oversight functions from the day-to-day management

Focus on core competences, Delegation of

responsibilities, cross-functional interactions

Cost-benefit based, continuous improvement of the

value of production using new means under economic

considerations

Objectives

Corporate governance

Organisational structure

Business culture

Canning live

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Partner selection and design of the JVEach JV starts with finding an appropriatepartner, clarifying the contributions of the two(or more) parents to the JV and design of theventure. This process has to secure access toresources needed for the operation of the ventureas well as fulfilling the requirements forobtaining the licence and for implementation.

The contributions sought from local partners fallin three broad categories: technology; marketaccess; and political capital.

Table 2 provides an illustration of where FDIfirms in the enterprise survey obtain key

resources (political capital was not included inthe question). We asked respondents whichresources are most crucial for theircompetitiveness, and where they obtained theseresources. The table shows that the foreignpartner’s contribution dominates the localpartner’s contributions in all categories.Substantive local contributions emerge especiallywith respect to market access related assets,both from the local parent firm and from otherlocal sources. Technology is even moredominated by the foreign partner, though ourcases show that while not important in the longrun, the local contribution in terms of ability toadapt technology can be crucial.

Table 3 The Local partners

Note: Respondents were asked to indicate which top three resources were most crucial for their

competitiveness. From a list of 17 items, the eight types of resources were the most commonly

mention. For these, they then provided estimated percentages obtained from either parent or

other sources.Source: Nguyen et al. (2004, Table 14).

Name SO: Viet Ha Transformers and side businesses

ABB

Ministry of Industry

Industry specific technology, access to key

SOE customers, political capital.

JV, type II

ABB appoints CEO

Food Sector, Diversified

Hanoi Municipality

Proven ability to adopt brewing technology, local

brand and distribution network, political capital.

JV, type I

Rotating appointment of CEO

Industry

Authority

Resources attractive

to the foreign investor

Organisational

arrangements

Managerial control

South East Asian Breweries ABB Transformer

Source of resource

Local parent firm

Foreign parent firm

Other

Total

Market-Access Technology Capital

13 15 23 13 4 11 11 11

Brand Business

network

Distribution

network

Marketing

capabilities

Machinery &

equipment

Technological

know how

Managerial

capabilities

Equity

78 53 46 44 78 72 67 76

9 32 31 43 18 17 22 13

100 100 100 100 100 100 100 100

Table 2: Who contributes what to FDI projects in Vietnam, in per cent of the type of resource contributions

The partner selection processes illustrate theresources that the foreign investor has beenseeking (Table 3). Carlsberg had several co-operations in the form of turnkey projects by itsaffiliate Danbrew prior to establishing the JV in1993. The chosen partner, Halimex, was secondto Hanoi Brewery in terms of market share inNorthern Vietnam. However, Halimex haddemonstrated ability to adapt and apply thetechnology received through a turnkey project. Itdid not compromise on quality, even duringperiods of rapid output growth and producedbeer of higher and more stable quality than theother breweries in Vietnam that had also beeninvolved in Danbrew turnkey projects. Thiscompensated for the fact that it was a relativenewcomer to the brewing industry.

Carlsberg provided most tangible assets in termsof equipment and machinery as well as keyknow-how that permits the efficient production ofhigh and sustainable quality beer, for instancetechnology to control temperature to add flavourto the beer during the brewing and fermentationperiods. It also supplied capital, technical andmanagement training for the workforce, theinternational brand “Carlsberg” and marketingknow-how for this brand.

Halimex provides Carlsberg with access to itsdistribution network and understanding of themarket. An important tangible asset in the beerbusiness is the distribution network as over 70per cent of beer is consumed on public premises.

Access to outlets like restaurants, pubs, bars,nightclubs and cafes is thus critical for beersales in Vietnam. Moreover, the local partnercontributed the land, the initial productionfacility and equipment, the labour force,“political know-how”, local marketing know-howand the brand Halida.

SEAB is structured as a traditional JV where bothpartners contribute resources and share control.The local firm retained and developed relatedbusiness thus realising synergies and spill-overswhile Carlsberg does not have to take

responsibility for non-brewing businesses.Carlsberg Breweries of Denmark maintainscontrol indirectly through its brand name and byhaving for 10 years a Danish financial investor asa partner that locals perceived as part of the“Danish side”.

ABB chose a partner with a track record ofproduction and innovation in the industry,including experience in reverse engineering. Bylocal standards, this firm was technologicallyadvanced applying mainly technologies imported from the then Soviet Union. Moreover,Hanoi Transformer Factory possessed a businessnetwork that was very valuable because ABBsells in business-to-business markets, wherenetwork-based sales strategies are importantsince public tenders with equal opportunities areexceptions unless a project is sponsored by, forexample, the World Bank.

