Vietnam WTO

For personal use only; all rights reserved. Strengths, Weaknesses, Opportunities, and Threats for Architectural, Engineering, and Construction Firms: Case Study of Vietnam Florence Yean Yng Ling1; Vu Min Chau Pham2; and To Phuong Hoang3 Abstract: After Vietnam became a member of the World Trade Organization, Vietnamese architectural, engineering, and construction A/E/C ? rms face competition from not only their domestic competitors but also from foreign A/E/C ? rms. As most Vietnamese ? ms are used to operating under a protected setting, they may face dif? culties competing in the globalized environment. This study undertakes a strengths, weaknesses, opportunities, and threats SWOT analysis of Vietnamese A/E/C ? rms, investigates how they respond to opportunities and threats, and recommends how foreign A/E/C ? rms operating in Vietnam could respond. Using semistructured interview questions, face-to-face interviews were conducted with Vietnamese and foreign A/E/C ? rms.The SWOT analysis reveals that Vietnamese A/E/C ? rms are lagging behind foreign ? rms in ? ancial capacity, experience in complex projects, knowledge in advanced design and construction technology, and management ability. Industry practitioners from outside Vietnam who are contemplating entering the Vietnamese market can leverage on Vietnamese ? rms’ strengths by forming joint ventures with strong and reputable private Vietnamese ? rms. To improve their competitive advantage, it is recommended that foreign A/E/C ? rms offer superior products and services and familiarize themselves with local culture and regulations. They should be mindful of corruption and set up surveillance systems to curb wasteful spending.DOI: 10. 1061/ ASCE CO. 1943-7862. 0000069 CE Database subject headings: Vietnam; International factors; Engineering ? rms; Construction companies; Agriculture; Economic factors; Case reports. Introduction On January 11, 2007, Vietnam became the 150th member country of the World Trade Organization WTO . WTO member countries cannot normally discriminate between their trading partners, and imported and locally produced goods and services should be treated equally following the “national treatment” principle of giving others the same treatment as one’s own nationals World Trade Organization WTO 2005 .As a WTO member, Vietnam must allow WTO member-country’s architectural, engineering, and construction A/E/C ? rms to operate in its construction industry, albeit in a controlled way. Vietnam attracted a record of US$20 billion foreign direct investment FDI , rising by 70% over the previous year Blume Associate Professor, Dept. of Building, National Univ. of Singapore, 4 Architecture Dr. , Singapore 117566, Singapore corresponding author . E-mail: [email protected] edu. sg 2 Quantity Surveyor, KPK Quantity Surveyors Pte Ltd. , 865 Mountbatten Rd. , 07-01, Singapore 437844, Singapore.E-mail: [email protected] yahoo. com. sg 3 Quantity Surveyor, Rider Levett Bucknall Pte Ltd. , 150 Beach Rd. , 09-01, Singapore 189720, Singapore. E-mail: [email protected] com Note. This manuscript was submitted on July 24, 2008; approved on March 24, 2009; published online on March 26, 2009. Discussion period open until March 1, 2010; separate discussions must be submitted for individual papers. This paper is part of the Journal of Construction Engineering and Management, Vol. 135, No. 10, October 1, 2009. ©ASCE, ISSN 0733-9364/2009/10-1105–1113/$25. 00. 1 2007 . Foreign A/E/C ? ms are expected to enter Vietnam to develop the facilities which are needed by foreign investors. In line with Vietnam’s WTO commitments to open up its construction market to foreign businesses, Vietnamese A/E/C ? rms now face intense competition from foreign entrants, when hitherto most of them are only used to operating under a protected environment. Vietnam’s construction market is attractive to foreign A/E/C ? rms because spending in the construction sector will grow healthily at 5. 5% from 2005 to 2015 Lubien 2008 . The aim of this study is to investigate the strengths S and weaknesses W of domestic A/E/C ? ms in Vietnam’s construction industry, the opportunities O and threats T that they face, and how foreign A/E/C ? rms that operate in Vietnam should respond. The speci? c objectives are to: 1 undertake a SWOT analysis of Vietnamese A/E/C ? rms; 2 investigate how Vietnamese A/E/C ? rms respond to the opportunities and threats; and 3 recommend how foreign A/E/C ? rms operating in Vietnam could respond. The ? rst purpose of this study is to let Vietnamese A/E/C ? rms ponder how their strengths may be leveraged to realize opportunities and how weaknesses which exacerbate threats, may be overcome.The second purpose is to inform foreign A/E/C ? rms that are considering setting up operations in Vietnam on how they can adjust their practices in order to respond to Vietnamese A/E/C ? rms’ strategies, so that they can be more competitive in Vietnam. The ? ndings may be helpful to foreign A/E/C ? rms competing or cooperating with domestic A/E/C ? rms in Vietnam. The scope of this research is con? ned to studying domestic A/E/C ? rms with headquarters in Hanoi or Ho Chi Minh City JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1105J. Constr. Eng. Manage. 2009. 135:1105-1113. HCMC , and foreign A/E/C ? rms that are operating in these cities. These two cities were selected because they are the largest cities in Vietnam, and have a signi? cant presence of foreign ? rms. Therefore, the Vietnamese A/E/C ? rms there would have the necessary knowledge of and experience in working with foreign ? rms, and can therefore better inform the research. Studying only foreign ? rms that are already operating in Vietnam ensures that they are quali? ed to provide recommendations to other foreign ? ms that intend to operate in Vietnam. Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. to attract more FDIs. The threats faced include over emphasis on directed investment. Competitive Advantage and Internationalization Two to three years after Vietnam’s ascension to WTO membership, an in? ux of foreign A/E/C ? rms is expected. Vietnamese A/E/C ? rms are likely to face ? erce competition. To succeed, Vietnamese A/E/C ? rms need to have effective strategies to achieve competitive advantage.Competitive advantage is attained from the ? rm’s ability to control its internal subsystems, exploit opportunities and lessen or avoid threats from its external environment Male 1991 . A ? rm is said to have competitive advantage when it has superiority over its competitors Langford and Male 2001 . Porter 1980 proposed three main competitive strategies: differentiation cost leadership, and focus. To gain competitive advantage, a ? rm must either provide comparable buyer value but perform activities more ef? ciently than its competitors i. e. a low-cost strategy , or perform activities in a unique way that creates greater buyer value and commands a premium price i. e. , a strategy of differentiation Porter 1999 . In the generic strategy of focus, the focuser selects a segment in the industry and tailors his strategy to serving it to the exclusion of others. Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments. Oster 1999 pointed out that ? rms could outperform competitors either by having lower costs or by offering a superior product that can be sold at a price premium.He also concluded that to form a successful basis for competitive advantage, a product must be important in the market, an improvement over the competition, and defensible against imitation. There are many theories to explain internationalization such as location theory Weber 1929 , international product life cycle theory Posner 1961 , and internalization theory Hymer 1976 . Dunning 1988 postulated the Eclectic Paradigm to explain that ? rms can internationalize successfully if they have ownership, locational, and internalization advantages.To this, Low and Jiang 2004 added the specialty advantage. Seymour 1987 argued that international contractors face a complex situation in which success is only partially dependent on price competition, and other factors which differentiate a contractor’s product from that of competitors are more crucial. Male 1991 stated that competitive strategy in international construction is achieved through a combination of ? rm- and country-speci? c advantages to achieve differentiation. Vietnam’s WTO Commitments Vietnam’s application process to be a member of WTO took a long journey, but it ? ally came about in early 2007. Her key WTO commitments in services of which A/E/C belongs to are provided in World Trade Organization WTO 2006 . Vietnam must allow foreign enterprises to establish commercial presence in the form of business cooperation contracts, joint venture JV enterprises, and 100% foreign-invested enterprises. To give time to domestic ? rms to adjust, for a period of 2 years from the date of WTO ascension, 100% foreign-invested enterprises may only provide construction services to foreign-invested enterprises in Vietnam World Trade Organization WTO 2006 .Construction services include architectural services, engineering services, integrated engineering services, urban planning, urban landscape architectural services, and construction work. In addition, for construction and related engineering services, after 3 years from the date of ascension, foreign ? rms would be allowed to set up branch of? ces, but the chief of the branch has to be a resident in Vietnam. For urban planning and urban landscape architectural services, the service must be authenticated by an architect who has a Vietnamese practicing certi? ate, and who works in a Vietnamese architectural organization. Foreign architects working in foreign-invested enterprises must possess professional practicing certi? cate granted or recognized by the government of Vietnam. SWOT Analysis The SWOT analysis is a tool to evaluate the strengths S , weaknesses W , opportunities O and threats T of enterprises. An enterprise’s strengths and weaknesses demonstrate its internal characteristics and are controllable; and its opportunities and threats are determined by external factors on which it has no direct control but can react to its own advantage Pearce 1992 .A marketing opportunity is an area of need in which a company can perform pro? tably, while an environmental threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to sales or pro? t deterioration Kotler and Keller 2006 . SWOT analysis is a methodology allowing enterprises to understand and plan to use their strengths to exploit opportunities, to recognize and avoid their weaknesses, and to defend against or sidestep any known threats Pearce 1992 .Dapice 2003 did a SWOT analysis of Vietnam’s economic sector and found that the economy’s major strengths are moderate Gross Domestic Product GDP growth, industrial growth, and macroeconomic stability. The weaknesses are slowing export growth, poor industrial investments, and growing rural-urban income split. Vietnam’s economic opportunities include the ability Gap in Knowledge While SWOT analyses have been performed on some sectors in Vietnam, the SWOT of Vietnamese A/E/C ? rms in the construction industry have hitherto not been well studied. Dapice 2003 undertook a SWOT analysis of Vietnam’s economy in general.However, his study is a broad brush approach, and did not cover Vietnamese A/E/C ? rms. Long et al. 2004 investigated the problems faced in large construction projects in Vietnam, and found that these are incompetent designers and contractors, poor estimation and change management, social and technological issues, site related issues, and improper techniques and tools. Their study did not cover the opportunities and threats to A/E/C ? rms in Vietnam. 