The local co-owner transferred all its operationsto the newly created JV and remained as a shell-firm owning equity in the JV. ABB has agreed totake over the existing operation, includingbusiness units that it was not interested in, suchas switchgears. This created challenges for therestructuring. Ideally, ABB might have wanted toreplace some factories and downsize others, thuscreating a brownfield project where the resourcestransferred by the new owners may quicklydominate those of the acquired firm.

Both cases thus illustrate that a technologicallyadvanced local partner facilitates knowledgetransfer and thus the upgrading to the needs ofthe foreign investor. Yet, there are also caseswhere the local partner has an entirely passiverole. For example, Honda Motorcycle establisheda JV in which the local firm helps to gainlegitimacy and provides land use rights but doesnot take an active role in the governance ormanagement of the JV.


An important tangibleasset in the beerbusiness is thedistribution network

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One factory, two brands


Creating effective governance

The JV ownership limits the control of foreigninvestors over local operations, especially incases of minority JV, and the interests of two ormore owners have to be balanced to avoiddisruptive conflicts. In the Vietnamese contextthe relationship between partners is even morecomplex due to the involvement of governmentalauthorities, notably the ministry or provincialauthority under which the partner SOE operates.This influences the governance of the JV in termsof equity stakes and other mechanisms of controland conflict management.

Government as partnerIf the local partner is an SOE, an invisible butever-present partner is lurking in the background,namely the government and its representation atdifferent levels of the hierarchy.

For example, ABB recognised that its partner iscontrolled by the General Corporation of ElectricalEngineering (VEC) under the Ministry of Industry,so it welcomed the representation of VEC on theboard of the JV. In the case of Carlsberg, thelocal government is more important becausesales were, especially in the initial stages, mainlyon public premises in Hanoi. The first CEO of theJV pursued a political career to become memberof the people committee of Hanoi. The currentCEO of both Viet Ha and SEAB maintains goodrelationships with the authorities. On this basis,Carlsberg did not experience disruptive influenceby local or central authorities.

The authorities and local partners often favourambitious investment plans expanding capacityand upgrading technology, even before this iscommercially viable. Early investment commitmentsmay thus facilitate the negotiation and approvalprocess but may come to haunt the JV later. TheCarlsberg JV was set up in 1993 with aregistered investment of $79m and a plannedproduction capacity for the first phase of360,000 hectolitres per year. Phase I has beencompleted with an implemented investment ofonly $23.4m, and Phase II has been postponed.

ABB was less fortunate. The local partner andthe authorities established preconditions forapproving the JV, most significant of which were:to retain all existing employees of the factorywithin the JV and to start with production ofdistribution transformers and then quickly moveto manufacturing power transformers so long asthe distribution transformer business was innormal operation.

The acceptance of these two preconditions latercreated pressures for ABB. Production of powertransformers had to be started before they werecommercial viable in a small local market.Moreover, when restructuring of businessoperations and reduction of the labour forcebecame necessary, ABB faced considerableresistance both internally and externally,including the media.

Organisational arrangementsWith shared ownership, foreign investors have tofind effective mechanisms of control that alsoallow building trust with local partners. Foreigninvestors may wish to maintain strategic controlwhile interfering only minimally in the dailyoperations that a local partner may be betterpositioned to manage. With legal restrictions onequity ownership and local firms’ control of key

The authorities andlocal partners oftenfavour ambitiousinvestment plans...even before this iscommercially viable

Factory agates: Carlsberg plant in Vietnam

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resources, foreign investors use means other thanequity to assert their control, including contractsand managerial appointments.

Contractual arrangements provide control bystipulating terms and conditions of the JV. Forexample, licensing or franchising contracts allowthe parent to stipulate conditions on the JV’s useof the parents’ technology or brand names.However, there may be limits to implementingsuch contractual arrangements because ofinterventions by government ministries andbecause the juridical system to enforcecontractual rights is still weak.

The corporate governance structure of a JV, withboard of directors (BOD) and board ofmanagement (BOM), is new to many Vietnamesemanagers. They are accustomed to a hierarchicalstructure in which SOEs are governed by aministry or local government, which had toapprove major strategic decisions and woulddirectly interfere in operations.

The appointment of top management positionsby foreign and local partners is recognised as animportant means of control by local and foreignpartners. Top management appointmentsnormally depended on the resource endowment,power and capital contributions of the partners.However, top management can be dividedbetween foreign and local partners to takeadvantage of local resources and know-how,including “political know-how”. For example, ifthe local market is the main goal, well-connectedlocal top management may help.

The general manager faces many balancing actswhen leading such a JV. On the one hand, thelocal parent may use its proximity to theoperations, inside information and relations with

the authorities to influence the operations of theJV. Naturally, managers prefer to manage day-to-day operations without such interference. On theother hand, Vietnamese often see expatriatemanagers as “representative” of the foreignparent firm, such that CEOs may have to becautions about showing allegiance to eitherparent firm.

Carlsberg had until 2003 a tripartite ownershipstructure and a rotating managementarrangement. The first general director (GD) wasappointed by Viet Ha, although Viet Ha held only40 per cent of equity. The second GD was aCarlsberg expatriate, and the third GD again arepresentative of the local firm. This arrangementprovided access to local business networks andbalanced control over the local operation, but italso created discontinuities in leadership styles.

Knowledge sharing and organisationalchange

Arguably the most important challenge foroperational management in emerging market isthe sharing of knowledge between the foreignparent and its local affiliate. It involves manycomplementary approaches that take account ofthe often-tacit knowledge required to manageoperations in Vietnam in line with the globaloperations of the parent.

As in most JVs in emerging economies, theforeign partner in our cases contributed expertisein technology and management while the localpartner contributed its understanding of the localcontext in terms of distribution channels,consumer behaviour and political conditions(Table 4). The foreign investors also transferredmachinery in the form of turnkey projects orinternal transfers and thus the technologyembodied in this machinery (see also Table 3).

Many Vietnamese SOE managers have anengineering education, specialising in aparticular industry, similar to patterns found, forexample, in Russia. This enables them to learnand master technology transferred by foreigninvestors to a JV and to implement it in theproduction process. However, they often lackbusiness education and management skills,which limits their capability to engage infundamental changes that concern managerialtasks such as organising work processes anddelegating decision making and responsibility.

The most important resource transfer is thus thetransfer of knowledge, which may take multipleforms and requires top management attention.Local managers may quickly learn to use newvocabulary and techniques but they often lack adeeper understanding of its meaning. Therefore,training has to go beyond specific skills to enable


The most importantchallenge foroperationalmanagement inemerging market isthe sharing ofknowledge betweenthe foreign parentand its local affiliate


local employees to understand the logic of newtechniques to empower them to create andsustain radical changes. The training may occurin the company itself or by sending keyemployees abroad. Either way, however, it is along-term task.

Staff from the Vietnamese company may initiallybe employed as trainees or to “shadow”experienced colleagues from the foreign firm.This arrangement works well if all parties aremotivated to participate, and over time the staff-in-training play an increasingly valuablerole. Managerial training on the job with foreign advisors has generally been mostimportant. In-house, on-the-job training has been essential for JVs at least until recentlybecause specialised training in the country is inshort supply. Moreover, training has to becontextualised and tailored to be effective andinspiring for employees.

Both case firms implemented such managementtraining programmes to support their policy oflocalising management and senior technicalstaff. In SEAB, initially only three expatriatesworked at the brewery. Three years later, only thegeneral director and the brew master wereexpatriates, while subsequently a Vietnamesenational successfully replaced the brew master.Four candidates were selected and rotated indifferent tasks and on-the-job training indifferent positions and job places, from thebrewing house to fermentation, bottling andcanning. In this way, the candidates were givenbroader knowledge and skills for their job whilebeing challenged to demonstrate their generalmanagement skills.

As part of the training programme both casecompanies send key employees abroad to provide

them with a broader understating of thecompany’s operations.

Naturally, the success of such training dependson the individual and organisational capabilitiesthat the recipients can contribute. Hence, selection and preparation of individuals andgroups for training is crucial, as is the creation ofan organisational context in which trainedemployees can implement their ideas. Beforesending employees on training programmes theyneed to commit to taking on their expectedsubsequent roles.

The motivation to participate should not be takenfor granted. As in other transition economies,many employees are categorised as publicservants, enjoy job security and hence may nothave professional reasons to commit to rigorousretraining. Also, the authorities might relocatecertain employees after having received training,which would be counterproductive for the JV itself.

The changing skill profile also affectsrecruitment and retention practices. Technicallyoriented JVs, such as ABB, retain employeesfrom local partners who are experienced in theindustry, even when these were older and notfluent in English, and then retrain them. Formore market-oriented JVs, such as Carlsberg, itmay be more appropriate to hire younger peoplesuch as graduates from universities and collegesand train them accordingly.

For training to be effective, the organisationalstructure has to support the new objectives of theorganisation and provide opportunities for trainedemployees to implement their ideas. Previously,SOEs typically had hierarchical structures withfew decisions being delegated. Thus internal organisational processes and the modes of

Table 4 Resource management in the case firms

SEAB

Technology and marketing know-how, machinery,

global brand, capital.