1106 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 J. Constr. Eng. Manage. 2009. 135:1105-1113. Table 1.Background of Interviewees Working in Vietnamese A/E/C Firms Interviewee code A1 A2 A3 A4 A5 P1 P2 P3 Q1 Q2 Q3 Q4 C1 C2 C3 C4 C5 C6 C7 C8 S1 S2 S3 S4 S5 Designation Managing Director Deputy Manager Design Deputy Manager Project Manager Architect Project Manager Deputy Manager Managing Director Sales and Marketing Manager Deputy Manager General Director Managing Director Accounts Manager Deputy Manager Deputy Manager Managing Director Engineer Managing Director Manager Senior Engineer Deputy Manager Sales Manager Senior Engineer Accounts Manager Managing Director Main business Architect Architect Architect Architect Architect PM consultancy PM consultancy PM consultancy Cost engineer Cost engineer Cost engineer Cost engineer Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Types of projects Residential and infrastructure Residential, commercial, infrastructure, hotel, and factory Residential, commercial, infrastructure, hotel, and factory Residential, infrastructure, and factory Residential Infrastructure Residential, commercial, nfrastructure, hotel, and factory Residential, commercial, of? ce, and factory Residential, commercial, infrastructure, and of? ce Residential, commercial, of? ce, and factory Residential and hotel Residential, commercial, infrastructure, and of? ce Factory Residential Infrastructure and factory Residential Residential and hotel Residential, commercial, infrastructure, hotel, and factory Residential Infrastructure Residential and commercial Residential Residential and hotel Residential and factory Residential, commercial, hotel, and sports hall Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. Luu et al. 008 proposed a framework that integrates balanced scorecard and SWOT matrix to evaluate the strategic performance of large contractors in Vietnam. The study focused on one large construction ? rm, AnGiang Construction Company, and hence the ? ndings are not generalizable. Past studies on Vietnam did not investigate strategies used to overcome competitive pressures after Vietnam’s WTO entry. They also did not identify what strategies Vietnamese A/E/C ? rms could adopt to counter foreign A/E/C ? rms’ “invasion” into Vietnam. In the ? eldwork, SWOT analysis of domestic A/E/C ? rms operating in Vietnam’s construction industry was carried out. Vietnamese A/E/C ? rms’ competitive strategies and how foreign ? rms should respond are also investigated. Research MethodResearch may be quantitative or qualitative in nature. This research adopted a primarily qualitative method because understanding a phenomenon from the point of view of the participants and its particular social and institutional context may be lost when textual data are quanti? ed Kaplan and Maxwell 1994 . The data collection instruments were two specially designed questionnaires which comprised mostly open ended questions to analyze Vietnamese A/E/C ? rms’ SWOT, foreign ? rms’ actions and recommendations, and other related questions. Open ended questions allowed interviewees to have greater freedom in sharing their experience and knowledge.Data collection for qualitative research includes interviews, participant observation, and archival research Myers and Avison 2002 . This study adopted the face-to-face interview technique because probing questions were involved, respondents were required to provide in-depth answers and particularly interesting aspects of the responses could be delved into. The advantage of adopting the method is that interviewers are able to establish a relationship with the interviewees, allowing them to answer questions more easily. The other advantages of using such a method include a higher participation rate since interviewees only need to give verbal comments rather than ? ll up a questionnaire with long answers.Moreover, clari? cations can be made during the interviews. Participant observation was precluded due to interviewees’ concern about con? dential information of ? rms being divulged. Archival research was carried out to inspect noncon? dential company reports. Fifty Vietnamese and another 50 foreign A/E/C ? rms operating in Vietnam were randomly selected from Vietnam’s Department of Planning and Investment’s list of registered ? rms, Vietnam Yellow Pages, and Vietnam branch of the European Union Chamber of Commerce. The purpose of interviewing Vietnamese A/E/C ? rms was to collect data to ful? ll Objective 1 and Objective 2. Interviews with foreign A/E/C ? ms were to obtain data relating to objective 3. Telephone calls were made and follow-up emails were sent to the selected ? rms, requesting for interviews. When an agreement for interview was secured, face-to-face interviews were conducted in the interviewees’ of? ces in Vietnam. Characteristics of the Sample The 25 domestic and 12 foreign A/E/C ? rms operating in Vietnam’s construction industry agreed to be interviewed after much persuasion and follow-up telephone calls. Among the 12 foreign JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1107 J. Constr. Eng. Manage. 2009. 135:1105-1113. Table 2. Characteristics of Respondents and Their Firms Vietnamese FirmsDescription Firm Ownership Public Private Public-private Workforce Up to 50 people 51–100 people 101–200 people 200 people Revenue USD 600 K 601 K–3 M 3 M Unknown Discipline A and E PM Cost engineering Construction Designation Upper management Middle management Professionals Worked with foreigners Yes No Work experience 5 years 6–10 years 10 years Nr 7 10 8 % 28% 40% 32% Table 3. Characteristics of Respondents and Their Firms Foreign Firms Description Firm ownership Private: wholly owned foreign ? rm Private: foreign-Vietnamese joint venture Firm’s country of origin France Hong Kong SAR Singapore U. S. Workforce Up to 200 people 201–400 people 400 people Revenue USD Up to $50 million $51–$100 million $100 million Discipline A and E PM Cost engineering Construction Real estate Designation Upper management Middle management Worked with Vietnamese Yes Work experience Industry 6–10 years 10 years Work experience Vietnam 5 years 6–10 years 10 years Nr 6 6 % 50 50 Downloaded from ascelibrary. rg by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. 12 3 5 5 48% 12% 20% 20% 6 1 3 2 50 8 25 17 7 10 5 3 28% 40% 20% 12% 3 3 6 25 25 50 3 2 7 25 17 58 5 3 4 13 20% 12% 16% 52% 7 13 5 28% 52% 20% 3 1 1 2 5 25 8 8 17 42 7 5 58 42 14 11 56% 44% 12 100 6 7 12 24% 28% 48% 6 6 50 50 A/E/C ? rms, ? ve of them reported that they were more involved as real estate development, because prior to Vietnam’s WTO membership, their A/E/C operations were restricted. The interviews were conducted in Vietnam between May and October 2007. Each interview lasted between 30 and 90 min. The characteristics of respondents and their ? ms are given in Tables 1–3. The interviewees working in domestic ? rms were from consultancy ? rms 48% and construction ? rms 52% , while half of those working in foreign ? rms were consultants. They had been involved in different types of projects with a strong focus on residential buildings local ? rms and commercial and industrial projects foreign ? rms . The project delivery system was generally the traditional design-bid-build method. The majority of the interviewees were mid- and upper management, with more than 5 years of experience in the construction industry. More than half of the locals had worked with foreigners. Local interviewees’ ? ms had headquarters mainly in HCMC 72% and Hanoi 15% . As for foreigners, half of them worked in French 6 1 5 50 8 42 companies which had entered Vietnam as wholly owned foreign ? rms or formed JVs with Vietnamese ? rms. Results of SWOT Analysis SWOT analysis of domestic A/E/C ? rms was undertaken and the results summarized in Table 4. The purpose of the SWOT analysis was to help enterprises to understand and plan to use their strengths to exploit opportunities, to recognize and avoid their weaknesses, and to defend against or sidestep any known threats Pearce 1992 . Unless otherwise stated, the results presented re? ected that of the majority. 108 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 J. Constr. Eng. Manage. 2009. 135:1105-1113. Table 4. Summary of Vietnamese A/E/C Firms’ SWOT Internal Favorable Strengths • Familiarity with local cultures and industry practices • Labor advantages External Opportunities Vietnam’s WTO membership: • Increase sales volume • Acquire knowledge in advanced design and construction technology • Export service to overseas Threats • Construction market share reduced • Foreign ? rms’ competitive advantages over domestic ? rms Unfavorable Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE.For personal use only; all rights reserved. Weaknesses • Lack of knowledge in advanced design and construction technology • Lack of experience in complex projects • Lack of project management ability Strengths of Vietnamese A/E/C Firms Familiarity with Local Market As the domestic ? rms had been practicing in Vietnam’s construction industry, they are very familiar with the operations of the local market, local cultures, and industry practices such as regulatory submissions and approvals. Most of the interviewees remarked that unfamiliarity with local market is one of the main barriers preventing foreign ? rms from venturing into Vietnam. For foreign ? ms, it is recommended that they should study and understand local regulations and culture before they venture into Vietnam. Plentiful and Low Cost Labor The interviewees shared that Vietnam’s large population base is a potential source of low-cost labor. The labor force grows by more than 0. 5 million people every year, 69% of the population are between the ages of 15 and 64, and the median age is only 26. 9 years old Central Intelligence Agency CIA 2008 . The Central Intelligence Agency CIA 2008 further reported that GDP per capita is US$2,600 and 15% of the population live below the poverty line. Thus, the 46 million people in the labor force provide a large pool of low-cost manpower for the construction industry.Weaknesses of Vietnamese Firms Lack of Knowledge in Advanced Design and Construction Technology The interviewees shared that Vietnamese practitioners lack knowledge and capability in advanced design and construction technology. The practitioners do not have knowledge in the more sophisticated and technology-oriented services. Their design knowledge may also be out dated. Long et al. 2004 also found a lack of capable consultants and domestic contractors for handling large projects in Vietnam. The interviewees shared that the low-cost labor advantage has led to a low degree of mechanization and heavy reliance on unskilled workers. This has led to low construction productivity. Obsolete technology and equipment can be found in a typical domestic construction ? rm Luu et al. 2008 .It is recommended that local construction practitioners take steps to acquire new knowledge and practices by upgrading themselves. Foreign ? rms entering Vietnam should be aware of this weakness. If they are partnering with Vietnamese ? rms, they should not expect too much from their local partners. If they enter as project developers, they should be mindful that Vietnamese A/E/C ? rms may not be able to meet the high design standards that Western countries are used to. Lack of Experience in Complex Projects According to the interviewees, a catch-22 situation exists because domestic ? rms lacked advanced design knowledge. They are not awarded complex projects, and therefore lacked the experience.This makes them incompetent to handle future complex projects. Interviewee A2 commented that: The design for complex national-level projects is often carried out by foreign ? rms. For example, the My Dinh National Stadium was designed by a Chinese ? rm. It is because Vietnamese ? rms are not experienced when compared to foreigners. We especially lack experience in sophisticated projects such as bridge or underground infrastructure. This con? rms the ? ndings of Luu et al. 2008 ? nding that labor-intensive construction is mostly given to domestic ? rms while complex plant and infrastructure construction, which needs high technology, are undertaken by foreigners.Lack of Project Management Ability The interviewees opined that strong project management capability is a key requirement in construction projects, especially in projects that have foreign capital which are also generally more complex. The majority of them reported that there is a shortage of project managers who have experience handling large-scale projects in both domestic and international markets. They shared that the pool of project management talent is small. High occurrence of project delays and cost overruns are the norm in Vietnam Long et al. 2004 . P1 reported that: We want to recruit more skillful project managers. We have actively looked for them by placing advertisements or through recruitment drives. But the applicants are not up to our expectation.Our company is still short in staff who have enough skills to handle our current as well as newly won projects. As such, most of our staff are overworked. It is recommended that effective project management at corporate, process, project, and activity levels should be introduced to professionals to enhance construction industry performance in Vietnam Long et al. 2004 . More continuing professional development courses could be offered. P2 said that: JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1109 J. Constr. Eng. Manage. 2009. 135:1105-1113. Construction industry practitioners should attend training courses in project management. It is not only bene? ial to the individual but also to his ? rm. I strongly encourage my staff to attend these classes and we pay their course fees. Lack of Strong Financial Capacity Strong ? nancial capacity is important as it enables ? rms to have smooth project cash ? ow and re? ects the ? rms’ capability to handle large projects. The interviewees shared that Vietnamese A/E/C ? rms do not have strong ? nancial capacity. This weakness causes local A/E/C ? rms to lose out when competing with foreign players. Luu et al. 2008 also found that the problem is compounded by public owners delaying payments for completed works due to bureaucracy in government departments.Opportunities Available to Vietnamese Firms Increase Sales Volume The rapid growth of Vietnam’s construction industry offers domestic ? rms many opportunities to increase their sales volume, said all the interviewees. They also pointed out that FDIs in Vietnam’s infrastructure lead to more construction projects for local A/E/C ? rms. C1 commented that: Although FDI projects are won by foreign contractors, they always need our participation in these projects as subcontractors. They also seek other local construction ? rms because the locals understand the Vietnamese construction law and regulations better and know the cheap source of labor and material supply. Acquire and Update Knowledge Vietnam’s WTO membership leads to in? ux of foreign A/E/C ? rms.Domestic ? rms have the opportunity to learn advanced design and construction technology from foreign ? rms. The learning opportunities come from cooperating with foreign partners or working as their subcontractors. Updating their knowledge and learning advanced design and construction technology increase local ? rms’ competitiveness in Vietnam and overseas. The interviewees pointed out that local ? rms also learn from foreign ? rms new management skills such as how to provide superior customer service. There is thus opportunity for domestic ? rms to learn and change their mindsets, improve their service standards, and management effectiveness.Export Service Overseas Vietnam’s WTO membership also provides opportunities for Vietnamese ? rms to export their services to other countries. The local interviewees shared that they are excited about the prospect of exporting. They admitted that Vietnam’s ability to export construction and consultancy services is currently limited. However, it has exported building materials and labor to Brunei, Ireland, Japan, Korea, Libya, and the Middle East Vinaconex Corporation 2008 . Threats that Vietnamese Firms Face Reduced Market Share In Vietnam’s construction market, small ? rms make up 74% of registered companies, but only contribute 11% to construction Table 5.Comparison of Vietnamese and Foreign Firms Rank Description Meana t Signi? cance Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. 1 Financial capacity 4. 68 17. 27 0. 000 2 Experience in the complex projects 4. 52 12. 47 0. 000 3 Design techniques 4. 32 9. 85 0. 000 4 Management ability 4. 19 9. 45 0. 000 5 Construction technology 4. 00 6. 82 0. 