Educated workforce (absorptive capacity), distribution

network, local marketing and sale experience, local

brand, land and buildings, political know-how.

Overseas training, on-the-job training, both specific

and perception-related, localisation of management.

ABB

Technology and management, especially production-

process related knowledge, machinery, capital

Staff, physical assets & liabilities, relationship with

state-owned firms as customers, industry-specific

human capital (absorptive capacity).

On-the-job training both in Vietnam and foreign

affiliates, technical documents, extensive technology

sharing and management localisation schemes,

connecting to ABB worldwide network.

Contribution by foreign

partner

Contribution by local

partner

Methods of knowledge

transfer

interaction between individuals within a JV haveto be redefined.

A particular concern has been the internaldepartmentalisation, which partly results fromthe legacy of the SOE and partly from the joint-venture arrangements. However, information-sharing across departments is important. In thecase of ABB, closer co-operation between variousdepartments within the JV was required torespond quickly to orders. A new procedure wascreated, in which each department’s role andfunctions were clarified.

The formal changes have to co-evolve withchanges in organisational culture, that is thevalues and attitudes shared by employees in theorganisation. This requires broad consensus. InABB, many issues were exposed to comment anddiscussion by various departments and unitswithin the JV to avoid the paralysis incurred bysome JVs due to lack of support from localemployees or lack of consensus between localand foreign staff. Without this, the introductionof operational innovations, such as preventivemaintenance, would have been difficult as theywere not perceived as important in SOEs. Hence,successful implementation requires not onlyspecific technical training, but also enhancedawareness of the people involved.

Knowledge management and the creation of amarket-oriented organisational culture are crucialsuccess factors for a JV. Training and knowledgesharing with local staff should be a core duty ofexpatriate managers and professionals stationedin the JV and not be seen as secondary, residualtask. In the ABB case, both short-term consultantssent by ABB to the site and resident engineersand managers were required to train Vietnamesestaff on the spot. Moreover, this was consideredto be one of their main tasks, not somethingincidental to be done in their spare time.

Conclusions

Vietnam is emerging as an attractive location formultinational firms seeking new markets or lowcost production sites. The institutionalenvironment remains difficult to navigate; yetmany investors have built successful operations,even when partnering with state-ownedenterprises. Our two case studies suggest that

● in spite of many weaknesses, SOEs in Vietnamcan be attractive partners for foreign investors,because they still control crucial localresources and capabilities.

● JVs permit many different roles and divisionsof responsibilities, and can be structured suchas to take account of the specific resourcescontributions, and the institutional context.

● The venture needs be well negotiated with thejoint venture partner as well as the relevantgovernmental authorities, and

● top management need to give priority attentionto knowledge management and toorganisational change process in the localorganisation. ■

Resources

Antal-Mokos, Zoltan (1998): Privatisation,Politics, and Economic Performance in Hungary.Cambridge, Cambridge University Press.

Meyer, Klaus E (2002): Management challengesin privatization acquisitions in transitioneconomies, Journal of World Business 37, p. 266-276.

Nguyen, Thanh Ha; Hung Vo Nguyen and Klaus EMeyer (2004): FDI in Vietnam, in: Estrin, Sauland Klaus E. Meyer, eds. (2004): InvestmentStrategies in Emerging Markets, Cheltenham:Elgar, forthcoming.

Tenev, Stoyan, Amanda Calier, Omar Chaudry andQuynh-Trang Nguyen (2003): Informality and thePlaying Field in Vietnam’s Business Sector,Washington, DC: IFC, World Bank and MPDF.

Van Arkadie, Brian and Raymond Mallon(2003): Vietnam: A Transition Tiger, Australia: AsiaPacific Press.


Ha Thanh Nguyen([email protected]) isResearcher at theNational Institutefor Science andTechnology Policyand StrategyStudies(NISTPASS), Hanoi,Vietnam and

Klaus E Meyer([email protected] )is ResearchProfessor atCopenhagenBusiness School,Denmark.

They thank theircollaborators in theresearch project“Investmentstrategies inemerging markets”,in particular SaulEstrin and Hung VoNguyen, for manydiscussion andinsights that helpedin writing thispaper, and theeditors and Yen ThiThu Tran forcomments on aearlier draft.Funding has beenprovided by theDepartment forInternationalDevelopment (UK)under DFID/ESCORproject no. R7844,Center for New andEmerging Markets,London BusinessSchool.

Knowledgemanagement and the creation of a market-orientedorganisationalculture are crucialsuccess factors

Documents

Managing Partnerships with State-Owned Joint Venture Companies: Experiences from Vietnam