000 a 5-point Likert scale: 1 = Vietnamese ? rms are signi? cantly stronger; 3 = Vietnamese and foreign ? rms have equal strength; and 5 = foreign ? rms are signi? cantly stronger. output, with medium and large ? rms contributing 89% of the total revenue Vietnam Government 2007 .The interviewees lamented that market share will inevitably become smaller after many new foreign ? rms are allowed to operate in the construction market. This de? nitely poses a threat to domestic ? rms as their market share would be reduced. Competitive Advantages of Foreign Entrants Local interviewees were asked to rate the perceived strengths of Vietnamese as compared to foreign A/E/C ? rms on a 5-point Likert scale, where 1 = Vietnamese ? rms are signi? cantly stronger; 3 = Vietnamese and foreign ? rms have equal strength; 5 = foreign ? rms are signi? cantly stronger. The test values and signi? cant levels were set at 3 equal strength and 0. 05, respectively. Table 5 shows that mean values were all above 3. , and on a 5-point scale, this means that the local interviewees felt that foreign ? rms are stronger than Vietnamese ? rms. With p = 0. 00, this further indicates that the results are signi? cant. It can thus be concluded that local interviewees perceived that foreign ? rms are stronger than Vietnamese ? rms in all the ? ve areas: ? nancial capacity, experience in complex projects, design techniques, management ability, and construction technology. The ? ndings con? rm the study of Cheah et al. 2007 which found that domestic ? rms in developing countries have to confront the rivalry of foreign ? rms, which largely possess stronger ? nancial and technological capabilities. Discussion 1: Vietnamese Firms’ StrategiesThe local interviewees were asked how they would respond to the threat of foreign competition and the competitive strategies that they would adopt. The results are shown in Table 6. The top three strategies identi? ed by local interviewees are to restructure their organizations, invest in research and development R&D , and provide better service. Most of the interviewees would not reduce their pro? t margins nor rely on the government to help them compete against foreign Table 6. Vietnamese Firms’ Response to Threats Rank 1 2 3 4 5 6 7 Strategy Restructure organization Invest in R&D Provide higher quality service Explore overseas markets Form joint-ventures Rely on government Reduce pro? margin Frequency 24 23 22 19 16 4 3 % 96 92 88 76 64 16 12 1110 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 J. Constr. Eng. Manage. 2009. 135:1105-1113. Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. ?rms. The interviewees said that it will take too long for the government to act. For example, interviewee P3 said that “the government’s plan to adjust, amend, supplement, and implement a better legal system is proceeding at a glacial pace. ” Organizational restructuring is critical to state-owned companies because they lack competitiveness as compared to privateowned companies.The interviewees believed that reorganizing their ? rms would make them more competitive and better able to attract managerial talent and skilled labor. Interviewee C1 conveyed that a company needs to have a resourceful pool of talent in order to dominate the construction market. It is also important to transform the traditional seniority-based personnel management system into a new ? exible human resource management system in order to survive the market competition. Luu et al. 2008 also con? rmed the importance of reorganizing company structures and paying attention to human resources. Among the ? rms, stateowned ones are those in dire need of reorganization.Interviewee Q1 remarked that: Since we are a stated-owned company, it is dif? cult for us to make any changes to our company structure and the way we want to do business. Every time we have an internal problem, we cannot make our own decision. Instead, we wait for the government’s decision. So, it takes a long time for us to solve just a minor problem. The only way to make us more competitive is to restructure into a private corporation. Investing in R&D is the second most frequently cited strategy that Vietnamese ? rms would adopt. Vietnamese A/E/C ? rms indicated that they would invest in R&D in order to have design and construction innovations.They shared that they would send their staff for training to improve their ability to innovate, and change their mindset in doing business. Providing better service, by delivering high product and service quality and offering superior services to clients, is the third most frequently cited strategy. The ? nding suggests that Vietnam’s construction industry has hitherto neglected to remain competitive in a fast-changing environment Luu et al. 2008 . Thus, competition will force ? rms to sharpen their competitive edge in order to survive. Vietnam’s construction regulations are very complicated. Some of them contradict each other. This sometimes makes even local practitioners very confused, not to mention foreigners like us.Foreign interviewees recommended that all employees foreign and local should attend continuing professional development courses to update themselves on Vietnam’s policies, laws and regulations. Given these problems, all interviewees recommended that foreign ? rms form JVs with private Vietnamese ? rms when they venture into Vietnam. The local partner should be in charge of making statutory applications, getting project approvals and permits. Foreign ? rms should focus on the design and technical aspects. Studies have shown that developing countries see international JVs as one of the best instruments for meeting the competing interests of national development and preventing foreign investors from dominating the economy Sornarajah 1992 . The advantage of JVs to Vietnamese ? ms is that they can have fast access to up-to-date technology through their JV partners Yoshino and Rangan 1995 . While Vietnamese A/E/C ? rms are eager to form international JVs, it is also necessary to ? nd out if this would bene? t foreign ? rms entering Vietnam. Ling et al. 2005 found that forming nonequity project JVs between foreign and domestic A/E/C ? rms bring about project success. The advantages of JVs to foreign ? rms are better adaptation to the local environment and easy access to licenses, human resources, and other expertise through the local partners Xu et al. 2005 . One foreign consultant who was interviewed recommended that foreign ? ms should form JVs with reputable and strong local partners. In addition, they should form strategic partnerships with key contractors and suppliers to ensure competitive rates. Joint venturing is thus a win-win situation for both foreign and Vietnamese A/E/C ? rms. Vietnamese A/E/C ? rms bene? t by learning from foreign ? rms that have advanced design and construction technology and superior management practices. Foreign ? rms bene? t from JVs because with a local partner, they can overcome their non familiarity with the new market, and penetrate the market directly without being encumbered by the problem of licensing Badger and Mulligan 1995 . Vietnamese A/E/C ? ms can assist them in understanding and complying with the complex planning and building approval process. Interviewees working in Vietnamese ? rms were asked the criteria they used to select foreign partners. The results are shown in Table 7. The top three most frequently used criteria are foreign partners who possess: advanced knowledge in design and construction technology, strong ? nancial capacity, and experience in international projects. The need for up-to-date knowledge has always been the focus of domestic ? rms in partnering since it helps to upgrade their knowledge, skills and technology. These are the areas Vietnamese ? rms lacked in as well see section on Weaknesses .It is recommended that foreign A/E/C ? rms focus on niche services and position themselves to offer services in complex and specialized projects. The need to have specialty advantages con? rms ? ndings of Low and Jiang 2004 on ? rms having specialized ? elds in internationalization efforts. The second selection criterion is foreign ? rms with strong ? nancial capacity. Luu et al. 2008 found that competitiveness in Vietnam is greatly in? uenced by the capability of capital supply, and it is imperative for construction ? rms to have ? nancial capacity. High ? nancial capacity allows work to proceed smoothly Discussion 2: Recommendations to Foreign FirmsThis section reports the recommendations given by interviewees working for Vietnamese and foreign ? rms to foreign A/E/C ? rms that are entering Vietnam. Foreign ? rms reported that it is dif? cult to deal and comply with Vietnam’s legal system and complex regulations. Some foreign interviewees faced serious dif? culties due to complicated and burdensome regulatory procedures. The interviewees shared that government approvals take a long time to be obtained. Vietnam is known to have complex legal and institutional framework Long et al. 2004 . A foreign designer remarked that: We always face problems in getting government approvals for our projects. Apart from the lengthy process, the of? ials in charge are not helpful. Instead of telling us all their requirements at one go, they will highlight one or two requirements. When we resubmit the updated documents, they will tell us the documents are still inadequate, and new requirements would be stipulated. The foreign contractor who was interviewed said that: JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 / 1111 J. Constr. Eng. Manage. 2009. 135:1105-1113. Table 7. Vietnamese A/E/C Firms’ Criteria for Selecting Foreign Partners Interviewees’ main business Architects PMs Cost engineers Contractors Total Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13.Copyright ASCE. For personal use only; all rights reserved. Possess knowledge in advanced design and construction technology 5 3 4 13 25 Strong ? nancial capacity 4 3 3 13 23 Possess experience in international projects 4 3 2 13 22 Good corporate reputation 3 1 3 8 15 without being over reliant on payment from clients, and allows ? rms to manage bigger-scaled projects. It is recommended that foreign ? rms should have suf? cient cash reserves for working capital before embarking on internationalization. However, a foreign interviewee cautioned that foreign ? rms should structure deals that minimize cash outlay. If possible, income should be priced in U. S. ollars USD or Euro, and not in Dong, so that the impact of any Dong devaluation can be contained easily. The third most important selection criterion is foreign ? rms’ experience in international projects. As Vietnamese construction companies are not involved in many international projects, collaborating with a foreign company with such experience will enable them to learn from their partners. This relates to their thirst for updated knowledge. Having international experience also assures Vietnamese partners that the foreign ? rm has experience in cross-cultural encounters, which must be properly managed to achieve a successful collaboration Ling et al. 2007 . Foreign interviewees stressed he importance of expatriate staff to learn Vietnamese culture. The implication for foreign A/E/C ? rms is that to make themselves desirable JV partners, they must have prior experience in international projects, and not use Vietnam as a test bed for their internationalization efforts. It is recommended that foreign ? rms evaluate themselves against the selection criteria listed in Table 7, and if necessary acquire the necessary experience, expertise and capital to make themselves more likely to be selected by Vietnamese A/E/C ? rms for their ventures in Vietnam. This study does not recommend that foreign ? rms JV with state owned companies. The interviewees shared that these ? ms lacked competitiveness and are inef? cient. Moreover, they need to undergo reorganization ? rst see Table 6 . However, since the central government and provincial authorities are major customers for large projects Luu et al. 2008 , foreign ? rms should maintain good relationships and connections with higher local government of? cials and local power sources in order to win more projects. The interviewees shared that bribery and corruption are present in the construction industry. Vietnam scored 2. 6 out of 10 0 = high level and 10= low level of perceived corruption on perceived public sector corruption, placing it 123rd among 180 countries Transparency International 2007 .An example of public sector corruption is that millions of dollars of foreign aid earmarked for construction projects were misappropriated by corrupt Transport Ministry of? cials Asia Times Online 2006 . Long et al. 2004 also found fraudulent practices and kickbacks exist in Vietnam’s construction industry. It is recommended that foreign ? rms be mindful of corruption and set up surveillance systems to curb wasteful spending. Foreign interviewees recommended that foreigners should undertake commercially viable private projects rather than government projects as there is less corruption in these projects. They should develop contingency plans to deal with corruption and bribery. ConclusionsWith the Vietnam’s construction industry opening to foreign ? rms, it is crucial for Vietnamese ? rms to understand their own strengths and weaknesses in competing with new foreign entrants, and recognize the opportunities and threats associated with its competitive environment. The research method adopted was based on questionnaire survey. Participants in this research were randomly selected local and foreign A/E/C ? rms operating in Vietnam. In-depth interviews were carried out with 25 and 12 construction industry practitioners working in local and foreign A/E/C ? rms, respectively. Their rich working experience gave insights into the current position on local and foreign A/E/C ? ms after Vietnam’s entry into the WTO. This research contributed to knowledge by uncovering the SWOT for Vietnamese A/E/C ? rms. The main strengths are familiarity with local cultures and industry practices and labor advantages. The weaknesses include lack of strong ? nancial capacity and project management ability. Opportunities for Vietnamese A/E/C ? rms include higher construction volume, learning and acquiring advanced design and construction technology from foreigners. Threats include reduced market share and having to compete with foreign ? rms that are stronger. The study reveals that foreign ? rms are perceived to be stronger than Vietnamese ? rms in terms of ? ancial capacity, design and construction technology, project management ability, and experience in complex projects. In the new competitive environment, it is found that the Vietnamese ? rms would want to restructure their organizations, invest in R&D and form JVs with foreign ? rms. They are particularly keen on cooperating with foreign ? rms that possess unique strengths which local ones are lacking of, which are advanced design and construction technology and strong ? nancial capacity. To respond to Vietnamese ? rms’ actions, it is recommended that foreign A/E/C ? rms that are planning to enter Vietnam form JVs with strong and reputable local private ? ms and focus on working in commercially viable private sector projects that are likely to have less corruption taking place. The qualities needed to be a desirable JV partner to locals are found in Table 7. Foreign A/E/C ? rms should be vigilant against corruption, waste, and substandard quality output. Surveillance systems should be in place to manage these. Foreign ? rms should offer niche products and services and be involved in complex and specialized projects which locals do not have the design and technological capability. Income should be priced in a stable currency USD or Euro to minimize problems if the local currency is devalued. Foreign A/E/C ? ms should familiarize themselves with the local environment and train locals engaged in the projects in project management. The practical ? ndings serve as a guide to Vietnamese ? rms and 1112 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / OCTOBER 2009 J. Constr. Eng. Manage. 2009. 135:1105-1113. Downloaded from ascelibrary. org by CITY UNIVERSITY OF HONG KONG on 07/03/13. Copyright ASCE. For personal use only; all rights reserved. boost their awareness of new challenges in their environment and allow them to be better prepared. The ? ndings are also useful to foreign ? rms. As shown from the study, the factors that Vietnamese ? ms consider when they are seeking for potential foreign partners are clearly identi? ed. These are valuable to foreign ? rms who are considering venturing into Vietnam’s construction industry. One limitation of this study is the small sample size. Therefore, the ? ndings might not truly represent the real situation of Vietnam’s construction industry or the perceptions of all A/E/C ? rms. Another limitation is that with constant development of the Vietnamese construction industry, the competitive strategies to be adopted by domestic and foreign ? rms may gradually change over time. Therefore, the study may only re? ect a short to medium term view.

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